Aeroflot is Preparing to Pay a Fee for CO2 Emissions

Photo: EPA

According to Kommersant sources, Aeroflot and Gazprom Neft want to sign an agreement on the supply of sustainable aviation fuel (SAF) at the Eastern Economic Forum (to be held in Vladivostok on September 2–4). The businesses did not respond to requests for comment.

Because of its origin, SAF is regarded as a low-carbon fuel. Synthetic is created by capturing CO2 from the environment and combining it with hydrogen. Biofuel is made from biomass, which includes animal fat, vegetable and waste oils, and waste from the woodworking and pulp and paper sectors. The International Civil Aviation Organization (ICAO) regards the use of SAF as one method of reducing CO2 emissions from aviation. Such fuel is not manufactured in the Russian Federation, but during MAKS-2021, Gazprom Neft representative Anton Dianov stated his willingness to “jointly with airlines, aircraft manufacturers, and authorities” initiate necessary research.

The ICAO will levy it without fail beginning in 2027. We’re talking about the CORSIA (Carbon Offsetting and Reduction Scheme for International Aviation) initiative, which requires the aviation sector to restrict overall emissions to 2019 levels. If the airline exceeds this limit, it must compensate for emissions by buying quotas from ICAO-approved CO2 absorption schemes (the so-called offset). The money will be used to invest in renewable energy, establish trees, and add carbon to the soil. The expenses for all airlines to offset emissions by 2025 may range between $ 1.5 and $6 billion per year, depending on the CO2 pricing estimated by the Air Transport Action Group.

ICAO decision menas  that  all airlines operating international flights must report their CO2 emissions to their respective aviation authorities beginning in January 2019. Those are needed to transmit data to the ICAO.

According to Alexey Sinitskiy, Research and Development Director at Infomost, the introduction of sustainable fuels throughout the Russian Federation may take three to four years. He adds that it is unknown which of the ICAO-licensed technologies will be utilized, but they are all costly and allow for very limited quantities of SAF production. According to the expert, adding up to 50% biofuel to the Aircraft A-1 jet fuel used there is approved in Europe. In the Russian Federation, aircraft are fuelled with TS-1 gasoline; there is no certification for combining it with biofuel, and the clearance procedure “may be very lengthy.”

Rostislav Khomenko, a junior partner at Bain & Company says that quota payment will be much more lucrative in this regard. SAF will continue to be the most costly policy in the medium future until synthetic manufacturing methods become widely available.

According to VTB Capital analysts, quota purchases may cost Aeroflot € 120 million in 2027, or 2-3 percent of EBITDA, assuming a CO2 price of about € 50 per ton. According to Elena Sakhnova of VTB Capital, if SAF’s carbon impact is zero, Aeroflot would need to refuel its foreign flights by at least 15% more in 2027 in order to maintain emissions at 2019 levels. According to her estimates, all Russian airlines released 15 million tons of CO2 on foreign flights in 2019. “In 2027, emissions will not exceed 20 million tons, requiring compensation for 5 million tons.” At current CO2 pricing, this amounts to about € 250 million, according to the expert.