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SHARFSINN/SHUTTERSTOCK.COM
Otherwise known as Sustainable Aviation Fuel, SAF is part of the promised low-carbon fuels future. SAF has similar chemistry and properties to conventional jet fuel, but it is produced from sustainable sources like biomass or waste materials. Depending on the feedstock and technologies selected, it can reduce lifecycle greenhouse gas (GHG) emissions up to 80 percent when compared to conventional jet fuel.
SAF’s lower carbon intensity makes it a relevant solution for reducing aviation GHG emissions. According to the International Energy Agency (IEA), aviation accounted for more than 2 percent of the global CO2 emissions in 2021. Air travel is expected to double by 2050, and jet fuel consumption could account for 8-12 percent of transportation emissions.
Since the Paris Agreement pledges to limit global temperature increases to 2°C, with pursuits to limit the increase even further to 1.5°C, multiple initiatives are being considered. As a result, the use of SAF became a crucial strategy for the aviation sector, given the status of technology and the possibility to use it as a drop-in fuel.
But good intentions are simply intentions if the reality isn’t feasible.
UPTICKS IN INITIATIVES FOR SAF USAGE
Associations and governments are seriously investing in strategies to make SAF technologically and economically feasible. The International Air Transport Association (IATA), representing 83 percent of total air traffic, has committed to achieving Net Zero Carbon by 2050. Airlines like KLM, Southwest, and United Airlines have publicly announced their initiatives on SAF usage as well. European Union’s “Fit for 55” package proposes a 2 percent SAF blending mandate by 2025, 5 percent by 2030, and 63 percent by 2050.
In the United States, the current administration ran on a hardline stance against expanding fossil energy use. For aviation, they issued a “Grand Challenge” of producing 3 billion gallons (11.3 billion liters) of SAF by 2030. To put this segment into perspective, the US current annual consumption is:
- 123 billion gallons (465 billion liters) of gasoline
- 15 billion gallons (57 billion liters) of ethanol
- 64 billion gallons (242 billion liters) of diesel
- 4 billion gallons (15 billion liters) of biodiesel/renewable diesel
- 24 billion gallons (93 billion liters) of jet fuel
The US SAF production was 4.5 million gallons (17 million liters) in 2021, increasing to more than 12 million gallons in 2022 (45 million liters). Accordingly, we can expect substantial investments in infrastructure and technology development in the coming years.
Globally, SAF production reached more than 79 million gallons (300 million liters) in 2022. The International Civil Aviation Organization (ICAO) reports about 10 billion gallons (39.9 billion liters) of SAF under offtake agreements.
As SAF is not competitive with traditional jet fuel pricing, actions to remove financial obstacles are in the works. One example of such solutions are the tax credits described in the US Inflation Reduction Act (IRA):
- A US$1.25-US$1.75 per gallon credit is available for each gallon of SAF sold as part of a qualified fuel mixture, if the SAF has a demonstrated lifecycle GHG reduction of at least 50 percent compared to conventional jet fuel.
- The second tax credit will offer up to US$1.75/gallon rebate for producers of fuels with a 100 percent GHG emissions reduction compared to fossil fuels.
HOW DO SAFS IMPACT THE PULP AND PAPER INDUSTRY?
With the expected increase in demand, producers of SAF need to find suitable and affordable feedstocks in sufficient quantities. It is a consensus among producers that feedstock diversification is vital.
Current technologies tend to focus on organic waste, vegetable oil, and novel crops. However, woody biomass, forestry residues, and other feedstocks are already being considered for scaling up production.
With the increase of SAF (and other biofuels) capacity in the future, availability and pricing of biomass used by the P&P industry could be impacted. At the same time, many facilities could have the opportunity to transition into biorefineries—manufacturing biofuels and other bioproducts in addition to traditional pulp and paper products.
Some questions that arise from the increased popularity of SAF and other biofuels include:
- What will the impact be on pulp producers’ raw material availability and pricing?
- Will there be a new market for selling waste wood and wood-based by-products?
- With far more capital flowing into renewable fuels, could sustainable aviation fuel create risks or opportunities for P&P companies worldwide?
One opportunity that arises is the newly increased demand for crude tall oil (CTO) as a raw material required for SAF. In fact, CTO is one of the very few readily available feedstocks that qualify under the Annex IX A of the European RED II mandate and the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA). Both were implemented to increase the use of sustainable aviation fuel in the US and Europe.
The expansion and diversification of waste-based or circular economy feedstocks, such as tall oil, is essential to achieve the ambitious decarbonization goals of the aviation industry as well as other markets. Together with demand for low-carbon fuels from global multi-nationals, it’s expected that CTO is entering a new market dynamic.
A BREAKDOWN OF CTO AND ITS FRACTIONS
CTO is a byproduct derived from the pulp and paper industry’s black liquor/tall oil soap during kraft pulp production, composed of fatty acids, rosins, and other neutral materials. Historically, CTO has been a minor source of revenue or concern for pulp and paper companies. However, that is quickly changing as prices have risen rapidly over the past year—driven by supply disruptions and, more importantly, new demand willing to pay a premium for the product.
CTO, a brownish-yellow oily liquid, is often purchased by refiners and further refined into different fractions, such as:
- Tall oil fatty acid (TOFA)
- Tall oil rosin (TOR)
- Distilled tall oil (DTO)
- Pitch
CTO and its fractions are used in a wide variety of applications, such as adhesives, inks, detergents, and emulsifiers. Between 30 and 50 kg of CTO/t of pulp may be recovered from highly resinous species—such as southern pines—representing about 30—70 percent recovery.
CTO’S CURRENT POSITION IN THE P&P INDUSTRY
Why is this important to players in the pulp and paper industry? We’ve found that many companies lack a general understanding of CTO, its uses and, importantly, the factors that determine its price. Given the speed at which the markets are moving, we believe it’s vital for kraft pulp mills to rapidly acquire the information needed to maximize opportunities CTO offers.
According to FisherSolve, there are currently 187 mills extracting tall oil. Because prices have been historically lower, and due to the differences in yield and quality by wood species, not all pulp mills produce crude tall oil. However, as mentioned earlier, increased interest in using CTO to produce biofuels has heated up the tall oil market.
As there are a finite number of pulp mills in operation, the CTO supply is currently constrained and will be mostly price inelastic. The geopolitical situation with the Russia-Ukraine war has also created ongoing supply chain disruptions in Europe, placing further strains on CTO availability for traditional pine chemical applications.
In the upcoming years, it’s imperative for pulp and paper producers to possess a strong understanding of the SAF and CTO markets as these two crucial domains are set to generate high-stake opportunities for the industry.
