Expensive green hydrogen-based fuels might not lead to skyrocketing plane ticket prices in the short term: IEA

Aviation is widely considered one of the hardest-to-abate sectors, with zero-emission propulsion systems decades away from reaching the market.

This is why e-kerosene made using green hydrogen and captured CO₂ — which is almost chemically identical to conventional jet fuel and can be used in existing engines — is being out forward as a possible carbon-neutral alternative, in addition to sustainable aviation fuel (SAF) made from biomass.

But given the current high cost of renewable H₂, how much extra would airlines have to pay for these fuels — and what costs would be passed on to end-customers?

The International Energy Agency, in its recent report entitled The Role of E-fuels in Decarbonising Transport, calculates that even an optimised, large-scale plant drawing on the best renewable resource and lowest-cost biogenic CO₂ feedstock would currently produce e-kerosene at a cost of $80 per gigajoule of energy content, or $3,500 per tonne.

This is between four and five times the price of conventional jet fuel today, which ranges from $750-1,000 per tonne.

The IEA anticipates that reducing the cost of electrolysers by 60% and renewable electricity by 25% could further reduce the cost of e-kerosene production down to $50 per gigajoule, or $2,150 per tonne, by 2030.

However, even this low cost of production, e-kerosene would still be two to three times more expensive than conventional jet fuel, although the IEA notes that “it would start to be able to compete with current biomass-based SAF prices”, which range from $1,500-3,000 per tonne.

However, the IEA anticipates that blending in 10% e-fuels by 2030 might have a more muted impact than these sky-high prices might suggest.

The agency calculates that assuming fossil jet fuel costs $20 per gigajoule, a 10% e-kerosene blend would only increase the aviation industry’s fuel bill by 15%, although this would still total an extra $75bn.

Since fuel accounts for 25-30% of total flight costs, the IEA estimates that ticket prices would only have to go up 5% if the increased costs were passed on equally to all customers.

“Recent experiences suggest that consumer demand for air travel is resilient to higher prices,” the study notes, citing reports that demand for jet fuel only goes down 0.02-0.03% per 1% increase in fuel price in developed OECD countries, and 0.04-0.05% in emerging markets.

Some of this effect is because airlines absorb fluctuating fuel prices by hedging in the derivatives market, which “dampens the impact of oil price volatility on their profit and loss statements” — although it is unclear whether a similar strategy can be taken to reduce renewable hydrogen-based fuel costs.

However, the IEA also notes that even when higher prices are passed on to end customers, “consumer exposure to jet fuel prices is partial, indirect and opaque” compared to other transport fuels, such as gasoline and diesel, where they are continually confronted with changing prices at the pump.

The agency still estimates that a 5% overall increase in ticket price could reduce travel demand by 0.5-0.8%.

However, the IEA suggests that airlines “may also decide to skew their pass-through to more expensive customer segments, such as business class”.

Since these customers are already willing to spend more on a better travel experience, the agency expects an even lower demand elasticity than for cheaper booking classes, “so that raising fares here will have a relatively minor impact on airline revenues”.