Climate Action 100+, the largest global investor engagement initiative on climate change, has set out how it believes the aviation industry will need to align with the International Energy Agency’s (IEA) net zero emissions by 2050 transition to keep 1.5°C within reach. A report by the initiative concludes that not only will a substantial and rapid scale-up of sustainable aviation fuels be required but also that growth in air travel will need to be curtailed. Under the IEA’s 1.5°C scenario, 16% of the aviation sector’s energy consumption – compared with 0.1% in 2020 – will need to come from advanced biofuels by 2030, and a further 2% from synthetic fuels. Alongside this ramp up, the scenario foresees action in three priority demand management areas: keeping business travel to 2019 levels, capping long-haul flights of more than six hours for leisure reasons at 2019 levels and shifting demand to high-speed rail where possible. Climate Action 100+ involves more than 615 investors responsible for over $65 trillion in assets under management. Investor signatories are focused on ensuring 166 of the world’s biggest corporate GHG emitters take the necessary actions to align their business strategies with Paris goals. This includes improving corporate governance, reducing GHG emissions and strengthening climate-related financial disclosures.
Launched in 2017, Climate Action 100+ is coordinated by five investor networks, including the UN-supported Principles for Responsible Investment (PRI), which is leading the initiative’s Aviation Sector Strategy workstream and produced the report in cooperation with corporate sustainability performance advisers Chronos Sustainability. Launched in New York in 2006, PRI has grown to more than 4,000 signatories, managing over $121 trillion in assets under management.
“The report shows the scale of what is needed for the aviation industry’s transition to net zero and highlights that the sector needs to take strong, decisive action now,” commented Ben Pincombe, PRI’s Head of Stewardship for Climate Change.
The purpose of the ‘Investor actions to align the aviation sector with the IEA’s 1.5°C decarbonisation pathway’ report, says PRI, is to specify the actions that investors, aviation companies and the sector as a whole need to take to accelerate the transition to net zero. These actions are drawn from a roadmap for the global energy sector, including transport, published in an IEA report in 2021. In parallel, aviation industry bodies IATA and ATAG have published their own roadmaps to achieve the net zero by 2050 goal. PRI notes that these are less ambitious than the IEA 1.5°C pathway, particularly up to 2040, and rely on the future scale-up of SAF and carbon offsetting to a much greater extent. However, by 2050, the industry and IEA roadmaps are broadly aligned in that residual emissions (before offsets and Carbon Capture and Storage (CCS)) are in a similar range.
Under the IEA 1.5°C pathway for aviation, emissions need to have peaked in 2025 and by 2030 need to be 23% lower than the pre-pandemic 2019 level. Emissions will be required to fall by 80% between 2019 and 2050, leading to residual emissions of around 225 MtCO2 in 2050 that will need to be covered by carbon captured during the production of biofuels (BECCS) and by Direct Air Capture combined with Carbon Storage (DACCS).
The IEA decarbonisation pathway has five key implications for the aviation sector, says the PRI report:
- SAFs play an essential role in delivering 1.5°C alignment and will require a massive scale-up from current levels. Airlines and the sector as a whole will need to set clear interim targets for the adoption of SAF and outline their plans for achieving them. Investors will need to carefully scrutinise progress towards those targets. Should the sector fail to meet their SAF targets, it will need to take stronger demand management measures in order to reach 1.5°C.
- Significant investment is required to scale up SAF and to develop other new technologies. IATA estimates that $2 trillion in investment will be required up to 2050 for the aviation sector to reach net zero emissions by that date. This includes between $1 trillion and $1.4 trillion for SAF alone, which annualised is equivalent to around 6% of oil and gas capital expenditure, according to consultancy ICF. This increase in investment will have to be supported by clear government policy strategies and measures – ideally coming into force by 2025 – to provide the necessary certainty for investors and companies in the sector.
- Demand management is critical in achieving the 1.5°C pathway as SAF and new technologies are not sufficient to achieve the deep emissions reductions required by 2050. By focusing on the three priority areas mentioned above, emissions could be half of what they would otherwise be, while affecting only 12% of flights. Demand management will present challenges for the aviation sector and investors, says the report, “nonetheless, it is vital that it now becomes a core part of the discussion.”
- Aviation companies cannot use carbon offsetting to align with the pathway and must make actual reductions in emissions rather than relying on offsetting or CCS to meet their climate targets.
- In addition to absolute emissions targets, carbon intensity metrics are needed for company carbon performance assessment and comparability. Aviation companies should set interim and long-term carbon intensity targets that are aligned with the pathway, which would allow investors to understand more fully whether a company’s climate targets are ambitious enough and whether it is making sufficient progress on decarbonising its business. Alongside this, carbon reporting in the sector, particularly around carbon intensity, will need to be standardised to ensure that it is sufficiently rigorous and comparable.
Investors have a key role to play in accelerating aviation’s transition to net zero and they should engage with airlines, aircraft and engine manufacturers, companies in other sectors (including fuel suppliers and corporate customers of airlines) and policymakers to scale up SAF, says the report. It recommends investors:
- Ensure airlines make the necessary commitments to scale up SAF;
- Call on airlines and fuel companies to ensure the sustainability of the SAF they use or produce;
- Call on aircraft and engine manufacturers to indicate how they are supporting the scale-up of the SAF market;
- Call on companies in the oil and gas sector to invest in increasing the supply of SAF;
- Call on companies in other sectors to source SAF for business travel or cargo (and therefore reduce their Scope 3 emissions); and
- Engage directly with policymakers to help accelerate policy measures that would support the aviation sector in scaling up SAF.
The report also encourages investors to engage with companies and policymakers to accelerate investment in SAF, alternative propulsion technologies such as electric and hydrogen and technologies that improve fuel efficiency, and perhaps invest directly in decarbonisation technologies. It calls on airlines and OEMs to explicitly commit to align annual capital expenditures with their long-term GHG reduction targets and with the Paris climate objectives. Other recommendations to investors include engaging with aviation companies and industry bodies on their traffic growth plans and demand management scenarios. They should also call on aviation companies to:
- Set out how they are addressing the risks associated with the increased emphasis on demand management by regulators;
- Disclose how they are lobbying on demand-related policies, both directly and indirectly;
- Disclose their assumptions around growth in demand (by market segment, including business and long-haul) and specify how these assumptions interact with their SAF targets;
- Disclose how they are working with ATAG and IATA to assess and manage the risk of overall traffic growth for the sector being higher than that assumed in the industry roadmaps (of 3%), and how industry is mitigating the risk of not aligning with a 1.5°C pathway; and
- Adopt consumer facing transparency tools supporting customers to make more sustainable decisions, for example by disclosing the carbon footprint of flights and seat classes.
“The industry holds its future in its own hands. As noted in the report, the amount of demand management required depends on the rate and scale of SAF rollout in the short-term, alongside well thought through technology deployment,” said Pincombe.
“If the sector fails to respond effectively, it is likely to face significant and rapid regulatory tightening, and ever greater scrutiny and challenge from capital markets.”
The IEA 1.5°C decarbonisation pathway for aviation: