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Global biofuel mandates are impacting commodities markets across the world. And these laws and regulations will likely shift even more toward...
Japan is making waves in the sustainable aviation fuels sector with its proposed new regulation that aims to achieve a 10% SAF mandate for international flights out of Japanese airports by 2030. The target aligns with global companies’ commitment to the Clean Skies for Tomorrow Initiative.
With dire warnings from the IPCC to keep global temperature from rising above 1.5°C before it’s too late, this announcement reflects a major push toward achieving critical climate goals.
Japan’s Ministry of Economy, Trade, and Industry (METI) has developed a proposal for a 10% SAF requirement for international flights out of all Japanese airports. The same mandate will also apply to Japanese airlines offering international flights.
The proposal will be presented to a council comprised of energy professionals from public and private sectors. The plan includes amending Japan’s Energy Supply Structure Upgrading Law to incorporate the 10% mandate, with a target completion date of March 2024.
Beyond the airplanes themselves, the regulation also encompasses oil wholesalers, who will be required to meet the 10% SAF threshold for all international flight fuel supplies. Noncompliant companies may face fines or other penalties imposed by METI.
This shift in Japan will lead to several major improvements in carbon emissions within the aviation industry. The 10% SAF mandate in Japan equates to approximately 1.7 million kiloliters of SAF annually. Given that SAF can lower emissions by an average of 80–90%, the cumulative carbon savings will be substantial in the years to come.
According to data from the International Energy Agency (IEA), global aviation emitted around 720 million tons of CO2 in 2021. A 10% reduction in that figure translates to conserving 72 million tons of carbon emissions.
As the industry scales up the adoption and usage of sustainable aviation fuels, these numbers will only continue to grow. This highlights the significant impact of Japan’s mandate on achieving climate goals.
To put things in perspective, the aviation industry reflects around 2% of total global carbon emissions. Although that number sounds small, we already saw that it equates to hundreds of millions of tons of CO2 saved. While the 10% mandate is a positive step towards decarbonizing the aviation industry, there are additional challenges to achieving broader carbon reduction goals.
However, according to the IEA, aviation is not quite “on track” yet to meet broader carbon reduction goals. Part of the problem comes thanks to the overall operation of aircraft and the equipment that runs them.
The overall operation of aircraft and related equipment contributes to emissions even if SAF is fully adopted. These emissions account for 10–30% of the industry’s current levels, indicating the need for further work in transitioning to renewables.
The increased demand for SAF will also lead to a surge in feedstock, which can have adverse effects on ecosystems. The changes could counteract the benefits of renewable fuels.
To put it more simply, the aviation industry will begin demanding increasing amounts of SAF. To meet that demand, various production of biofuel materials will need to take place. In some cases, that could mean forcing out other carbon sequestration sources to make room for SAF feedstock growth.
One example of this is the conversion of forests into agriculture land to grow the necessary crops to produce fuel. Cases may occur where the carbon cost of eliminating a forest could be greater than potential carbon savings of growing crops for sustainable biofuels.
Fortunately, the renewables industry does account for this potential risk. These consideration, known as indirect land of use change (ILUC), play a significant role in determining the sustainability of the fuel.
The amount of carbon difference in these conversions is also frequently denoted as a carbon intensity (CI) score, with lower scores indicating a lower net carbon offset benefit. Depending on the region in which the fuel is produced, ILUC plays a significant role in the ultimate value of the fuel.
Prima Markets’ latest edition of its Carbon Mitigator Report discusses this challenge directly. Despite the projected popularity of crop-based SAF, limitations may arise in the face of land use restrictions.
An excerpt from the report explains the US market movements for ethanol-based alcohol to jet fuel (ATJ) adoption to meet SAF demand:
Crop-based SAF has its limitations both from a quantitative element as well as qualitative. On the revenue side, crop fuels have lower carbon intensity (CI) scores due to indirect land use change (ILUC) factors. This will impact the revenue the SAF can generate in the US, particularly from 2025 onwards, when the renewable fuel production credit is introduced.
US calculation for tax credits places a heavy penalty on fuels with a low CI score. This does not mean that crop-based SAF fuels will be overly punished, as there are ways to reduce CI scores in the supply chain. For example, many ethanol plants are looking at integrating carbon capture technologies to bring down the carbon intensity of their feedstock to the ATJ process. Carbon capture means the new mechanism will then reward these plants better.
Using crops as a feedstock for SAF will limit any potential arbitrage opportunities that can arise in the SAF market, particularly given the disjointed nature of policymaking between different regions globally. One potential key market, Europe, will be completely cut off from this pathway.
Alcohol to jet fuel shows one way crop-based feedstocks will meet increased demand for SAF. In the earlier stages of carbon transition, however, competing interests can create very real concerns.
From Japan’s perspective, SAF demand will skyrocket in the next few years so that companies can meet the new mandate regulations. And energy plants will need to find the materials necessary to meet that demand—or face steep financial penalties.
At this stage, we have two objectives at play:
For the most part, the first objective will support the achievement of the second objective. But in these crunch periods to reach regulatory requirements, careful consideration must be given to how we meet compliance standards without losing sight of related sustainability goals. Otherwise, companies may adopt an “end justifies the means” approach.
Let’s look at a case study to highlight what’s at stake. Imagine Energy Company X is facing financial peril because ILUC regulations are lowering its feedstock’s CI score. The company needs to meet mandate goals to remain in compliance but is having trouble accomplishing this as many other companies are competing to acquire the same feedstocks.
To stay in compliance, Energy Company X decides to source from South America. Suppose that some exploitative land use laws in South American regions mean that the feedstocks produced there come at a grave cost for the rainforest ecosystem and carbon storage.
In this case, the company’s drive to meet short-term mandate requirements could lead to poor environmental and sustainability outcomes. It would completely undermine the entire purpose of transitioning to SAF.
Addressing challenges like these is crucial to ensure that the pursuit of short-term mandate requirements does not compromise environmental sustainability objectives. It is essential for energy producers to maintain their focus on the broader goal of decarbonization while meeting immediate compliance needs.
Global mandates will undoubtedly drive up the demand for feedstocks used in renewable biofuel production. However, there may be pain points between production limits and the actual carbon offset benefits.
Despite these challenges, announcements such as Japan’s represent significant progress in the worldwide shift toward climate change mitigation. These mandates are not merely symbolic; the are real-world regulations that will bring about tangible changes in carbon output.
It is expected that more countries and organizations will follow suit, transitioning from well-meaning promises to actionable policies. This collective effort is crucial for making substantial strides toward decarbonization and securing a brighter future for all.
Japan’s latest announcement underscores the rapid shift toward sustainable alternatives in the global marketplace. As global biofuel mandates continue to emerge and expand in scope, understanding their impact on international markets is vital.
Prima Markets, a ResourceWise company, provides an all-in-one solution to this issue with our online analytics platform, Prima CarbonZero.
Our Global Biofuel Mandates section offers an interactive map that displays all current mandates impacting major global markets. The mandates are updated in real-time based on the current market news. Users can access specific data and details for each region, compare them, and even export or print them for convenience.
In addition to the global mandates, Prima’s Carbon Mitigator Report offers expert perspectives on the news and trends shaping the low-carbon fuels and feedstocks industry. This fair and transparent report enables users to compare the benefits and costs of various decarbonized fuels and technologies. With unbiased, real-world data, organizations can identify decarbonization opportunities and make well-informed, strategic decisions for their business.
The Global Biofuels Mandate and Carbon Mitigator Report are only available with Prima CarbonZero.
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