Sustainability as Strategy: Fueling the Future – How SAF is Transforming Aviation

Episode 7: Paths to decarbonization with Sustainable Aviation Fuel with Diego Ibarra & Thor Kristjansson

Fri, Aug 22, 2025 2:43PM • 31:36

SUMMARY KEYWORDS

Sustainable aviation fuel, decarbonization, policy incentives, cost challenges, production technologies, financial opportunities, long-term contracts, book and claim, risk management, supply and demand, regional airlines, cargo segment, market growth, policy frameworks, strategic procurement.

SPEAKERS

Diego Ibarra, Sean McMahon, Thor Kristjansson

Sean McMahon 00:03

Hello everyone, and welcome to sustainability as strategy, a podcast brought to you by the experts at Roland Berger Americas. I'm your host, Sean McMahon, and in this episode, we'll explore how aviation can stay aloft in a low carbon world. To do that, we're going to dive into sustainable aviation fuel, otherwise known as Saf, which represents the sector's most scalable path to decarbonization. But it's important to note that SAF isn't just a climate solution, it's a strategic financial and commercial opportunity. Joining us today are Dr Diego Ibarra, senior partner and sustainability lead at Roland burger Americas. We're also joined by Thor Christiansen, a principal in the regulated and infrastructure practice focused on energy transition and sustainable strategy. Gentlemen, welcome to the show.

Thor Kristjansson 00:55

Thanks Sean, pleasure to be here. Nice to see you.

Sean McMahon 00:57

All right, Thor, let's start with you. I want to set the stage for our listeners, where do things stand right now with SAF?

Thor Kristjansson 01:05

So SAF is still a very niche fuel. It only makes up about .7% of the global jet fuel demand as it stands today, but it is scaling fast, and we'll likely see production hit 2 million tons globally this year, up from just 1 million last year, and that is obviously doubling in one year, but it's still very far off from the 4-500 million tons needed annually to reach the net zero goals by 2050 so if we sort of think about what remains, the major issue, it is the cost; and today, SAF is still about four to five times more expensive than conventional jet fuel. And production technologies like HEFA, which use waste oil and fats as feedstock, are the most cost effective today, but they are limited in scale due to feedstock availability, for example, other pathways like power to liquid and alcohol to jet are more scalable long term, but are still costlier to build out and operate. As it stands today, from the policy side, it also varies dramatically, right? So if you think about Europe, they're effectively ahead the US today with their refuel EU regulation, which effectively requires a 2% SAF blend by 2025 and that's supposed to ramp up to 70% by 2050 while the US really doesn't have a federal blending mandate, but effectively relies instead on incentives like tax credits and state level programs like the California LCFS, and this effectively creates this fragmented global market, but it is a big opportunity for airlines to sort of act strategically.

Sean McMahon 02:51

Okay, well thank you for setting the table like that for us Thor. Diego, what are you seeing?

Diego Ibarra 02:59

Sean, so first good seeing you again. Thank you for having us. It is exactly as Thor said, right? So if you take a step back, there's a huge interest in SAF, there's a policy demand, there's voluntary commitments. There seem to be technical feasibility to get where we want to go, but there's a lot of uncertainty. So if you ask me the big question, where are we in SAF today, I think airlines are trying to navigate the question of how fast should I move, or can I move based on how I can best navigate the uncertainty we have in front of us. And I know we're going to deep dive in some of those specific questions, so I think that's a good start for now.

Sean McMahon 03:40

Okay, thanks, Diego. And now I mentioned at the top that SAF also represents a financial opportunity. So how can airlines and investors approach SAF from that perspective? You know, is there a viable financial case?

Thor Kristjansson 03:53

Absolutely, if it's done correctly, that is. Now if you sort of think about the returns that projects can aim to get at certain different life cycles, all the way from early stage investing to FID to operating assets. You can sort of think about it in different tranches, right? So if you think about the early states development, where the risk is fairly high, but the return requirement is also high, so high risk, high return, where you might have firm offtake, kind of baked in. And...equity specific investment coming in, investors could maybe target over 20% levered IRR, right? And we see sort of typical private equity growth equity going after these parts while, you know, if you look at projects that are approaching FID, perhaps, sort of the financing in the off taking place, they might be delivering somewhere between 10 to 13% levered. And then when you go all the way to the operating assets that already have the contracted volumes, they, you know, offer the lowest risk, so correspondingly, they would effectively have lower returns. In general, when you think about sort of these real examples, because you, you know, you asked about. About how people are approaching both SAF investment and then contracting. United launched a $200 million sustainable flight fund last year and also signed a deal with startup 12 this year to procure 50,000 tons a year of synthetic SAF Air France. KLM signed a 10 year deal with total last year to purchase 1.5 million tons of SAF through 2035, and then very recently, iG, which is the British Airways parent, actually claimed a couple of months ago that, you know, their $3.5 billion in SAF contracts have secured pricing 40% below market. So I think the key thing here is that if you go about it the right way, there can be a very strong financial case, especially if you're moving early, you can shape the market, and that effectively is what could help benefit you financially.

Diego Ibarra 05:51

Yeah, I think perhaps the other component that that is interesting to have in mind is there's the the supply and demand side of SAF, right? So we're talking about the cost on the on the supply side, where early commitment and we're going to see limitations on the volumes that can be supplied to meet the targets, and the first mover will create that, that big advantage. And then, you know, we're also seeing how market leaders are being able to effectively translate that into a monetization, a top line growth strategy, right? So, so that is the other piece, where the business case actually flows when you're able to to attack the problem, both on the on the cost side and as a top line growth opportunity.

Sean McMahon 06:31

Okay? And now, Thor, you mentioned a few minutes ago, how on the policy front, things are kind of disjointed around the world. So how should airlines respond to that...global patchwork of SAF policy?

Thor Kristjansson 06:45

It's a really great question Sean, and I think if you look at the different regions, they're going to have sort of different mandates and different availabilities, kind of across the world, globally, you know, in the US, where there isn't, like a planting mandate, you effectively have these incentives that are available. If you t hink about the IRA 45c tax credits, which are up to dollars per gallon, sort of depending on the carbon intensity that you can get California LCFS credits that could be up to, you know, $1.50-$2 a gallon in credits and other state credits, you effectively can get sort of closer to cost parity in the US while in Europe, you're effectively looking at penalties that are going to kind of meet the required quota that you're not hitting. So effectively those two different ways, if you just think about Europe and the US, you have to sort of think strategically on how you meet your own commitments while also meeting sort of the required commitments in these different locations, and then book and claim and other systems are going to become kind of important here.

Diego Ibarra 07:47

Yeah, let me add to that. I think, just as Thor said, right so we're seeing that if you leverage those incentives that can stack up right in the US, you could produce SAF very close to, you know, parity to JETA and airlines with big networks, with big international operations, can be smart and leverage book and claim, you know and do this policy arbitrage, if you wish, right benefit by the cost structures of the incentives in the US, if you're able to monetize smartly to comply with some of the EU or the international Corsia kind of targets, right, or mandates with that opportunity to be market makers, right, to to have a strategy where you can help uplift SAF and perhaps give a market signal to the infrastructure you need to be, you know, developed in the areas where you have your operations, while at the same time leveraging this book and claim to benefit in your global Network. And as Thor said...this is where we believe smart procurement strategies make all the difference.

Sean McMahon 08:48

All right, now real quick, you both mentioned book and claim, you know, for our audience who might not be familiar with that, what is it?

Diego Ibarra 08:55

So, "Book and Claim", basically is a way of saying that we are decoupling the environmental attribute of the fuel, of the jet fuel, versus, you know, the actual molecule. So I'm able to buy a sustainable fuel and sell the environmental attribute to a corporate that it wants to use that attribute to hit their own against their own voluntary targets. Think about it as REX, right? I am consuming electrons from the grid, although they might come from my local power plant, but I'm buying a renewable energy credit that compensates that kilowatt from a renewable generated electricity that has been properly vetted elsewhere. So it's a good way of corporations to basically support the buying and the production of green fuels without having to themselves be directly linked to the green molecule.

Thor Kristjansson 09:43

It's sort of like getting the decarbonization benefit without the logistical drama.

Sean McMahon 09:49

Interesting. Okay, so now, Thor you mentioned earlier, you gave us some examples, real world examples of how airlines are looking at these from a financial perspective with United Air France, KLM, and IAG, so now, do you have any examples for all these policies we're talking about, you know, where they're coming together in the real world and all these pricing mechanisms are being put together?

Thor Kristjansson 10:10

Yeah, absolutely. Sean, so if you look at the US, for example, and you look at sort of the available tax credit landscape, you can think about, you know, how can you reduce your cost of production in dollars per gallon, down from your unsubsidized production costs down to your subsidized production costs, right? Some of these are going to be stackable, which means that you can get more than one at once. Some of them, you have to sort of pick and choose. The biggest ones that we sort of highlight would be, for example, the 45c tax credit, which is a federal tax credit originally under the IRA, but now under the OBBBA, up to $1 a gallon, kind of depending on the carbon intensity that you have. You also have state level tax credits like the California low carbon fuel standard, which can go from 25 cents all the way up to $2 a gallon for very low carbon intense fuel, if you if you have certain high credit prices for these, these LCFS credits, you also have the renewable fuel standards and the RIN credits that you can get from from federal and both in Minnesota and in Washington, you have, you know, state tax credits that can be $1.50-$2/gallon. And especially in Washington, you know, there's a tax credit that effectively takes effect when the state production reaches 20 million gallons. So it's available, but it has that limit that it has to reached. Now, if you sort of think about it, what does this mean in terms of the total reduction you can get from these tax credits? So if you structure it correctly, and you're able to qualify and monetize these available credits you could, you know, start producing at sort of close to cost parity, or closer than in many other places. And just an example, if you have a pathway with 80% emission reduction in Minnesota, and you stack up all these credits you could get up to, you know, $4 a gallon in total, in terms of the total cost reduction, right? So going from, you know, maybe seven down to three, then you're sort of getting close to the 250 or so that the SAF or the JETA price is at today.

Sean McMahon 12:13

Okay, well, I appreciate those examples, you know, because sometimes all these tax credits and incentives kind of just, I'm sure I'm not alone. There's probably some listeners out there who are trying to put all the math together. So math together. So thank you for that. Now I want to pivot to scalability, right? Scalability for SAF has, you know, long been a big question out there. So, so let's get tactical here. You know, what kind of contracts actually enable SAF projects to scale?

Diego Ibarra 12:38

So that's a great question. Sean, I think, at the high level, it's good to remind ourselves that the most important barrier today to scale this is financing these projects, right? So in that context, the typically short term JETA index contracts used today don't work for SAF and they don't work because they don't provide the price certainty or the longevity needed for financing these projects. Right? Those index contracts are normally, you know, spot or market price, and they have a duration of less than a year, maybe even a few, a few months. What really enables SAF to scale is long term agreements right that enable the producer to de risk the project and show revenue certainty to the financier, right, and some of the elements there will be, you know, 10 plus year contract off-take contract agreements right? We're seeing that a good contract will have price bands to limit volatility, with either a floor or a ceiling pricing, sometimes even with price escalations tied to inflation or feed stock costs. We're also seeing more and more multi body contracts that bring a corporate into play, or a cargo player into play, that are willing to show commitment for that green premium, even at the very early stages of a project. And lastly, as we've been talking contracts, need to be able to fit in the book and claim systems, right? What are the requirements of that SAF and this and the SAF process, so that the buyer, at the end of the day is getting a product that can go through the different book and claim standards that are out there, So again, the key parts of the contracts are, how do we provide as much revenue certainty to the financing parties? Right? And a good example of how this combination of element is actually creating and enabling market traction is the well known sky energy runway project, Where, basically it is a demand aggregation platform launched in 2023 that has enabled 4 billion in book and claim linked to SAF projects. Right? The biggest name associated to that has been Microsoft. Microsoft was one of the founding members, where they were able to commit to SAF and claim scope-three benefits for their own voluntary commitments.

Sean McMahon 14:59

Okay? Now let's talk for a second about risk management. How are airlines managing the financial risk of committing to these long term SAF contracts?

Thor Kristjansson 15:09

This is one of the big questions around, sort of the new contracting structure that people are seeing with SAF versus the conventional jet fuel contracts, which Diego sort of mentioned before. Right? So today, airlines are used to spot contracts, or, you know, 6 to 12 months, maybe up to 24 months contracts on SAF. You're going to have to need to have these long term fixed contracts or something that can get you financed. Because, again, handshake deals are not going to cut it. Now the question becomes, how do you actually think about managing that risk that comes with this long term? We've seen multiple different financial tools kind of getting integrated into the SAF procurement process, including price collars, for example, that effectively create guardrails for volatility so you have a cap and a floor and you never really exceed the cap or the floor, but you effectively limit sort of the price differences that you're looking at when you look at the effects of the underlying kind of structures. The second one is Power Price hatches. So if you look at PTL or power to liquid pathways that are tied to electricity markets, you can effectively go out and buy Power Price hatches, you can have fixed price PPAs and so forth to make sure that you're sort of aligned there. Ethanol futures is another liquid market that you can go for. This would be something that you could use for alcohol to jet contracts to make sure that you know your hats against ethanol price. And I think maybe the final point that I'll mention is sort of these custom derivatives from banks for these longer dated SAF co-optic. Today, this is still a very niche market and a very thin market, but we are seeing more traction out there for you know, banks there are willing to actually enter into some, some kind of derivative contracts. And I think the key thing here is that these tools effectively lower the financial risk for both the airline and the SAF producer and really support the project financing, which getting everything off the ground really is about.

Sean McMahon 17:12

So now SAF can play a big role in the sustainability goals for organizations far and wide. So with that in mind, how important is it that SAF certificates match what buyers out there are actually looking for?

Diego Ibarra 17:25

Yeah, I think it's extremely important, Sean, so you need to make sure at the end of the day that you're putting something in the market that fits the requirement of the client or what the customer wants, right? And some examples are, you know, on the carbon intensity side, airlines, one have clear understanding on how they're going to get to the goals based on a specific CI component of that fuel, making sure that you are documenting and putting those requirements in contracts on the common intensity sites become, become critical. You know, some corporates also have preferences on feedstock type right. More and more, to give you an example, more and more a deforestation is becoming an issue for corporations, right? So making sure that contracting language clearly addresses, right, the deforestation piece is critical. You know, there we're seeing, you know, palm oil within the HEFA pathway being one of those challenged feedstocks that is becoming more and more question because of the land change use component. And if you you know, if you are not careful in what are you putting your contractual documents, or as a producer, what are you putting in the market, you are going to create misalignment, and you can lose credibility. And when you have that credibility loss, or you're losing trust is very hard to win it back, right? So unfortunately, today, we're seeing that the contractual frameworks differ and the standards out there differ a lot. We're not hitting, you know, harmonization yet. However, if I would have to put a recommendation out there for companies, I would say, you know, kneeling on the European standards for those contracting languages today seems the safest bet, as the industry is gravitating to that, since we are seeing the largest demand coming out of out of Europe, right? So again, if you ask me the biggest question is, it's not as simple as just saying, Okay, I'm going to put all my requirements in a contract because, you know, buyers need to understand the trade offs of too many constraints and what those impacts have on price and the delivery risk

Thor Kristjansson 19:28

I'll maybe just add to that, that if we boil it down, it's almost like thinking about getting an organic label on your foods in the store, but then realizing that it's not organic. So again, getting to the point that Diego was mentioning, because the standards are not harmonized right now. This trust is also very important, because if you lose that trust, it eradicates very quickly your offering to your customers.

Sean McMahon 19:53

So you mentioned financial derivatives earlier. So in financial markets, there's like the ISDA master contract that... everything kind of starts with that, and then you kind of go, and if there's a few little things you gotta tweak and change for your specific case, you can do it. Does that exist for SAF and is that something where the market is headed towards that, or just nowhere near it?

Diego Ibarra 20:12

My answer to that would be, there's some elements of international standards. So the ISCC, the International sustainability and carbon certification...has a high level framework, which is the less stringent. Then there's the ISCC EU version that goes one level deeper and adds land use change, for example - the deforestation question - into those requirements. And then you can go even further with the round table for Sustainable Biomaterials, that goes into even further requirements on fair labor and biodiversity and so on. So is there an alignment on all the categories that such master service contracts should have? No, there isn't. The different standards are adding pieces to it, right? Is there a minimum? It depends on the region, right? And the kind of conversation, if that makes sense.

Sean McMahon 20:15

So far this conversation, (when) we've talked about examples from airlines. We've been talking about global majors, you know, United Delta, KLM, British Airways. But is SAF just for global majors, or does it matter for regional airlines too?

Thor Kristjansson 21:12

Sean, are you asking if size matters in this context? Because I think SAF actually matters at all scales, and regional carriers can localize their SAF supply at smaller airports, for example, but they can also participate in book and claim markets, for example, in the US to offer green options to their customers. In addition to that, they can partner with corporations or logistics clients, which allows them to monetize these green premiums that Diego mentioned before, this is especially interesting in regions like the US Midwest and the Pacific Northwest, where we see these SAF hubs emerge, and they're perfect for these regional networks. But I think the big piece here is also that partnerships and book and claims can be a way to make sure that cost efficient SAF makes it into an airlines network, even if it's not operating in that specific region when it's backed up by the right SAF certificates. Because, as we talked about before, right, when you think about the EU and the UK mandates, the 2% requirement is at a country level and a distributor level, right? It doesn't have to be at a specific, you know, tiny airport within a certain country, within the EU so it's sort of like an average for the total while in the US, where you either have, you know, your market driven by incentives, or, you know, voluntary commitments to a degree and corsia, at some point we're going to see, you know, more of this book and claim as sort of a way for these operators or these airlines to reach cost efficient SAF in different places, kind of maybe not dependent on exactly where they're physically uplifting.

Diego Ibarra 22:54

Building on what Thor just said, I think there's two pieces to add. One is regional airlines need to understand that it's a matter of when, not if, right there are going to be future requirements at the country level, like in the in Europe, or at the state level, here in the US, in the long term. So I need to be prepared for that and start building capabilities and making sure that I have that access. And the second piece is, if we go back to that conversation, that the ambition is huge and the supply will take some time to scale, I'm going to be at the mercy of the market price and the risk if I don't start securing offtake and building my network and my partnerships early. So I think there's also a strategic priority, even for the regional airlines, to start getting in the game. The other piece perhaps we'll add in there is the fact that, as we're talking to you know, a lot of the big airports right that have a lot of the fleets, the wide body airplanes, right, coming from international that might be moving driven by Corsia or others, we're seeing that bunkering and the infrastructure has limitations with just space, right? We see this in, you know, I live in California, in my conversation with airports here space, you know, for anything from SAF bunkering to green taxing becomes an issue. Smaller airports, regional airports, might have more flexibility right in the cost and this. Space for fitting new infrastructure and accommodating new suppliers.

Sean McMahon 24:18

So (when) alot of people think of SAF, they think of, you know, green premium. So can SAF be monetized? What are some examples of how airlines are passing the green premium on to customers?

Diego Ibarra 24:27

That is the question that you know, we see in all companies asking themselves today. And this is not only airlines. Companies are really trying to figure out how they can monetize the sustainability investments they've made in the in the last few years and translate that into top line benefits, right in terms of aviation, right? SAF is not just cost, as we've been saying, is really a commercial opportunity that will favor first movers, and we're seeing airlines creating value already in other segments, right? So in leisure, you see that airlines are creating the green seed offerings right upgrade, where they say, for 10 or $15 do you want to fly green right and buy SAF and reduce your footprint by a given you know, CI, by a given amount of CO2 in the corporate segments, we're seeing more and more travel bundles where, you know, companies are embedding 10-20% of SAF commitments into a business travel contract, and, of course, linked to the capturing that value, and perhaps where we're seeing The most clear benefits, and translating that into the top line is in the cargo segment, where, you know, some providers are coming up with green routes, where you're charging a small percentage premium for enabling that scope-three emission for the final product. So again, a critical part of the overall business case is is making sure that you are segmenting your customers and looking at the market to be able to identify those that are willing to value that environmental attribute. Another great examples here is, is Delta that is launching a lot of this offerings, committing to 200 million gallons of SAF offtake in Osaka with Cosmo oil, allowing them to create premium offerings in their Trans Pacific routes. So it's, as Thor said, it's not just about avoiding penalties. It's about creating value and focusing on the top line opportunities as well.

Thor Kristjansson 26:32

And maybe, just to add to that, Diego, I think another piece is the cargo segment where, you know, we even see sort of three party deals where people are looking to maybe pass on some of that premium on the SAF to specific customers that value that scope three emissions higher than some others, right? So effectively, if you're a cargo player, you have your SAF producer and you have your own customers that might be covering a certain percentage, 20% of your total cargo space. These three way deals is something that is also possible to do in order to sort of make sure that the customer that values the green premium the highest is actually receiving those attributes.

Sean McMahon 27:14

So obviously, there's been a lot of change in the marketplace, right? Some of it market dynamics, some of it policy. When we look out for the next, say, five years, where is SAF headed?

Diego Ibarra 27:26

We see a huge growth, right? So today it's 2 million tons. We see that going to 10 or 15 million tons by 2030 in the next next five years. What is driving this growth? First, on the demand side, we're seeing that there's still a huge gap on the airline sign between current supply and the ambitions, right? The supply gap is, you know, 90 plus percent so between what is contracted or under MOUs and the stated commitments, right? So a huge supply gap to fill in, if we want to. You know, talk about the US. Volume wise, globally, we see five out of the top 10 airlines are US based airlines, right? So a lot of that gap is for U.S. based airlines. So that's first thing. Then the other piece of the demand side is story being sharing, the policy frameworks, right? Corsia, 2.0, refuel, implementation, another side of the demand signal that is going to materialize, right? And then on the production side, we're seeing that there's a lot of new projects reaching FID, a lot of more good examples that are being leveraged by the market. On, off, take contracts and long duration contracting, taking advantage of those multi layer tax incentives, and again, more experience in having these multi party contracts right. So growth will be driven by the demand side and also the supply maturity. Our estimates might be a little more conservative than other analysts, but you know, we have a wealth of experience in mega projects, not only on the SAF directly, but with chemicals and refining. Let's just say we remain cautiously optimistic, and that five to 7x is still a huge market growth.

Sean McMahon 29:05

Okay. Thor, now, where do you see SAF headed between now and 2030

Thor Kristjansson 29:11

Well, I think maybe, just to sort of summarize it up, SAF is effectively moving from niche to mainstream, and we do think that airlines that act now will be sort of the ones with the supply, the pricing leverage and the sustainability leadership, and have the opportunity to shape the markets like dirichel mentioned. You know, we do see pretty high growth, obviously driven by policy, driven by incentives, driven by others. But I also think that, you know, there is going to be a limited supply out there, so people are going to have to move fast in order to secure those

Sean McMahon 29:50

All right. Now, one of the reasons we do this podcast is for business leaders out there who might, you know, be part of the SAF ecosystem, either currently, or maybe they're. Are managing a company that's thinking about getting into SAF to help meet some of their sustainability goals. So what advice do you have for listeners like that? You know, what should they take away from this conversation?

Diego Ibarra 30:12

You know, I would sum it up as, don't wait. You need to act now. Start thinking about how to lock in long term contracts. Look at co investment to de-risk projects themselves. Think about what your customers will want in terms of SAF offering or your customers if you're on the airline side, what are your customers and how you're going to monetize those efforts, right how you're not only making efforts on the supply side and your your feedstock side, but also on the end customer, top line growth opportunities and and at the end of the day, those airlines that are able to successfully think about those two sides of the same coin, the procurement side of SAF and the monetization of the efforts, I think, will be the big winners.

Thor Kristjansson 30:58

So Sean, if I was one of those business leaders, I would probably think about it like this: the green runway is open, but the gates are failing fast, so you need to act quickly if you want to secure your seat.

Diego Ibarra 31:11

Sean, as you can see, we could not have a SAF podcast without the mandated airline analogies. You know?

Sean McMahon 31:20

That was perfect. I like it. You know, it makes it crystal clear for any business leaders out there. Well, listen, gentlemen, I really appreciate your time today. Thank you for sharing all your insights.

Thor Kristjansson 31:30

Thank you, Sean

Diego Ibarra 31:30

Thank you for having us. Sean, you.