The Allplane Podcast #141: ETS, CORSIA and SAF with IATA’s Chief Economist, Marie Owens Thomsen
Marie Owens Thomsen, Chief Economist and SVP Sustainability at the International Air Transport Association (IATA), has emerged as one of the most outspoken voices in the aviation decarbonization debate.
In fact, the timing of this conversation could hardly be more fitting: on 17 July 2026, the European Commission published its long-awaited proposal to revise the EU Emissions Trading System.
This proposal envisages and extension of the current ETS to include international flights arriving in Europe from destinations within 5,000 km starting in 2029, alongside other measuress concerning SAF uptake, contrail-related non-CO2 effects and private jets.
I must say that our conversation with Marie preceded the publication of this new ETS proposal by a few weeks, so, some of its elements may require a revised assessment. However, I think most of what we talk about remains current in broad terms.
Is the European Emissions Trading System (ETS) fit for purpose? Are the EU's current sustainable aviation fuel (SAF) mandates fit for purpose? Are airlines carrying a fair share of the decarbonization cost burden?
These are some of the questions Marie addresses regularly at industry conferences, and that we discuss in depth in today's episode. As a preview: while agreeing with the Net Zero 2050 goal, Marie - and IATA for that matter - believes the current regulatory framework in Europe is badly designed and fails to account for the dynamics of both the aviation and energy industries.
True, IATA is not an impartial actor in this discussion, as it obviously represents the interests of its member airlines.
But as the main target of these regulations, airlines are certainly entitled to have their voice heard, if only because, with an average profit margin that has never exceeded the low single digits, any poorly designed regulation can seriously damage an industry that is, after all, one of the pillars of global economic growth and an and an enabler of trade, tourism, human connection, and all sort of other opportunities.
IATA has made its case with figures and studies, yet it's often Marie's sharp commentary that often drives IATA’s point home.
It is illustrative that this conversation was, in fact, originally planned to last around 45 minutes, but the topic has so many consequential angles that we ended up talking for considerably longer, discussing what could realistically be done to ensure the airline industry meets its environmental commitments without putting its future in jeopardy.
So tune in for a fascinating conversation about sustainability, environmental regulation and what these mean for airlines with IATA's Chief Economist, Marie Owens Thomsen!
Things we talk about in this episode
Marie’s professional background
Will be airline industry fulfill its Net Zero 2050 pledge?
Are SAF mandates realistic?
IATA’s position when it comes to the EU’s SAF mandates
Is CORSIA being undermined and how relevant it still is?
What should regulators do to increase SAF usage
Resources
How does the EU’s Emissions Trading System (ETS) work
The EU’s ETS update proposal, as presented on 17th July 2026
How does ICAO’s CORSIA work?
Willie Walsh comments during the 82nd IATA AGM criticizing the current regulatory framework
Marie’s and Willie Walsh’ comments about the EU’s SAF mandates in December 2025
Our 2023 podcast episode with Hemant Mistry, Director of Energy Transition at IATA
Podcast Music: Five Armies by Kevin MacLeod
Link: https://incompetech.filmmusic.io/song/3762-five-armies
License: http://creativecommons.org/licenses/by/4.0/
Interview Transcript:
(please note that, although we strive to make it as close as possible to the original recording, the transcript may not be 100% accurate)
- Hello, Marie. How are you?
- I am great. How are you?
- Very well. It's great to see you again. We coincided at the IATA AGM just a couple of weeks ago in beautiful Rio de Janeiro, and I've been listening to your presentations for quite some time. I think you are one of the most articulate speakers in the field of aviation, so it's a great honor to have you here today on the podcast to talk about quite a few important topics in this industry.
- Great to be with you, and I've been told by my friends never to argue with a compliment, so thank you very much.
- A very well-founded compliment, I think. Well, first of all, let me introduce you briefly. You are the chief economist at IATA, which is the main airline association in the world, and you are also the VP for sustainability. So you know pretty much all the numbers that are relevant for the debate about sustainability in aviation, the policies that are being implemented, and everything that is being done to try to get to net zero by 2050, something which is very important on a number of levels, financial, operational, etc. But before we get into this, I would like to ask you to briefly introduce yourself, tell us a bit about your background and how you ended up being the chief economist at IATA.
- Fabulous question, thank you. So I am an economist, and I've worked as an economist most of my life in various banks, for maybe three decades. And although the banking industry has been fascinating over all of these decades, with many interesting things to analyze, such as the creation of the euro, for instance, I came to the point where I really wanted to have a different experience. And then I was kindly rescued by IATA, who gave me the opportunity to shoulder this responsibility. I really wanted to do this, because I believe that air transport is one of the unique contributors to economic development in today's world. It's really a policy tool, in my opinion. And as an economist, I want the world to be a better place, and everybody in it to have better welfare outcomes. So that is definitely what primarily motivates me to come to work on a daily basis. And then I'm obviously also motivated by the welfare of the airlines themselves.
- Yeah, indeed. I remember you once saying, possibly at one of the IATA conferences, that aviation is the business of freedom, because it enables people to move around, and this creates lots of opportunities for business, but also on a personal level. So, what's the current landscape when it comes to aviation? It's now been about five years since the big shock of the COVID pandemic, when it seemed it was going to be the end of the world, or at least the end of the aviation industry as we know it. But actually, the industry has bounced back pretty strongly, and we are back on a strong growth trajectory. Just to set the stage a little, what can you tell us about why this growth is also important to take into account when we talk about sustainability and the challenges ahead?
- Yeah, that's an interesting way of asking that question. For sure, we're now transporting about 5 billion passengers per year. That's a pretty large number. Obviously, many of them are the same people doing several trips in the year, but nevertheless, it's a large number. And I think that this persistent and enduring demand for air transportation really illustrates that this is not a luxury; it's a necessity. Sometimes I think it's useful to compare it with the watch industry. The IATA head office is in Geneva, in Switzerland, where a lot of watches are made, and almost everybody in the world, arguably, has a watch, right? But very few people have a Swiss watch. So the luxury element of the industry is very small, but the usefulness of watches in general is huge. It's very difficult for people to function if they can't tell the time, and I think it's equally very difficult for people to function if they can't fly. When people argue against that, it tends to be, quite frankly, a European perspective, where distances are short and there are maybe ample alternatives. But think about any other continent: Africa, Asia, Australia, South America, and quite frankly anywhere. Even in a country like Norway, or Switzerland indeed, with lots of mountains in the way, air transport is just a phenomenal contributor to growth, at any level, for any country, at all times and in all dimensions.
- But as you said, it's an industry that is so important, and at the same time it's been questioned a lot on account of its sustainability record. And I think one topic that recurs on IATA's side is that there are lots of obligations and commitments imposed on the airline industry, while some elements are possibly beyond the control of aviation. It's a basic industry that underpins much of the economic activity, but at the same time it's been cast as a bit of the bad guy in the story, right? I think we all want industries to pollute less, but we also want growth to continue. So how do you balance these two? There's lots of pressure on airlines, but airlines are just part of a bigger ecosystem.
- Yeah. Well, maybe it's because I'm a macroeconomist, but it's sort of surprising to me that people even have that kind of industry-by-industry thinking. So I would again anchor the conversation in what we really want in this world. What we really want is obviously for more growth to be possible, for more people to be pulled out of poverty, and for everybody to have better welfare outcomes. And we want every industry to be able to contribute to that to the fullest extent possible, and to deliver that contribution sustainably. That frames the whole debate in a very different light. It can't be about my emissions against your emissions, and you're worse than I am, or I'm better than you are. That's like a schoolyard squabble, right? What really has to matter is how we can make it possible for everybody to do all of these important activities sustainably. And when we put it like that, we understand that we have to produce more renewable energy for everybody, and we will use some of that renewable energy to make renewable fuel for those who need a liquid fuel, and then some of that liquid fuel should be sustainable aviation fuel for the airline industry, obviously, because as long as we're flying with jet engines, we're going to need a liquid fuel to combust. Maybe one day, we don't know, but it could be possible that the world invents another form of propulsion.
- I would like to delve into the SAF topic a bit later, but first I would like to look at the macro level. The industry committed to net zero by 2050. At the recent AGM, for example, the outgoing Director General of IATA said that this goal was a bit in jeopardy right now: still feasible, but becoming increasingly difficult if certain actions were not undertaken. I think there are some estimates of the cost of this transition that run into the trillions of dollars. What can you tell us about the current situation of the airline industry when it comes to transitioning to net zero? Is it still feasible? What would it take? And what do we do about this cost? Because the industry operates on really low margins. I think it's something like a 2% margin, which is very low compared to other industries. So what can be done?
- Yeah. Well, it's not for me to correct our Director General, of course, but I would take a bit of issue with the formulation "this is still feasible". If we're looking at this from the technical point of view of energy production, it is 100% feasible today to reach a 5% SAF blend. In theory, technically, this could be done today, so to speak. I also realize that it's not going to happen, so this is not a forecast. But the reason I'm saying this with so much conviction and certainty is that there is today a technical limit imposed on the refinery industry, which says that they could co-process up to 5% of their fuel output. This means that they would use a liquid input of biological origin, such as used cooking oil, and put that into the refinery together with their barrel of oil, and co-process. So instead of using 100% oil, they can use 95% oil and 5% of some other feedstock, as we call these ingredients, and boom, you have a 5% SAF blend. So it's technically feasible, and it's so mesmerizing why this is not being done. Now, I think there are obviously bottlenecks everywhere, as is normal for a teeny tiny little baby market. It's not even a market yet. It's a collection of deals that happen once in a while, and the deals are private, and we don't really know the price. I don't know how to make it clearer that this is not a proper market. It's a collection of bespoke deals. So when you're operating in that environment, everything is difficult and everything is challenging, and I have great sympathy for everybody who's trying. But the underlying fundamental difficulty, in my mind, is clear: there's a risk-return question. Investors will always operate by comparing risk and return. High risk, high return is fine. That's the whole AI space today. Investors are piling in, and they don't mind the high risk, because they think they're going to earn buckets of money on that investment. Low risk, low return is actually fine as well. That's the whole institutional investor space, insurance companies, pension funds and so on. They like low risk, low return. And SAF unfortunately sits in the middle, with high risk and low return, and nobody likes that. So this is why we need help from governments and others to make it attractive for investors to participate. I would want to transform the SAF market into a low-risk, low-return market. I think that would be perfect. And we need to separate it from the oil market and stop pricing SAF over oil, because these two things have nothing to do with each other.
- Yeah, actually, I wanted to ask you about this, because it's obviously a much smaller market than the gigantic oil market, which dwarfs not just aviation but many other industries in terms of capex investment and the amount of money it moves every day. But why is it high risk, low return, if there is a need? A need which is maybe partly artificial, because in places like Europe it comes from mandates. But in theory, these mandates ensure a certain level of demand, and at the same time there used to be, and I think it's being adjusted now, a huge gap between demand and the available supply, which is still very small. Wouldn't this remove part of the risk and, at the same time, ensure a decent return, because of this very tight supply-demand gap?
- That's obviously a very vast question. But first of all, the mandates. That's really starting at the end of the chain, right? As a politician, you're saying: I mandate you to produce this thing, or to buy this thing, depending on how the mandate is constructed. Anyway, you must do this. And then the politicians go away and seemingly think that supply chains and feedstock and all of the ingredients that you need to make it are just going to spontaneously self-assemble. That's just fairy-tale stuff. Maybe if you have a magic wand and you're Harry Potter, that might work, but otherwise it clearly doesn't, which is why we still don't see any more production volumes. You cannot mandate a product that doesn't exist, and even when it exists in teeny tiny volumes, it's not a good idea to use mandates, because the only thing that happens is that you drive up the price. This is what happens with supply and demand. You force the demand, you don't have any supply, and Economics 101 teaches you that the price will go up. And this is 100% what's happened in Europe and in the UK with the mandates. So what kind of policy result do we have then? We have a situation where production hasn't increased, airlines are paying more for their fuel, and we are not reducing CO2 emissions. That is clearly a policy error, and it must be corrected. Instead of debating how to correct it, they are debating how they can impose more mandates on more markets, including the e-SAF market, where there's literally no supply. I don't know why I am laughing, because this is really quite a desperate situation. You have to start from the top: build the supply chains, fix the access to the inputs, make sure that everybody is connected and that we actually have production of the product. Then you can start thinking about stimulating demand. And this is exactly what happened with wind and solar. To the extent that mandates were used in the wind and solar markets, they were only used when the production of the things we needed, solar panels and wind turbines, was already happening. So it's very strange why today's policymakers seem reluctant to look at these earlier energy market creation experiences and learn from those lessons. Those policies were successful. We would love to have more, of course, but today we have a decent amount of wind and solar, and it is very cheap. So why are we insisting on doing it the other way around, and just making everything more expensive, and on top of it not cutting CO2 emissions? It's a real mystery.
- So from what you are telling me, I'm assuming you are more in favor of the carrot than the stick: providing incentives to increase the supply of SAF, rather than…
- Yeah, but it's not a two-policy-tool world. There are lots of policy tools that can be used, and they should be used to different extents, at different times, for different purposes. If we are talking about demand certainty, it is obviously interesting for the producer to have some kind of demand certainty. I am not denying that. If you're asking yourself, shall I build a SAF refinery, and you're talking to somebody who says, I promise you that I will take this amount of supply from your factory, that's obviously very useful for the producer, who can use such a contract to go and borrow money to make the investment a reality. But think about who is best placed to provide that demand guarantee in today's market, which is not a market. The answer has to be, obviously, the government. So why aren't governments themselves buying SAF and committing to buy SAF? They could commit to 20-year forward contracts with SAF producers, and they could buy SAF for their military use, and for all their civil service flights. I don't know exactly how big these numbers are, but I think all defense-related flying in the world could potentially amount to 50 million tons per year. And today, the total market size of SAF production is 2.4 million tons. So this chunk of public procurement for public use is huge, and it could really propel the market. I don't understand why governments aren't doing that. So you see, we're not asking anybody for any particular favors for the airlines. We're just looking at how the world should go about creating new energy markets. There's lots to learn from wind and solar, and lots of things that governments could and should do themselves, at no extra cost to them, in a sense.
- Yeah. I remember, for example, at the latest IATA AGM, Willie Walsh and yourself were talking about these price increases due to mandates that are not followed by enough supply. But wouldn't this ability to charge higher prices act as a price signal for energy operators to invest in more capacity? I know there might be a time lag until you can physically build this capacity, but wouldn't this act as a kind of delayed price mechanism, in an iterative way? At some point prices would go down again, demand would slacken, and then you would have higher prices again. I don't know why this mechanism is not fully working in this case.
- Again, there are so many parameters to why it's not working, but this is an administrative result. It's not a market-driven result, right? The regulator says you have to do this, or we will impose penalties on you. And then what the oil producers and suppliers do is say: ah, I might pay this penalty, so I'm going to add that amount to my conventional jet fuel sales to the airlines. That's actually what's happening: the airlines are paying this extra money on their conventional jet fuel purchases. I would expect everybody to be shocked when they hear that. They're not even procuring the SAF. What really should happen, of course, is that airlines go out to their fuel producers and suppliers and make a contract for a SAF purchase, and then they could actually claim the environmental benefits of that SAF purchase under whatever obligations are legally imposed upon them. But no, that's not at all what's happening. The mandate is put on the producer, and the producers and suppliers say to themselves: I'm not going to risk having to pay this penalty out of my own pocket. I'm going to pass it on to my customers, which happen to be the airlines. So airlines are now paying a higher price for fossil-based jet fuel, and they do not have certainty of obtaining any relevant documentation regarding the corresponding hypothetical SAF. And that's how we get this result, where the only thing we have produced is a higher price for jet fuel, uncertain CO2 emissions reductions, and no possible claiming guarantee for the airlines. So this is not a normal price signal resulting from a supply and demand market. It's a most regrettable administrative outcome of doing the wrong thing at the wrong time.
- So if we look at this topic of SAF and its availability from the point of view not just of aviation, but of the whole energy industry, how do the obligations placed on the airline industry compare to those of other sectors that also consume energy? And what's IATA's position when it comes to this energy transition? Is the airline industry getting a fair share of the sacrifice, or of the costs involved in this energy transition?
- I just really don't want to squabble about which industry is worth more to people in the world. I think air transport is obviously a very unique industry that offers benefits to everybody. I believe that air transport increases the productivity of every industry and every person that uses our services, and that's a very unique capability of air transport. But otherwise, I don't have any value attachment to any particular industry. Let's face it: over 80% of global energy consumption is satisfied using fossil fuels. So there's basically not an industry in the world that is not monopolistically dependent on the oil industry. I would rather say that I can't believe everybody is happy with that situation. As an economist, as a free-market economist, I should stress, my first objection is to monopolies. I believe that markets should be competitive. There should be lots of alternatives, people make rational choices, and we get well-functioning markets and the lowest cost for the product. Instead, the world has bizarrely made itself wholly dependent on oil and gas. And I think, if anything, this year's energy crisis shows us how dangerous that is. That's obviously not the way to run a global economy. So what we desperately need, for everybody, is more alternative energies, and this needs to start from the top, from the energy source. So wind, solar, nuclear, hydro, all kinds of renewable energy sources. And then they need to be transformed, in some cases through many processes, until they become a final energy product that corresponds to the needs of the user. There are all kinds of different users, and they all need different things. And the whole system needs to be able to adapt. Now we have AI and data centers, and they obviously have an equal right to satisfy their energy needs. I don't have a value judgment. I think all economic activities deserve to be supplied with a sustainable energy product. So it has to start from the top, and it has to be flexible enough to welcome newcomers. And of course, in our case, it means that we need a specific type of fuel because of the specific type of propulsion that airplanes use. Sustainable aviation fuel, or jet fuel in general, could be used by all kinds of propulsion systems, but it's just more expensive. So the other types of mobility that don't need the purity we need in airplanes will satisfy their needs with cheaper products, such as diesel or biodiesel.
- There's always this opportunity cost between biodiesel for land transport and making biogenic fuel for airlines. And…
- Yeah, this is a very good point that you're making, and I think most people are unaware of it. Any refinery, whether it's a biorefinery or a fossil-based refinery, has to make a bunch of products. It's not possible to make just one. That's physics. It cannot be done. So that's another reason why it's so insane to try to target SAF in isolation: it cannot be produced in isolation. It has to be produced together with other products. The percentages of those products in the output can vary within specific physical limits, but the larger products are always diesel and gasoline, whether it's fossil-based or bio-based. And diesel is for anybody who can use it, which is primarily road transportation. So I hope it now becomes clear to everybody that if we go 100% electric, in such an extreme case that nobody wants any diesel anymore, then nobody will produce SAF either. Because SAF is too small a product to make the refinery economically viable. So this is another reason why we have to think in terms of the system. How can we make refineries profitable? How can we make them make enough SAF for us, but also these other products for everybody else, and how can we make the whole thing work? It's another illustration of why it's erroneous to try to carve this up into little pieces and think it's possible to solve it one piece at a time. It is not. We have to look at the whole, and the ultimate objective has to be to enable people to do things, not to tell specific industries that they should stop existing. That's not how we maximize growth and welfare for everybody in the global economy.
- Would you say that the current European Union mandates are realistic? I know that at the AGM, for example, the topic came up of other countries trying to follow this model, and Willie Walsh was very categorical, saying: don't copy the approach.
- I think this is a very big threat: that somehow there's a desire on the part of the European Union to make everybody adopt their erroneous policies. It's like Brexit, in a sense. Of course, we can't stop countries from making suboptimal decisions for themselves. That's their sovereign right, and I guess that's how we can view the UK's decision to leave the European Union. But we should be able to stop countries from making other countries take the same suboptimal decisions. That we have to actively try to stop, and this is definitely a problem. How crazy is it that we're trying to mandate SAF when the product doesn't exist? Here's another analogy that might work. I don't know if you have kids and how old they are, but it's like giving your six-year-old a book and telling this young child to go into a room where they're alone and come out when they've learned how to read. That's obviously going to take a long time, without help. So this is what mandates are like.
- There's another instrument that governments have come up with to try to abate these emissions and get to net zero, and that's basically carbon credits. And here there are different schemes. The European Union has the ETS. Then there's CORSIA, which was established by ICAO, the United Nations aviation organization, and which has more of a global scope. Right now, there is a lot of debate in Europe about whether the ETS should be expanded to cover flights operated by non-European airlines coming from outside Europe, and there is strong political resistance to that, I think, from countries outside the European Union.
- Well, I hope so, because this is another completely incongruous policy, which is the nicest word I can think of for what they're trying to do in this domain. And there are many incongruities in this context. It's a total Alice in Wonderland kind of situation. The world decided that we needed to make airlines pay for their emissions. We agree. IATA is totally committed to achieving net zero by 2050, and this is one of the necessary tools to achieve that goal, so everybody's totally aligned. Now, the UN member states, the 193 of them, are also part of ICAO, the organization that governs aviation, and they negotiated for a large number of years over how this should be done for global civil aviation. In 2016, they said: we're going to do it this way, which is CORSIA. And there's a whole system for making sure that these carbon offsets, the credits, the eligible emissions units, as they're called, are credible and actually deliver certifiable emissions reductions. There are obviously many bureaucratic details in these negotiations, and just imagine how difficult it is to get all these countries to agree. So it's a phenomenal achievement that we got all of these countries to agree. And of course the Europeans were part of that process. All the European countries said: yep, this is how we're going to do it. And then they go back to Europe, and all of a sudden they start working against it. What I am thinking is not polite. Clearly, this is not only incongruous; it poses an existential threat to the whole system that governs civil aviation. Global civil aviation rests on harmonization, on having the same rules everywhere. Just having a global agreement is amazing, so we should be really happy that we have it, and we should preserve it. And…
- All of ICAO's member states signed up to it, I think?
- Yeah. And when you start chipping away at that… You've signed with one hand, and then you're using your other hand to do something different. Your actions are actively undermining the success of the thing you've just agreed to. That's shocking in and of itself. And when you start producing this kind of fragmentation, chipping away at the harmonization, it has to be understood that this will chip away at the global air transport network. The network cannot be global and fly everywhere if the rules are different in every place where you land. It's just not possible. Sorry to be long-winded here, but it's similar with plastic, for instance. Almost every country has its own rules regarding plastic and plastic waste, food waste and so on. So today it's nigh on impossible for an airline to depart from one country, maybe land twice, and finally reach its destination in a fourth country, without violating these rules somewhere. You're putting airlines in the situation of thinking: I wonder where I should violate the rules today. Whereas what we obviously want to create is an environment where airlines can be compliant. Airlines want to be compliant, and airlines want to fly everywhere to satisfy everybody. So it's just unfathomable that we have achieved such a success, and that some of the creators of that success are trying to make it not work.
- But isn't the main issue with CORSIA compliance right now that there aren't enough of these carbon credits around for airlines to acquire? I would like to ask you in more detail: how are these countries undermining this agreement? Is it because there are not enough credits around, because they actively block the issuance of more of them?
- No, no. Before there started to be this campaign to introduce uncertainty about CORSIA, where it was like, oh, if it doesn't do what it's supposed to do, then Europe is going to do different things, which I totally perceive as a campaign against CORSIA…
- By European countries, you mean?
- Yeah, absolutely. When everybody could believe that this system was actually going to happen, that provided regulatory certainty in people's minds. And regulatory certainty is obviously what everybody needs. Say you're setting up, not a SAF project now, but some kind of project in a country, and you're going to try to generate carbon credits from this project, get them eligible for CORSIA, and be able to offer them on the carbon market. So it's also a market creation project, right? In that sense, it's similar to the SAF market. When you can give the investor, the project owner, visibility on how this is going to occur, then they gain confidence and they do things.
- Clear rules, yeah.
- Imagine now that you've started your project and you're two or three years into it, and then you get this feeling that maybe the rules will change. Maybe my thing will not be eligible for airlines in Europe, because Europe is going to have its own criteria, different from the CORSIA criteria. Then obviously, all of a sudden, my market assumptions are totally different. The market has shrunk, and I don't know if anybody is going to be interested in buying these things, and so on and so forth. And obviously the same goes for the airlines. For the airlines, it's even worse, and this involves the Paris Agreement side of the United Nations. While ICAO, again, the UN organization that governs and oversees civil aviation, decided to make this obligatory for the airlines, and airlines are fine with that, there was no corresponding obligation on countries to make the credits available. Countries have their own obligations under the Paris Agreement to report what are called nationally determined contributions, so their own carbon credits, if you wish. And if they're going to report carbon credits in their own name, they have to subtract from that amount whatever they make available for airlines. And nobody has told the states that they must make anything available for airlines. So now we have an internal UN accounting problem, where airlines face an obligation imposed on them by the UN member states, and the same UN member states face no obligation to make it possible. This is also Alice in Wonderland stuff. Quite frankly, you couldn't dream this stuff up.
- I think only 10 countries have made these credits available, right? Guyana and a few African countries.
- Yes, yes. We estimate that the market is something like 200 million units short within the coming 12 months or so. But we also have solutions and a vision for how this can and shall work, and we're putting all our energy into that.
- I wanted to ask you about that, because we've got quite a few things going on at the same time. We've talked about SAF, and listeners of this podcast are surely aware of all the technologies being developed, but right now they are not an alternative for the mainstream air travel that IATA represents. So we are focusing on SAF, and with SAF we have this issue of availability, and what, in IATA's view, is a poorly designed system of mandates in one of the core regions, which is Europe. Then we have CORSIA, which is also not working. There was a report a few days ago in one of the main international financial newspapers saying that the industry was facing tens of billions of dollars of costs because of this misalignment. We also have the ETS in Europe, which is now under discussion because of the proposed extension, opposed by many players outside of Europe. And then, of course, we also have a conventional fuel crisis that seems to be abating a little now, but which for some time this year was a real concern for many countries and airlines. So we have all these things going on at the same time. It's like a perfect storm. If you were given the possibility of designing a system to decarbonize aviation, what sort of roadmap would you come up with? What would be, in your opinion, the ideal way to provide the right incentives for the industry to decarbonize in a sustainable way, pun intended, and to reach its goals by 2050?
- Yeah, obviously a vast question, and I shall do my best not to be too long-winded. But I really have to say something first. You say other countries are unhappy with the EU's extraterritoriality move, but the news in that statement is that the EU is making an extraterritoriality move. The news is not that people oppose it. The news is that they're doing it, or even thinking of doing it. And why is that so outrageous? Because we have ICAO, and ICAO has existed for over 80 years, and IATA has also existed for over 80 years, and the work that has been done on harmonization and rule-setting for the industry is phenomenal. This is one of the areas where, as we've said many times, the rules have been set. CORSIA was adopted, and yet we have a group of countries unilaterally trying to change those rules that were negotiated by everybody, opening up a parallel track to do what they want. So it's undermining the multilateral world order, nothing less, I would argue, and it looks very much like the attacks on the World Trade Organization, for instance. This could happen to ICAO if we diminish ICAO's status in overseeing our industry. Then we're ripping up the blueprint for how this industry is governed. And if the industry is not going to be governed by a multilateral organization, but by every country doing whatever it feels like, then the global network will shrink. Airlines will not be able to fly and guarantee the service, because everybody will have different rules, and it will just be unmanageable. That's why it's so beyond my understanding how a very mature and sensible group of countries such as the European Union can even entertain these ideas. So I just needed to say that. Now to the core of the question, which is how do we actually make all of this work. It's very much what we said earlier. The first question people have to be clear about is: what is it that we are trying to achieve? If you have clarity on your objective, then the policies follow in a much more straightforward way. I think the global objective is to succeed in changing our dependency on one monopolistic source of energy. That is bad for everybody. It's just bad for everybody. And on top of that, this monopolistic energy source is very emitting and polluting, which is another reason why we shouldn't use it. We should not be dependent on one energy source, and we should obviously not be dependent on a polluting energy source. So if we're all really committed to engineering the energy transition, then we understand what we were saying earlier: that we have to develop the renewable energy sources, and the infrastructure and supply chains to transform those energy sources into energy products that satisfy all users' energy needs. And if we manage to make energy cheaper, better, sustainable and more accessible around the world, then for sure there will be better economic outcomes. If we try to work from the other end, starting with the end users before we have built the supply chains and secured the original energy source, we will fail. And this doesn't take much analysis. We just have to look out of the window, so to speak. We can see that these policies have only generated this result, and this result is wholly unsatisfactory.
- Which policies would you put in place then to achieve this double objective of resilience and decarbonization?
- My first focus would be on producing more renewable energy as an energy source. Today, as we said before, the world is over 80% based on fossil fuels, fossil energy I should say, and that means less than 20% is renewable energy. So while we think that people are ploughing a lot more money into renewable energy, which they are, we still need to remind ourselves that it comes from a very low base, and that less than 20% is clearly not enough to unsettle, in the way the market functions, the monopolistic power of the oil and gas sector. So we need more alternatives, and we should of course look at which country has the relevant resources for which alternative. So solar where there's more sun, wind where there's more wind, and so on and so forth. And this is an interesting point too in the context of the e-SAF mandates that Europe wants to impose more widely on everybody. It is worth being aware of the fact that Europe is the place where renewable energy is the most expensive. If I were an energy producer and I wanted to produce e-SAF, I would try to locate my e-SAF production in a country where my input source is cheaper, and that would not be Europe. So there also has to be more techno-economic analysis, and a greater awareness of how these systems hang together. If that were present, I think policies would look very different today. In early market creation, you help people with technology, you help people set up early factories, and that can be very grant-oriented and direct-support-oriented, for research and development and so on. And then the policies change over time as the market matures. And of course, the goal has to be that in the end there's no further public support. Because if you create a market that depends on incentives, then you're creating an addict, so to speak, or your baby never grows up. That's not a viable option. So it's important that policies get assessed and reassessed and checked for their success rate, and that policies get adjusted if they're not working the way we want them to. And that we have some rationality in what we locate where, and in how we give all producers access to all users and all users access to all producers, so we can grow the market before all the supply chains and infrastructure are actually mature. There are ways of doing that, and of course IATA has created one of them, which is a SAF registry, so that we can separate the physical delivery of the product from the environmental benefits it generates. These are tools that clearly should be used.
- So what happens when the day comes that the industry has to meet certain mandates, and these mandates are not met? Could we realistically face this prospect with, let's say, e-SAF, for example, which is a technology that is not yet mature, only produced in very small batches, with no clear path yet to scale it up to the levels that are expected? What needs to happen to align with the market reality?
- Well, first of all, we have to wonder what the ultimate objective of the policymaker is. If the policymaker only imposes punitive measures, measures that don't increase production, and condemns everybody to pay penalties, and then everybody's paying penalties, if that's the objective, then they're not being honest about it. Because if that's the objective, then it should be clearly stated that the objective is to make sure that costs increase for airlines. Then you're in a different kind of conversation.
- You mean that it might be a way to punish the airline industry, because there's a segment of public opinion that would like people to travel less, despite the fact that travel enables a whole range of opportunities?
- Yeah. If the policy is deliberately set up so that the people affected by it fail, then clearly it cannot be the case that what they want is genuine CO2 emissions reductions.
- Yeah, but maybe also the legislators are not fully aware of the very thin margins the industry has, so this hasn't been properly calibrated.
- Yeah, but thin margins or not, if the objective is honestly that we need to reduce CO2 emissions and build alternatives to fossil energies, if that's truly the objective, then we must understand that we should focus on how we build these new energy markets, and not focus on the users of the energy. So there we have the first psychological, or philosophical, or I don't know what to call it really, change in mindset that needs to occur. And if we have the right mindset, then the policies are pretty straightforward. This is definitely what I'm saying with great conviction: the energy transition starts with the energy source and ends with the end user and the products they need, and all end users are equally deserving of receiving a sustainable energy product to cover their energy needs. But it has to start upstream. You cannot just isolate an energy product at the end without having understood who's producing that energy product. How does that work in the refinery? If we're talking about fuels, how do those refineries get their feedstock, how are we transporting the feedstock to where it needs to be transformed, and so on and so forth. All of that is proper energy system analysis that needs to be undertaken, rather than policymaking by screaming, so to speak: I'm telling you, you must do this, and then thinking it's just magically going to happen. What I shall say, to soften some of the harsh remarks I have made towards the regulators, is that the world is obviously not organized to think about systems yet. We're all extremely segmented. All the universities in the world are sliced up into faculties, organizations are sliced up into departments, and it's very difficult. Like in the case of CORSIA and the UN system, we understand that these two bits of the same organization absolutely didn't speak to each other about how to make sure that countries make the CORSIA-eligible emissions units available. So I think this is something we all really need to learn really fast: to acquire the bigger picture, and work with it.
- Okay. I would like to ask you: what's your view of what's going to happen in the next, let's say, three, five, 10 years? Do you think there are going to be some adjustments to these goals, or will things just fall into place, and all of a sudden stuff will appear and everyone will be happy?
- No, I think it's reasonable to expect regulators to assess their policies with respect to their cost, to do a cost-benefit analysis: has this delivered the outcome it was meant to deliver, and how much has it cost everybody involved? And if they find that the calculation doesn't come out very positively, they should obviously adjust. And if they know that mandates are not going to be met and they still insist on imposing them, then I would say they're not being honest about the policy objectives. That's what we were just saying. So I would also think it's a reasonable expectation that policymakers state their objectives clearly, so that we can all assess them in the light of progress towards that objective. Of course, if I were one of those policymakers in this situation, the very first thing I would do is not impose penalties. That's the CORSIA analogy. SAF and CORSIA have this in common: if the system makes compliance impossible, then surely you cannot impose penalties. That's back to my young child, whom we put alone in a room with a book and told to learn how to read. If, two hours later, they come out and they still can't read, we're not going to punish the child. That would obviously be insane.
- Another element here, I guess, again back to the issue of margins and costs: there's also potentially a risk that putting too much pressure on these already thin margins might impair the industry's ability to invest in these new technologies, right? I mean…
- Yes, it's a true opportunity cost, at whatever margin. So again, it's more about what we're really trying to achieve. And I think what we're trying to achieve is maximum CO2 emissions reductions at the lowest possible cost.
- Yeah.
- And of course you're right to highlight the importance of this to airlines, because airlines obviously don't have much capacity to swallow higher costs. Just look at the impact of this energy crisis. Energy, jet fuel, makes up about a third of airlines' total costs. Imagine it's like your rent. Most people might pay somewhere between 20% and 30% of their budget for housing, right? That's your share of your budget, and then boom, from one day to the next, it doubles.
- Yeah.
- You're going to panic, right? That's obviously the situation airlines find themselves in, and we understand that. The capacity they have to shoulder all of these costs is very limited. But in that sense, maybe luckily, availability is slow to come. We calculate that the SAF airlines will buy this year is going to add some $4 to 5 billion on top of the conventional jet fuel bill. That's a lot of money for an industry that we think is going to make maybe $23 billion profit globally. So the global SAF bill for airlines this year, when we only have 2.4 million tons of SAF, is $4 to 5 billion. Obviously, in 2050, when we need 500 million tons of SAF, that cost is going to look very different. Which is why we're so desperate to get scale and volumes going, so that the price can come down. There's obviously a point where that volume at that price would kill the airlines and eliminate the industry. It's just physically not possible for airlines to finance 500 million tons of SAF at the current price. So this is why it's really important that together we mature this market.
- Some degree of coercion from the regulator might be necessary, though, because the business is so competitive and the margins are so low that otherwise no one is going to do it of their own volition, right? No one is going to say: hey, I'm going to pay more for my fuel because I feel I have to make a contribution.
- I'm going to answer you the same way again, which is that those are not the right questions to ask. The world has no more interest in decarbonizing airlines than in decarbonizing the cement industry, the fashion industry, the food industry, or any other industry. All of these industries use fossil energies. All of them need to be decarbonized. So it's not an industry-by-industry question, and therefore we don't want to particularly coerce anybody. What we want is for all of us to be able to get renewable energy at a low price. The whole world and everybody who lives in it: that's what we want for the world. And how do we do that? Not by targeting a particular user group, because all user groups are in the same boat. All user groups are dependent on fossil energies. So trying to pick out a bunch of them and target them in particular will fail, because whatever product they need is only going to come out of the system. You have to scale the system so that it can produce the products, so that we can satisfy our people. That's what needs to happen. There's no point in talking about SAF at all if you don't pay attention to where the inputs are going to come from and how those inputs are going to be distributed to the various SAF facilities, and so on. Let me give you another example, which I think is a very creative solution that the Swiss came up with for producing more solar energy, which is what we want. That's a primary energy source. We definitely want more solar energy. They put the solar plants up above the snow line in the mountains. A radical departure from earlier practice, where you usually put it in the valley, but clearly very interesting, given the reflective capacity of the snow. So this was fabulous, and I can't remember exactly, but it had multiple times the output of a normal solar installation. But then it's like: oh, how do we connect it with the users? And then it's obviously super complicated to get that energy from high up in the mountains to where it needs to go. If you don't plan that from the beginning, you're going to invest in an asset that's going to become a stranded asset. We're not going to be able to use it. So I hope it's clear now why we can't start at the end. We have to start at the beginning and build the supply chains and the infrastructure. And of course, ideally, we should do all of these things simultaneously, but that's very difficult because of money and practical constraints. But an industry-by-industry approach to the energy transition will fail. An end-product-by-end-product approach will fail. The only thing that will succeed is if we understand that our mission is to produce as many alternatives to all forms of fossil energy as possible, and then make sure that we build the supply chains and can actually bring them to the customer. This might sound daunting and overly complex, but that's where we can take encouragement from solar and wind. Those markets were also baby markets at one point in time, and now they're pretty much standing on their own two feet. So clearly the world can do it when it wants to, and it's very hard to understand why it doesn't want to apply the same logic now as it did then. So it's not as terrible as it sounds. I think costs can be managed if we can get supply chains working and scale in the industry. The price will come down. So I'm optimistic that this can all be done, and much more of it could be done today if we had co-processing, if we had public procurement for public consumption, and so on and so forth.
- Okay, well, on this positive note, I think it's the moment to wrap it up. But just before we finish the conversation, I wanted to ask you about links. I know IATA produces lots of documents, reports and studies. Where can people find IATA's repository of reports and studies, so that they can check the numbers and the work that you guys do at the IATA economics department?
- I think that's a very kind question of you to ask, and I will of course encourage everybody to have a look at our website, which is iata.org. So that's simple enough. When you're on iata.org, there's a menu option, Publications, and under Publications you will see Sustainability and Economics, and from there on, I think it's pretty self-explanatory. That is where you find most of our publications. And of course, I invite you to browse the rest of the site as well, because there's some content spread around.
- Tools as well.
- And tools as well, absolutely.
- That companies can use to assess their environmental footprint, and all sorts of data related to the sustainability of the airline industry.
- Absolutely, absolutely.
- Well, thank you for your always very sharp analysis of the aviation industry. Not mincing words here.
- No. I hope that we shall all feel encouraged to name the problem. We have to be able to name the problem if we're going to fix the problem. If we call it something else, well, we won't find the solution.
- Perfect. Well, thanks so much, Marie. Hopefully see you soon at some of the upcoming IATA conferences.
- I'm counting on it. I'm sure I'll see you before the end of the year. And thank you so much for having me.
- Thank you. If you like this podcast, you can support us by giving it a great rating on Apple, Spotify, or whichever platform you get it from. And remember, you can of course subscribe to it, and you can also get regular updates through the Allplane website. That's A-double-L-P-L-A-N-E dot T-V. We have a newsletter where we cover the aviation industry every week, with a special focus on innovation and sustainability. So give it a go. Thank you, and goodbye.
