Air New Zealand wants tax breaks, levies to help get Sustainable Aviation Fuel flowing

Air New Zealand first started talking seriously about biofuels back in 2008.

The conversation continues, and many sustainability reports later, the airline is now suggesting to the Government ways of encouraging the development of sustainable aviation fuels (Safs) with mandated targets, tax incentives, and even a passenger levy to pay for them.

In a paper sent to six Government ministers, the airline says Safs are the only way of decarbonising longhaul flights — the main contributor to greenhouse gas emissions by aircraft in New Zealand skies and beyond.

It warns that even full use of technology – including shorter range electric, hybrid and hydrogen aircraft and those powered by Safs – would not allow the aviation industry to decarbonise by 2050.

Those electric, hybrid and hydrogen aircraft could be in used on regional routes as early as 2035, provided manufacturers continue to invest in their development and ground infrastructure is built.

“What’s more, the industry’s share of emissions will continue to increase in coming decades as other sectors decarbonise more quickly given available technology and policy support,” says the airline in the paper, posted through the LinkedIn page of its head of sustainability Meagan Schloeffel.

While aviation accounts for about 2.8 per cent of global emissions, Ministry of Environment figures show that for New Zealand in 2019 this figure reached 11.5 per cent of carbon dioxide emitted.

Like all airlines, Air New Zealand faces having to work harder on its green credentials and social licence to operate, with even greater international focus post-Covid on the sector’s longstanding commitment to cap and then reduce emissions within the next 30 years. The flight-shaming movement was prominent in the news before the pandemic and it hasn’t gone away.

The airline, 52 per cent owned by the Government, was last month reminded by Finance Minister Grant Robertson of the need for it to demonstrate a commitment to sustainability.

Its voluntary offset programme accounts for just a fraction of carbon emissions. This year, the Parliamentary Commissioner for the Environment Simon Upton proposed a distance-based passenger tax – adding as much as $155 to an economy fare to Britain or $25 to Australia.

In Europe, finance ministers have moved to tax aviation fuel (it is not taxed here) while in the United States a tax incentive is being discussed to encourage the production of sustainable fuel.

Air New Zealand is part of the Safs Consortium with Scion, Z Energy, LanzaTech and LanzaJet, which has concluded there is enough feedstock in New Zealand to meet demand for Safs.

Possible sources of alternative jet fuel that are being investigated are forest residues, which could provide the bulk of it, municipal solid waste, log fibre, hydrogen and sugar beet, and thousands of jobs could be created.

Twelve years ago, a trial Air New Zealand flight used a fuel blend made from jatropha, an oily plant that turned out to be environmentally unfriendly. While other measures such as improved aerodynamics, weight reduction and most importantly new planes, have made the airline more efficient, the increase in flying in the past decade has seen total carbon emissions steadily grow until Covid-19 hit.

The Air NZ paper was sent to Energy and Resources Minister Megan Woods and fellow ministers Michael Wood, David Parker, James Shaw, Stuart Nash and Grant Robertson.

The paper outlines key measures to establish Safs in New Zealand:

An aviation-specific decarbonisation advisory body

This would be a public-private, cross-agency organisation. It would manage and secure the policies and investment settings needed. In Britain the Government has established the Jet Zero Council to deliver net-zero aviation by 2050 and a similar body has been established in Norway.

A feasibility study to determine NZ’s pathway to Safs

A detailed study is required to confirm high-level production cost estimates and feedstock supply, determine the most viable pathways to Safs and identity the necessary policy and investment settings.

A Safs mandate that increases incrementally over time

Overseas, Safs mandates are being used by governments as a key tool for kick-starting the industry. Here, the consortium has proposed 2.5 per cent Safs in the aviation system by 2025 and up to 50 per cent by 2050.

Supporting policies

These include:
• A Safs production incentive, per litre
• Capital grants to help establish Safs production capacity and supply chain infrastructure
• NZ Emissions Trading Scheme (NZETS) exemptions for Safs use
• Ring-fenced funds for use for capital spending relating to establishing Safs production, and/or financial incentives for feedstocks sold for mandated Safs production (for example from the NZETS or International Visitor Levy)
• A levy on individual passenger carbon emissions, possibly through the visitor levy or “another funding mechanism”

Schloeffel writes on LinkedIn that Safs have the potential to reduce carbon emissions by up to 85 per cent compared with traditional jet fuel.

“It can be used in our current fleet without modification, and is proven and safe — since 2016, more than 300,000 flights have operated (globally) on Safs.”

Currently there is no Safs available in New Zealand and due to the high initial cost of establishing supply and the ongoing cost of production, it commands a price premium compared to traditional jet fuel.

She said Safs would create skilled jobs benefiting the regions — both in the construction and operational phases of a plant.

The Safs Consortium estimates this could result in around 6400 temporary infrastructure development jobs, 1800 new permanent jobs and 5000 additional indirect jobs (such as tradespeople, caterers and security).

A New Zealand Safs plant would also produce some biofuel for the country’s wider transport sector.

Founding members of the group Fly-Less Kiwis, Paul Callister and Robert McLachlan, welcome Air NZ’s initiative but have reservations.

“At the moment there is a bit of a standoff in which the industry and governments know they have a problem but the way forward is not clear or easy for them. Industry would like to reduce emissions but do not want to see dramatically increased ticket prices or reduced travel. They would like the Government to pay the upfront costs,” says McLachlan, a professor in the School of Fundamental Sciences, Massey University.

He notes the report doesn’t mention traffic growth, which has been the main driver for increased aviation emissions and around which the whole industry is structured.

Callister, a senior associate at the Institute of Governance and Policy Studies, Victoria University of Wellington, says it is good the issue is being discussed more.

“But my rather cynical reading of this fairly basic report is a call for more reports — and more importantly a call for various subsidies,” he told the Herald.

He supports the idea that a mandate for drop-in fuel is being called for, and understands the initial low starting level, given the shortage of Safs, but believes the subsequent ramp-up plan is far too slow, especially given global forecasts for air travel, and wants the more ambitious target of 100 per cent.

The subsidy argument is problematic, says Callister.

“Even if Safs cost much more than fossil based jet fuel, starting at a drop-in rate of 2.5 per cent would hardly change the price of airfares (given that fuel is about a quarter of operating costs). There are plenty of other things I would subsidise in New Zealand before I subsidised flying.”

Comment has been sought from Megan Woods on the Air New Zealand paper.

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