Indonesia Aviation

Decarbonization
Roundtable
Co-hosted by: Supported by:

March 6, 2024
Key Takeaway from the Roundtable
• Current state of the SAF market in Indonesia: The Indonesia National Air Carrier Association (INACA), which consists of more than 30 air carriers, including Garuda
Indonesia, aims to achieve net-zero emissions by 2060. In 2023, Garuda Indonesia flew its first demonstration flight using sustainable aviation fuel (SAF) blended with
fossil jet fuel. Pertamina supplied the airline with SAF, which was made from palm oil and processed with Honeywell UOP's technology. The SAF accounted for 2.5% of the
jet fuel. The airline plans to increase the blending rate to 5% in 2024.
• Feedstock supply: Sourcing raw material is a major hurdle to increase the volume of SAF, which is currently produced primarily by hydroprocessing technology using
cooking oil (UCO) and animal fats. However, it is unlikely that there will be enough feedstock to meet future demand from airlines. Improving feedstock collection is also a
challenge.
• Regulations on palm oil imports: Indonesia accounts for 57% of the global palm oil production, which is also the feedstock for SAF. However, palm oil is subject to
stringent regulations such as the EU's Deforestation Regulation (EUDR). The regulation aims to ensure that products, such as timber, soy, and palm oil, placed on the EU
market do not involve deforestation. Palm oil exporters must prove that these are sustainably produced to sell in the EU market. An analysis on environmental attributes of
how SAF is produced, including how feedstock is sourced, is also necessary.
• Potential markets to export Indonesian feedstock: Japanese and Korean governments and companies are trying to develop domestic SAF supply chains (eg, Japan
targets at 10% of the jet fuel supplied to be SAF by 2030). However, there is not enough domestic feedstock, and raw materials will need be to imported from other
countries. Korean companies such as POSCO International and GS Caltex plan to build a facility to process palm oil in Indonesia to produce SAF.
• Policy benchmark: It is difficult to say which country has implemented a policy related to SAF that could serve as a benchmark for Indonesia. However, it is possible to
learn from other countries, such as the US and Singapore. The US Federal Government offers a tax credit for SAF production, which allows airlines to purchase SAF at a
lower price than they would without the economic incentive. The Singapore government has decided to require all departing passengers, regardless of airline, to pay for
SAF. The key open question here is who bear the cost of SAF. Should it be borne by all taxpayers, all passengers, or frequent flyers?
• Demand for carbon offsets under Corsia (Carbon Offsetting and Reduction Scheme for International Aviation): As the demand for international air travel
increases, airlines will need to purchase more carbon offsets under Corsia. Future prices of voluntary carbon offsets, including those covered by Corsia, are highly
uncertain and will depend on how the carbon offset market will be shaped. If a standard for high-quality offsets is established, prices are likely to increase. That would
mean airlines would pay more.
• Next-generation engines: Major jet engine manufacturers such as Rolls-Royce and Pratt & Whitney are developing next-generation engines that can use only SAF.
These engines could improve fuel efficiency by 15-20% compared to the latest engines available today. Reducing fuel consumption is important not only to carbon
emissions, but also to reduce demand pressure for SAF.

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Today’s plan
● 9:00-10:30 Roundtable

● The objectives of the roundtable are:

- To learn about key issues related to aviation decarbonization
- To network with key players in the aviation sector

● BNEF will give a short presentation on each topic, followed by a free discussion.

● The roundtable will be held under Chatam house rules. This means that “participants are free to use the
information received, but neither the identity nor the affiliation of the speaker(s), nor that of any other participant,
may be revealed” (Chatham House).

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BNEF
Coverage

Strategies for a
cleaner, more
competitive future

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4 BNEF
Different angles to look at aviation
decarbonization

Airlines Sustainable Batteries Hydrogen Investment Policy Carbon

aviation fuel in startups

$ CO2

5
Aviation is a challenging sector to
decarbonize
Annual carbon emissions by sector – Economic Transition Scenario
MtCO2
40,000 2021 Carbon removals
Hydrogen
35,000 Power
Energy industry
30,000 Non-energy use
Other sectors
25,000 Rail
Aviation
20,000 Shipping
Road
15,000 Commercial b.
Residential b.
10,000 Other industry
Petrochemicals
5,000
Cement
Aluminum
0
Steel
2000 2010 2020 2030 2040 2050

Source: BloombergNEF. Note: Based on the Economic Transition Scenario (ETS) of New Energy Outlook 2022.

6
Demand for air travel and freight is set to rise
rapidly with economic and population growth
Number of passengers flying – Economic Transition Scenario
North America

Europe
2050
China

India

Rest of Asia
Pacific
Middle East
2022
Latin America

Africa

0 1 2 3 4 5 6 7 8 9 10 Billion passengers
Source: ICAO, World Bank, BloombergNEF. Note: According to the latest World Bank data, the US had a Gini coefficient of 41.4 in 2018, compared with 35.1 in the
UK, 31.9 in Germany and 37.5 in Russia. A Gini coefficient of zero expresses perfect equality. A Gini coefficient of 100 expresses maximum inequality.

7
Aviation emissions will continue rising
despite improvements in aircraft efficiency
Emissions by region, 2023 versus 2050 Aviation CO2 emissions by region
Gt CO2 Gt CO2
1.8
North America 2023 2050 Africa
1.6
Europe Latin America
1.4
Middle East
Rest of Asia Pacific
1.2
Rest of Asia
China 1.0 Pacific
India

India 0.8
China
0.6
Middle East Europe
0.4
US
Africa
0.2 Rest of North
Latin America America
0.0
2015 2020 2025 2030 2035 2040 2045 2050
0.0 0.1 0.2 0.3 0.4
Source: BloombergNEF. Source: BloombergNEF.

8
Today’s agenda
● Clean fuels: What are the prospects of supply and demand
balance of clean jet fuels in Southeast Asia today and in the
future?
● Carbon offsets/removal: How important it is for the aviation
sector to invest in carbon offset and removal projects?
● Zero-emission aircraft: What will be needed in
infrastructure development and collaboration across
countries, airports, hydrogen suppliers, and financiers to
allow hydrogen to become a fuel for international aviation?
● Policy: What domestic and international policy mechanisms
will be needed to accelerate energy transition in the aviation
sector?
● Impacts on consumers: What would be the potential
effects of decarbonizing aviation on air travel demand?

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Today’s agenda
● Clean fuels: What are the prospects of supply and demand
balance of clean jet fuels in Southeast Asia today and in the
future?
● Carbon offsets/removal: How important it is for the aviation
sector to invest in carbon offset and removal projects?
● Zero-emission aircraft: What will be needed in
infrastructure development and collaboration across
countries, airports, hydrogen suppliers, and financiers to
allow hydrogen to become a fuel for international aviation?
● Policy: What domestic and international policy mechanisms
will be needed to accelerate energy transition in the aviation
sector?
● Impacts on consumers: What would be the potential
effects of decarbonizing aviation on air travel demand?

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Clean fuels

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Airlines pursue many decarbonization
options, but some stand out
Airline strategic decarbonization activities
Number of initiatives
60 Other

50 Urban air mobility and last-mile

delivery
Carbon removal
40
Hydrogen aircraft and supply
30 chain
Electric aircraft
20
e-fuel

10 Sustainable aviation fuel

0 Operational improvement
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q *4Q
Fleet modernization
2018 2019 2020 2021 2022 2023
Source: BloombergNEF, airline press releases, annual reports, news. Note: *4Q 2023 = September 1 – December 4, 2023. ‘Other’ includes, for example, raising
sustainability-linked loans and activities relevant to multiple areas. UAM = Urban air mobility.

12
SAF targets
Clean fuel goals are moving beyond the US and Europe
Airline SAF targets by announcement date Global jet fuel demand of 44 airlines with some
form of SAF target
Number of airlines
Billion gallons
50 100

40 80
Covered
30 60

20 40

Not
10 20 covered
2019

0 0
Jan 20 Jan 21 Jan 22 Jan 23 2023 global jet fuel demand
Source: BloombergNEF, company announcements. Note: Includes Source: BloombergNEF, company announcements,
airlines that have set a specific SAF target. DSET FLY<GO>

13
Demand scenarios
Policies under consideration could add 5 billion gallons to
demand by 2030
SAF demand scenarios, volume SAF demand scenarios, % of global jet fuel

Billion gallons per year Million barrels per day

10 10% 0.75 10%

Millions
8% 8%
8 0.60

6% 6%
6 0.45

4% 4%
4 0.30

2% 2%
2 0.15

0% 0%
0 2020 2022 0.00
2024 2026
2020 2022 2024 2026 2028 2030 2020 202220282024 2030
2026 2028 2030
Economic Transition Scenario Boosted Policy Scenario
Source: BloombergNEF Source: BloombergNEF

14
Capacity outlook
Project delivery slips but capacity additions mount
Cumulative SAF capacity by region Cumulative SAF capacity by technology
Billion
Billion gallons
gallons per year
per year Billion
Billion gallons
gallons per year
per year
77 77

66 66

55 55

44 44

33 33
Previous
outlook
22 22

11 11

00 00
2022
2022 2024
2024 2026
2026 2028
2028 2030
2030 2022
2022 2024
2024 2026
2026 2028
2028 2030
2030
Africa South America Asia Pacific Other Pyrolysis Power-to-liquids
Europe North America Alcohol-to-Jet Gas-to-liquids Hydroprocessing
Source: BloombergNEF. Note: SAF production yields are flexible Source: BloombergNEF. Note: SAF production yields are
and can vary greatly, from a default of around 15% to 50% or more flexible and can vary greatly, from a default of around 15%
of nameplate capacity. to 50% or more of nameplate capacity.

15
Feedstock
Novel technologies need to mature
Potential SAF supply from waste fats, oils SAF project cost vs capacity
and greases, versus SAF demand scenarios
Billion gallons of SAF % of global jet fuel Project cost ($ billion)
12 8% 4 Hydroprocessing*
Gas-to-liquid
Alcohol-to-jet
DG Fuels Power-to-liquid
9 6% 3

USA
6 4% 2 Bioenergy

Fulcrum
Waste fats oils Velocys
3 and greases 2% 1 TotalEnergies
Gevo Petrobras
Infinium Preem
Calumet Braya
0 0% 0 LanzaJet
2020 2022 2024 2026 2028 2030 0 100 200 300 400
Boosted Policy Scenario Capacity (million gallons per year)
Economic Transition Scenario
Source: BloombergNEF Source: BloombergNEF. Note: Hydroprocessing bubbles
with dashed outlines indicate conversions.

16
The outlook
Putting it all together
Global SAF blends by region – ETS Global SAF demand and supply scenarios

SAF share of jet fuel demand Billion gallons Million barrels per day
7% 15 1.0

6%
12 0.8
5%
9 0.6
4%

3% 6 0.4
2%
3 0.2
1%

0% 0 0.0
2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
High
Europe North America Asia Pacific Medium
Middle East Africa South America Base
Demand (Boosted Policy Scenario)
World Demand (Economic Transition Scenario)
Source: BloombergNEF. Note: Based on the ETS Source: BloombergNEF
outlined on page 11.

17
Regional deep dives
Asia Pacific
Asia Pacific demand and supply scenarios
Billion gallons % of Asia Pacific jet fuel demand

2.0 5.0%

1.5 3.8%

1.0 2.5%

Supply scenarios
0.5 1.3%

0.0 0.0%
2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

High Medium Base Asia Pacific SAF demand (ETS)

Source: BloombergNEF. Note: Demand based on the ETS outlined on page 11. Actual SAF yields are flexible
and can greatly vary.

18
Policy
Recent highlights
Canada
● July 2023: The Clean Fuel Regulation went
into effect on July 1, 2023. It targets road
fuels, but SAF can opt in to generate credits.
● The government has committed over C$200
million to purchasing low-carbon fuel for its
federal aviation and marine fleets.
US
● January 2023: The Inflation Reduction Act went
into effect, offering a SAF tax credit. See page
10 for more detail.
● The US also set a non-binding SAF target of 3
billion gallons by 2030 and 100% SAF by 2050.
Brazil
● September 2023: The government is developing
a Fuel of the Future program, which includes an
incentive to help the country reduce emissions by
10% by 2037 through increased blending of SAF.
Source: BloombergNEF
19
China
Sweden European Union
● October 2023: The Civil Aviation
● SAF mandate introduced ● October 2023: ReFuelEU Aviation Administration of China released a
in 2021 at 1%, aims for adopted, mandating 2% SAF in Green Aviation Manufacturing
30% by 2030. 2025, 6% in 2030 and 70% by Development Outline which aims to
2050. See page 9 for more detail. reduce emissions from aviation by
Norway 2035, though does not lay out specific
SAF targets.
● The first nation to implement a
SAF mandate, of 0.5% from India Japan
2020. Aims for 30% by 2030.
● Government is exploring a 1% ● May 2023: The government proposed
UK SAF blending mandate for a 10% SAF mandate for international
domestic flights for 2025. flights by 2030.
● 2025: Finalizing a SAF
mandate that would go into ● The proposal is under review and
effect in 2025 and rise to Singapore expected to be finalized in March 2024.
10% by 2030.
● February 2024: Singapore will require Australia
airlines to use 1% SAF on outbound
France
flights starting in 2026, possibly rising ● July 2023: Australia’s Renewable Energy
● January 2022: 1% SAF to 3-5% by 2030 depending on wider Agency pledged AU$30 million to support
mandate introduced, set to availability and adoption. the development of SAF using eligible
rise to 2% in 2025 and 5% feedstocks and production pathways.
in 2030. Committed blend mandate
Financial support
Non-binding targets or policy under development
Example questions (clean fuels)
● What are the prospects for the supply and demand balance of clean jet fuels in Asia today and in the future?
● What are the current SAF price levels?
● Is there enough feedstock for SAF in Asia?
● Is synthetic jet fuel (e-kerosene) a promising option?
● What domestic and international policy mechanisms are needed to accelerate the adoption of SAF?
● What would be the potential impact of increased use of SAF on air travel demand?

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Carbon
offsets/removal

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Demand for carbon offsets is set to
increase to comply with CORSIA
Aviation CO2 emissions and CORSIA targets
CO2 emissions (MtCO2)
Actual Forecast
900

800 Emissions from China,

India, Russia, Brazil
700

600
Corsia baseline (85% of
2019 level) will go up in
500
2027 when China, India,
Russia, Brazil join
400

300 Emissions from countries

excluding China, India,
200 Russia, Brazil
Corsia
100 Pilot First Second
(2021-23) (2024-27) (2027-35)
0
2015

2016

2018

2019

2021

2023

2024

2026

2027

2028

2029
2017

2020

2022

2025

2030
Source: BloombergNEF, New Energy Outlook 2022, IEA.

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Carbon offset prices, by benchmark
scenario
$/ton
Removal scenario, least-cost decarbonization
300 High-quality scenario, inelastic fundamental demand
240 Voluntary market scenario, elastic fundamental
demand
180
120
60
0
2024 2030 2035 2040 2045 2050

Source: BloombergNEF Note: Chart displays the benchmark demand outlook for each scenario.

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Expensive offsets would price most
companies out of the market
Emissions vs average net profit margin, by sector

Source: BloombergNEF, Bloomberg Terminal Note: Chart shows emissions and profit margins for the 100 largest companies in each sector.

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Example questions (carbon offsets/removal)
● Where do carbon offsets and/or removal fit into decarbonization strategies?
● How do you find high-quality carbon offsets?
● What is the risk of buying low-quality carbon offsets?
● How do you balance the cost of carbon offsets and emissions reductions?
● Is Corsia an effective an effective mechanism to decarbonize aviation?

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Zero-emission aircraft

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54% of total CO2 emissions came from planes
flying up to 4,000 kilomters
CO2 emissions by aircraft category and distance bound, 2023
CO2 emissions (million MT)
140
120
General aviation
100
Normal
80
Commuter
60 Regional turboprop
40 Regional jet
20 Narrowbody
0 Midsize widebody
501-1,000

10,001-
0-500

9,001-9,500
9,501-10,000
1,001-1,500
1,501-2,000
2,001-2,500
2,501-3,000
3,001-3,500
3,501-4,000
4,001-4,500
4,501-5,000
5,001-5,500
5,501-6,000
6,001-6,500
6,501-7,000
7,001-7,500
7,501-8,000
8,001-8,500
8,501-9,000
Large widebody

Source: BloombergNEF, LexisNexis Risk Solutions Inc. Note: The number of flights includes both inbound and outbound flights.

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Demand for small zero-emission fixed-
wing aircraft is increasing
Order backlog of low- and zero-emission fixed-wing aircraft
Manufacturers Number of aircraft (units)

General aviation 187 187

Normal 246 1,349 1,640

Electric

Commuter 648 163 942

Regional 270 91 461

Normal 40

Commuter 93 186
H2

Regional 183 329 512

Airship 10
electric
H2/

Commuter 110

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Americas, Europe, and Asia-Pacific account for most
dense short-haul networks up to 500 kilometers
Potential routes for battery-electric or H2 FC planes, 500km or less

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Example questions (zero-emission aircraft)
● What are the prospects for electric and hydrogen-powered aircraft in Asia?
● Where do such aircraft stand in airlines’ decarbonization strategies?
● Where is the potential market for such aircraft?

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32 BNEF