Oslo, 8 August 2018 MILJØDIREKTORATET Postboks 5672 Torgarden 5672 Trondheim Subject: Høring av forskriftsændring innføring av omsetningskrav for biodrivstoff til luftfart, saksnr. 2018/6537 With reference to the above mentioned and received material Konsekvensutredning av omsetningskrav for biodrivstoff til luftfart, please find below the hearing response from Aviation Fuelling Service Norway AS (in the following mentioned as AFSN). Introduction to AFSN AFSN had company start 1 July 2015 and was established as part of the transaction when Shell 1 October 2015 completed the sale of its Downstream business in Norway to St1 from Finland. AFSN is subsequently a demerged company having its origin in AS Norske Shell and comprises former Shell owned Aviation activities and several decades of representation in Norway. The company AFSN is a Marketing Joint Venture which Shell and St1 equally own 50/50 and is registered as a corporate entity in Norway. The purpose of the company is to deliver, distribute, sell and market Aviation fuels to airlines at airports and bulk customers delivered by truck, vessel or selfpickup. AFSN is one of the two active oil companies in Norway active on selling Jet A-1 to airlines at airports and bulk to local military at their installations. In addition to own capacities and competencies, the company AFSN has also support and cooperation agreements with its owners Shell and St1 within the areas: - Commercial Service - Technical Service - Product Quality & Development - Suistainability - Engineering - HSSE - Insurance - Supply - Distribution The AFSN company website can be visited at www.afsn.no Please also see additional information on AFSN s owners in next section.
Shell Shell produces, distributes and sells high quality aviation fuels globally. The company provide aviation products to airports and airlines at around 900 airports in about 36 countries. Shell provides every year fuel for almost 2 million aircraft, refueling an aircraft every 14 seconds. Shell has one of the world s most extensive fuelling networks. This is supported by a strong supply chain based on Shell s own refineries and Shell s considerable fuels trading expertise ensuring security of supply. Shell is also acknowledged as one of the world s leading providers of aviation technical services. A consistent winner of Best Technical and Operational Performer Armbrust Award and with significant experience designing, building and managing fuelling operations globally. Shell brings world-class technological insight and invest in technical innovation to the aviation industry. It is one of the few energy companies with research and development facilities dedicated to the aviation sector that cover aviation fuels, fuel handling and lubricants. For further information, please visit www.shell.com St1 St1 is a Nordic energy group whose vision is to be the leading producer and seller of CO2-aware energy. The company researches in and develops economically viable, environmentally sustainable energy solutions. St1 focuses on fuels marketing activities, oil refining and renewable energy solutions such as wastebased advanced ethanol fuels and industrial wind power. The Group has 1400 St1 and Shell branded retail stations in Finland, Sweden and Norway. Headquartered in Helsinki, St1 employs currently more than 750 people. St1 plans to invest in a renewable middle distillate (diesel and JET fuel) production capacity of 200.000 tons pa at its Gothenburg refinery by early 2020 ies. Across the Nordic countries St1 operates own depots and haulier contracts and has prior to ownership in AFSN also been active in Helsinki Airport through the Joint Venture named Avifuels Oy. For further information, please visit www.st1.eu St1 owns 49% of North European Oil Trade (NEOT), the leading fuel supply company in the Nordic countries. NEOT supplies fuels to major Nordic service station chains St1, Shell and ABC in Finland, Sweden and Norway. NEOT product portfolio covers all crude oil and biomass based fuels, totalling ca. 7 billion liters pa. Also, hundreds of thousands Finnish homes and companies are heated by oil delivered by NEOT. In addition, the company supply significant fuel amounts to be used in seagoing vessels and in the aviation industry. For further information, please visit www.neot.fi/en
AFSN hearing input The Norwegian Environmental Authority has requested feedback on a proposal to introduce a mandatory element to aviation biofuels use within Norway under the government s strategic aim to develop sustainability in the Aviation sector and encourage further development of the biofuels sector within the country. The two scenarios being discussed are: i. Mandate of 1.0% conventional (1 st generation) biofuels; estimated industry demand 12.000 m3 p.a. ii. Mandate of 0.5% advanced (2 nd generation) biofuels; estimated 6.000 m3 p.a. with an implementation date of 1 st January 2019 and an aspirational pathway for biofuels share of 30% of total aviation fuel use in Norway by 2030. The main areas where Norway Environmental Authorities has sought AFSN s and its owners input, expectations and/or views, are as follows: Availability Quantity available now in 2018 and expected available in 2019 and in particular the realistic size for a country like Norway both for conventional (1 st generation) and advanced (2 nd generation) Longer term availability - political ambition in the Norway National Transportation Plan include a 30% mandate in 2030 (being 400.000 m3 when using todays country volume) Realistic timeframe With a hearing outcome likely early Q4 and potential legislation to follow thereafter, timeframe for a possible implementation Due the situation on availability of product Price Levels seen now and to expect in 2019 both for conventional (1 st generation) and advanced (2 nd generation) Timing for when a product market on BioJet and trading/pricing as known on other oil products, could be seen Producers Who todays stable producers are and the quantities they send to market Producers and/or projects coming on stream in 2018 or 2019 Other Existence of logistical infrastructure in Norway and distribution cost levels to handle this volume of BioJet Status on the potential approval of HEFA+ in BioJet and latest information with regards to the ongoing ASTM s approval process Status of the process to allow Bio in Military fuel grades Risk of a BioJet mandate on Int l flights being in conflict with Norway s commitments within bilateral agreement, the ICAO Chicago convention and EEA Other feedback and suggestions on any alternative The following pages responds on these areas.
Sustainable Aviation Fuels (SAF) Technology Landscape 5 conversion pathways that are currently certified by ASTM Technology Code Feedstock 1 st or 2 nd gen Max blend Technology Providers Fischer-Tropsch FT Biomass/MSW/Nat Gas 2 nd 50% Fulcrum, Velocys, Shell Hydro processed Ester and Fatty Acids HEFA Oils, Fats & Greases (Used cooking oil) 1 st 50% UOP, Neste iso- Synthesized parraffins SIP Sugars 1 st 10% Amyris FT Synthesized Paraffinic Kerosene plus aromatics SPK/A Biomass, MSW, Coal 2 nd 50% Sasol Isobutanol to Jet ATJ- SPK Sugars, Biomass, MSW 2 nd 50% Gevo Potential future pathways (2019-2021 certification timeframe if not longer) Technology Code Feedstock 1 st or 2 nd gen Max blend Technology Providers Hydro processed Ester and Fatty Acids HEFA Algae 2 nd tbc IHI Hydropyrolysis CPK Woody Biomass 2 nd tbc Shell Hydrotreated Renewable Diesel HEFA+ Oil and Fats 1 st Est. 10% Neste, UOP Catalytic-HTR Hydrothermal Reactor; Supercritical Water CHJ Lignocellulosic biomass 2 nd tbc ARA Currently the technology that is being used to produce biofuel regularly is the HEFA technology. Although five pathways are approved, production is currently only centred on 1 st generation technology. Second generation projects are all in development stage, many of which are struggling to scale-up due to a mixture of technical, feedstock and financial challenges. The next fuel likely to be certified is HEFA+ but this is unlikely before the end of 2019.
It should also be noted that for each process, feedstock and supply chain, a different carbon lifecycle result will emerge. A detailed assessment will need to be made for each supply chain and results on carbon lifecycle could range from a 10% carbon lifecycle reduction through to a 70% reduction which has important implications for helping understand the CO2 reduction benefit. For 1 st and 2 nd generation fuels that may enter the Norwegian aviation fuels supply chain, sustainability criteria should be assessed in a way that assesses not only CO2 footprint reduction but also the impact of feedstocks. There is a number of sustainability concerns relating to crop based feedstock in view of potential competition with the food supply chain, fresh water availability and land use. To ensure sustainability and consistency, the sustainability regime (incl. the life cycle GHG calculation rules) established in the EU Renewable Energy Directive should be applied in aviation sector, as well. Sustainable Aviation Fuels (SAF) Supply Picture The global civil aviation fuel demand is slightly below 300 million tons per year. The annual growth is estimated to be 2-4% pa over the coming decades, ie. 6 12 million tons pa. At the same time, the only currently existing relevant conversion pathway until 2030, that could form the basis for SAF, is Hydrotreated Vegetable Oil diesel (HVO to road transport and HEFA or HEFA+ to aviation) has the global annual production (2017) of 4,6 million tons pa. Basically, all that production is sold to road transport, and as much as 40% of that (2,6 million tons) is consumed in Norway, Sweden and Finland only (2017). According to publicly available information, there are HVO investment plans for additional 2,5 3 million tons pa over next 5 years. It is evident, that the existing and planned global production capacity is not even able meet the increased global demand of the aviation fuels, not to mention to cut the CO2 emission from the current levels in aviation sector. At present there is on one plant producing SAF on a consistent basis which is the AltAir facility in California which is producing 20.000-30.000 metric tonne per annum of HEFA (Hydroprocessed Ester and Fatty Acid) fuel. This is a drop-in approved jet fuel certified by ASTM up to a 50/50 blend ratio (but typically blended to 30/70). AltAir s key supply chain challenge is that the fuel can only be loaded via iso-tank container in Los Angeles and shipped by container ship to end-user destinations. Some projects are in development phase with most focused on the US due to the tax credit system for renewable fuels and the low carbon fuel standard (LCFS) in California. By 2020-21 we could theoretically see an increase in SAF availability of the order of times 10 20 (versus today) however in all cases, the SAF would need to have a price premium to pull the fuel away from the diesel pool and road transport demand. There is no expectation of further changes to regulatory mandates for aviation bio-fuels in other countries in the 2018-2019 period except for Sweden who continue to discuss a mandatory volume target. But, shifting the same volume from one sector to another would result at a higher societal cost level without any incremental positive climate impact vs. using it in road transport. Such a counterproductive regime should be avoided and it is also important to have included, that no new raw materials can be found by new legislation. We see limited availability of additional SAF fuel in 2019 although some existing renewable diesel production could be re-processed to produce HEFA-SAF with large additional costs associated with the additional processing. Neste are looking the potential to make a HEFA-SAF cut at their Porvoo plant in 2018/2019, any availability will be priced to meet or exceed renewable diesel margins. Further European availability would require re-processing of renewable diesel production which may be possible in limited quantities. It is this respect also important to include the Neste commitment with GVA airport in Switzerland and the aim to implement BioJet late 2018 at this location. Unknown to AFSN if it is going
to start at the targeted time but if it does, it will for sure lock away volume. Neste has also announced a plan to invest in their Singapore refinery to build up a new production capacity of 1 million tons of renewable fuels (diesel and jet) and raw materials for biochemicals. However, there is no publicly available information what would be the share of the fuel products and aviation fuel specifically. For new projects coming on-stream in 2020, volume has typically already been committed to project partners against the initial and secondary funding arrangements. This will likely hinder this production coming to market and delay any form of spot or term market developing in the two to five-year time horizon. The current supply outlook is very constraint. If the Norway mandate is implemented, that local market demand would potentially need to attract 30-50% of the current global SAF availability today (mainly 1 st generation fuels) with uncertain economics, long distance supply risk and require additional logistics processes to be put in place in Norway. The following should be taken into consideration: i. SAF supply is globally very constraint, if not non-existent, in the foreseeable future ii. Shifting the same volume from road transport to aviation is counterproductive from climate and cost perspective iii. Most of the SAF would be 1 st generation Sustainable Aviation Fuels (SAF) Pricing The range of technology projects and processes connected to SAF are wide, with many still in the early phase development stage with no clear signs of scalability being achieved in any one technology that would allow a sudden increase in SAF availability. As there is practically no production, nor open market place for SAF, there is no real price reference available. However, initial indications suggest a range of fuel costs ranging from 2.5 times current fossil jet prices all the way up to 6 times current Jet A-1 prices. US produced fuels For renewable fuels leaving the US, additional costs are incurred due to the need to expire the domestic RINs (renewable identification numbers) associated with renewable fuel obligations in the US. This value is intrinsic to US produced fuels and once the fuel is exported, it cannot be counted against US renewable fuels obligations. From 1 st January 2019, SAF will also have an LCFS credit which also cannot be used if the fuel is exported. The initial penalty to export renewable US fuels is of the order of 4-5 USD per gallon which equates to 1.300-1.700 USD per metric higher than the current CIF NW Europe jet price of 700 USD per metric tonne. This additional cost also excludes additional costs of differences between USWC fossil jet price versus other markets and logistics costs to ship fuel by iso-tank. We currently see very limited opportunities to ship bulk fuel via marine barge or tanker out of the US. Europe Supply opportunities of Europe are limited to Neste production ex. Porvoo or renewable diesel reprocessing via tolling arrangements. In the Neste case we would expect fuel prices to be the higher end of the indicated range given that Neste have a clear overview of the global supply challenge, although logistics costs may be slightly lower due to their capacity to ship small barge volume out of the Porvoo facility. For re-processing we
would expect fuel costs to be similar to that of a US sourced fuel with delivery via iso-tank container or blending within a major refining centre for re-supply by larger barge to Norway. Cost for society To cover a potential 1% mandate, Norway would need to price an aviation bio-fuels mandate to attract limited supply from other markets. That cost would have to be managed domestically within Norway with the potential costs impacting fuel suppliers, the airlines or the airline customer or all three. In all cases, we would expect pass through impacts. Taking the base case of 12.000 m3 for the Norwegian Aviation sector, the estimated cost for the society could be in the order of magnitude of 15-25 million USD per annum. However, as there is no real SAF price data available the estimate should be considered as an indication only. Infrastructure Challenges In all cases SAF fuel must be blended into Jet A-1 and re-certified at the blending site as Jet A-1 quality with the site being deemed as the manufacturing location for the Certificate of Quality procedure required by JIG/EI1530 standards. Options for fuel management: 1. SAF fuel is brought in neat into Norway fuel infrastructure with dedicated offloading and blending tanks available ahead of final Jet A-1 blending 2. SAF fuel is discharged in another blending location, e.g. Rotterdam, blended and re-certified ahead of final shipment to Norway 3. SAF is blended at the production location with Jet A-1, e.g. Mongstad, certified and then directly supplied as finished product in Norway In all 3 cases additional storage, blending and logistics costs will be incurred with the need to manage additional complexity in the supply chain. According to Avinor presentation, the current BioJet scheme at OSL had in 2016 a BioJet volume of 1.250 m3 while 2017 BioJet volume developed to 125 m3 and 0.01% penetration. Supply chain for this has been truck deliveries from Gävle in Sweden and in a blend of 50/50 Jet A-1 and BioJet. This is to be seen against 12.000 m3 BioJet if a 1% mandate is introduced and if that supply chain is to continue. There doesn t exist any other current infrastructure available and suitable for BioJet in today s Aviation supply chains in Norway. This would either need to be established for handling a blend inside Aviation logistics or above option 2. or 3. will need to become the possible solution. None of above option 2. or 3. exists today. Military Acceptance SAF fuel has been tested and used by the military in several locations, the USA and Netherlands are examples. Many of these trials have been conducted on a standalone basis. Use for further military grade sales are dependent on the agreed process for military grade fuels in each country and would need be to be confirmed with the relevant buying authority. Currently there is no common acceptance of SAF in jointly operated NATO pipeline systems or fungible supply systems. Where SAF has been trialled with the military it has been typically been done as a pilot project or demonstrator with the appropriate funding provided to cover the additional costs of SAF use.
International Agreements Previous experience around international acceptance of country or regional unilateral policy action indicates that individual countries whose international carriers are impacted by rule changes in one jurisdiction, may challenge at ICAO or directly negotiate with the government applying the unilateral action. Recent examples have centred around the international response to the EU ETS scheme which originally was meant to apply to all international flight movements in and out of the EU. Several countries, e.g. US, China, Russia, contested the EU ETS policy as encroaching on international frameworks for aviation and the policy was quickly amended to only impact flight sectors within EU airspace. If international carriers would be impacted by a unilateral Norwegian fuels directive it should be expected that further action could be taken by other nation states.
Policy Positions The key thrust of our advocacy on this matter has focused on the following four areas: 1) developing a coherent and long-term framework for action 2) the implementation of a global emissions trading scheme for the sector 3) the provision of time limited support for low carbon technologies 4) the avoidance of bio-jet volume mandates. Our positions are outlined below. 1. Develop a coherent framework for action AFSN and its owners believe that successful CO2 abatement policy requires a stable long-term economy-wide coherent framework for action, in which abatement takes place in all material sectors, avoiding disproportionate cost to society and inefficiencies in emissions reduction, and which encourages investment in low carbon technologies. The set of policies supporting economywide abatement should be aligned and avoid actions that impede their combined effectiveness. Action is required in all sectors to mitigate climate change, and the aviation sector has a part to play in addressing its CO2 emissions. In setting up policies for the aviation sector, regulators should ensure that new requirements do not conflict with existing ones (avoid double counting and minimise complexity) and ensure that simple and practical systems can be used to monitor compliance. 2. Implement a Global ETS for the aviation sector AFSN and its owners favours a global and tailored approach to drive emissions reduction in the Aviation sector, supported by a market-based-instrument which introduces an explicit cost for emitting CO2. Given the global nature of the aviation business and, in order to avoid any competitive distortions, the policy instrument should be globally applicable and regulated, i.e., regardless of country of registration or ownership of the aircrafts and founded on international convention. To this end we believe an emissions trading scheme would be an appropriate policy mechanism. AFSN and its owners welcomes the introduction by ICAO of the first global sectoral CO2 target and global offsetting programme, which provides an explicit price and the ability for global cooperation. A cap and trade programme should be the ultimate goal, in order to drive verifiable CO2 reduction within the sector. AFSN and its owners supports the inclusion of a review clause as a tool to increase, but not to decrease, the ambition over time to meet the agreed carbon neutral growth target and longer term 2050 ambition and to stay aligned with the process and ambition agreed under the Paris Agreement. 3. Provide time-limited support for low carbon technologies An aviation target of carbon neutral growth from 2020 will require technology push policies that seek to advance the pace of new technology development. AFSN and its owners believes that advanced biofuels are one of the low carbon technologies that must play a key role in decarbonising the aviation sector, and government support is needed to de-risk the high capital costs for new manufacturing technologies capable of processing cellulosic feedstocks. To this end, support should be provided through targeted funding to enable the pre-commercial development of advanced biofuel technologies that have the prospect of competing in the long run.
AFSN and its owners believes that financial incentives will be crucial to further encourage the research, development and introduction of alternative fuels in the Aviation transport sector. Governments will need to collaborate with industry to finance the most promising project options. 4. Include Aviation in road transport sector programs (but avoid separate volume mandates for bio jet fuel) In general AFSN and its owners believe that sustainable biofuels is a critical tool to achieve reduction of GHG emissions across all sectors where fossil based fuels are in use today. Policy to promote biofuels adoption needs to ensure the sustainability of biofuels also in the aviation sector in a consistent way with the road transport. However, sector specific volume mandates for biofuels in aviation should not be introduced. Regulatory action which forces the penetration of biofuels in aviation through mandates or other measures could lead to a substantial compliance cost, might result in supply disruptions, and would impact biofuels supply availability in other sectors (e.g., road transport). Bio applications are linked across multiple transport sectors; therefore, policy makers should not introduce sector specific volume mandates and avoid diverting biofuels artificially from one sector to another where it is less technically suited. Industry research and pilot studies into the use of biofuels in aviation fuels are ongoing and may yet result in practical applications. However, biofuels still face significant technical (supply constraints on technically suitable and sustainable bio components), economic (prices too high to compete with traditional fuels) and supply/distribution barriers to widespread adoption in the Aviation sector in the foreseeable future. While AFSN and its owners do not support mandates requiring the use of biofuels in aviation fuels, we do support inclusion of Aviation in road transport sector programs (such as in the US Renewable Fuel Standard or UK Road Transport obligation) but with avoidance of separate volume mandates for bio jet. While not mandating aviation biofuels, but allowing aviation biofuels to count against mandated volumes in road transport programs, would provide the same credit generating opportunity and price support for biofuels used in aviation as for biofuels used in road transport. Summary AFSN hope the above has given more clarity on the areas where hearing input were requested and the professional input from a supplier point of view. We do find that Norway will be on the wrong path with introducing a 1% BioJet mandate with effect from 1 st January 2019 in a situation where: The result would be neglible or even negative climate impact There is likely not enough available product for a 1% mandate There are a high number of uncertainties Too much is in planning phase Cost to society would be substantial (economic consequences in the report Konsekvensutredning made on the assumption that HEFA+ is approved and which is not the case yet) The needed infrastructure doesn t exist There has not been any evaluation done on how a BioJet mandate could affect the competitive landscape between current or any future marketers The longer perspective is missing only focus is 1% in 2019 and nothing on how to meet 400.000 m3 of BioJet in 12 years
If Norway would still like to strive for a more ambitious GHG reduction target in the Aviation sector than set by the ICAO s CORSIA agreement, the design should be market based and cross sectoral. Practically, it should include the following elements: 1. Set a CO2 reduction obligation, instead of the volume mandate, according to a cap and trade principle. 2. Enable a cross sectoral fulfillment of the CO2 reduction obligation. Eg. a CO2 reduction in the road transport, exceeding the mandated level in a given time period, could be sold to an airline as a carbon credit at a relevant market price at the time of the transaction. Also, the CO2 off-setting, eg. in a form of measured and audited biological carbon sequestration should be an accepted method for an airline to meet its CO2 reduction obligation. 3. Create a cross sectoral, transparent and auditable market place to sell and buy CO2 reductions and CO2 offsets, so called CO2 ticket trade. Key prerequisites are that the traded CO2 tickets are always based on actual CO2 reductions, and all mandated sectors and companies meet their CO2 obligations at the aggregated level. The above AFSN hearing response input include subsequently both Shell s and St1 s views on BioJet in Norway and in general. The Norway Environmental Authorities will therefore not receive any individual hearing responses from Shell or St1 and should any contact be needed for clarification or additional information, please contact AFSN CEO Flemming Sindberg. On behalf of AFSN and with kind regards, Flemming Sindberg CEO Aviation Fueling Services Norway AS Mob Work: +47 4691 7876 Mob Private: +45 5056 2682 Email: flemming.sindberg@afsn.no Internet: http://www.afsn.no