What does it take for Singapore to meet its SAF targets?

(10 Minutes Read) This article assesses Singapore’s position in procuring sufficient SAF to meet its emission reduction goals.

Introduction to the Singapore Sustainable Air Hub Blueprint & SAF mandate
Unpacking Singapore’s demand and supply of SAF
Policies to support the transition towards SAF
Understanding the role of financial institutions

In February earlier this year, the Civil Aviation Authority of Singapore (CAAS) launched the Singapore Sustainable Air Hub Blueprint, which sets out medium and long-term targets [1], and steps for Singapore to decarbonize its commercial aviation sector through 12 main initiatives, which includes a phased SAF blending mandate through 2030. These ambitious targets will be difficult to achieve in a poorly resource-endowed country, and we seek to understand if Singapore has the capabilities and capacity to service its ambitions.

To meet the Blueprint’s objectives, CAAS built upon the recommendations by the International Advisory Panel (IAP) on Sustainable Air hub (2022) Report to introduce 12 sustainability initiatives with 5 enablers across the airport, airline, and air traffic management domains. 4 of such initiatives were implemented to support and sustain the use of SAF in Singapore [2].

The ecosystem to support the use of SAF

Establishing SAF demand

Centralised SAF procurement (aka Buyers’ Club) – The Singapore / ASEAN Corporate Buyers’ Club is the first instrument to induce SAF demand signals. By aggregating demand, the buyers’ club provides demand certainty for SAF suppliers, encouraging them to invest and scale up regional SAF production (IAP, 2022). Additionally, pooling large SAF purchases (e.g. SAF procurement from levies collected) will reduce transportation costs and secure SAF at competitive prices. Businesses and organizations are also invited to use this mechanism to aggregate demand and reap economies of scale (CAAS, 2024).

National SAF levy & target

An effective offtake mechanism is essential in creating long-term and lower cost SAF supply for Singapore. This certainty in SAF demand brings forth investments to increase SAF production and drive up SAF adoption. Singapore’s proposed structural offtake mechanism at an air hub level provides the highest potential in achieving SAF uplift targets while keeping a level playing field among all airlines (IAP, 2022).

The national SAF levy is structured to increase according to distance and flight class (S$3, S$6, S$16)[3], which will provide cost certainty to airlines and travelers. The mandate also prevents any competitive distortions among airlines operating in Singapore, which could arise if individual airlines were given the power to decide the amount of levy to impose. The funds collected through these levies will be utilized to purchase SAF to meet national SAF targets (1% in 2026, 3-5% in 2030).

Dissecting Singapore’s medium-term SAF needs

Considering the unique circumstances within SEA, the following production pathways - Hydroprocessed Esters and Fatty Acids (HEFA), Fischer-Tropsch (FT), Power-to-liquid (PtL) - are considered in Singapore’s capabilities to service its SAF needs:

HEFA - HEFA will be expected to furnish majority of Singapore’s SAF demand with Neste’s 2.6 million tonnes per annum plant, of which 1Mtpa is catered for HEFA-SAF production. Our analysis show that Singapore’s 2026 and 2030 uplift targets will comfortably occupy 11-62% of Neste’s production capacity. While a 2030 5% target is well serviceable by Neste, a higher (i.e. 10%) target will likely result in a bottleneck in production capacity for Neste and may result in increased reliance on SAF imports for Singapore.

Additionally, feedstock availability may be a potential bottleneck: waste lipids such as used cooking oils (UCO) are constrained due to competing bio-diesel production and inherently limited supply. Singapore is a net UCO importer, and imports from China rising exponentially by 21 folds from 2019 to 2021. With the global estimated supply of waste lipids expected to be exhausted post-2029 (IEA, 2020), we expect other forms of oil-based feedstocks such as palm oil to supplement medium-term SAF needs. Palm oil may be a suitable feedstock when volumetric SAF targets are in the spotlight, but a transition to carbon intensity-based targets post-2030 may place palm oil and HEFA-SAF at a disadvantage due to lower decarbonisation potential (32.5-57.9%) than other feedstocks (Prussi et al., 2021).

FT – Despite the lack of FT-SAF plants in Singapore or the region, feedstock availability signal potential SAF production opportunities from an absolute feedstock volume perspective for project developers. Singapore is a net exporter of recyclable waste – with more than 1,439,000 tonnes exported in 2019, translating to a municipal solid waste (MSW) based SAF production potential of more than 0.4Mtpa for local aviation consumption.

Often enough, the issue with utilizing MSW from Southeast Asia is its subpar calorific content (ASEAN, 2020). This issue was an important factor in Singapore’s waste-to-energy considerations and is expected to also apply to FT-SAF production, where fuel conversion efficiency is heavily dependent on the energy content of feedstock type. Therefore, appropriate feedstock pretreatment technologies will have to be employed to obtain waste with sufficiently high calorific content. With capital expenditure typically accounting for more than 80% of MSW-SAF production costs, we do expect the highly capital-intensive nature of FT-SAF production to be further exacerbated in Singapore.

PtL – We view that feedstock availability (renewable energy, clean carbon and hydrogen) will be the biggest barrier to actualizing PtL-SAF plants in Singapore. The critical factor in PtL projects is access to low-cost renewable energy to enable cost-effective fuel production. In a region where national clean energy transition remains imperative, the priority of new renewable energy capacity will likely serve to supplement grid needs of energy balancing and capacity adequacy, rather than being channeled towards commercial decarbonization endeavours. In addition, ASEAN’s nascent grid connectivity will limit the feasibility of green electros import into Singapore.

Singapore’s high energy costs ($208-492/MWh) will likely impair the cost competitiveness of domestic PtL-SAF production, compared to regions with higher renewable energy endowment and cheaper energy prices (e.g. US: $32-190/MWh). As such, the lack of domestic renewable energy baseload and land constraints will curtail the feasibility of PtL-SAF production. Most importantly, the lack of affordable, sustainable carbon and hydrogen sources will also hinder PtL-SAF from scaling in Singapore, at least in the short-medium term.

Policy Gaps – Strong demand signals but big shoes to fill on the supply-side

With lessons learnt from other countries and the potential of SAF production pathways overlayed, key policy gaps to be filled for greater SAF production includes:

The Role of Financial Institutions

The supply and technology viability for next-gen SAF technologies needs to be accelerated to meet the demand targets. Public-private partnerships can take place to support research and development and de-risking of SAF investments. Financial institutions can provide financial support through preferential capital or financing structures to lower capital cost or de-risk investments in next-gen SAF (WEF, 2023) with strategic road maps and KPIs from government and private sector initiatives. High-quality carbon credits can also be a way to attract private capital to bridge the funding gap and scale the supply of SAF (IEA & GenZero, 2024), alongside the potential for private sector to jointly fund the establishments of SAF production plants directly.

Summary

With ambitious goals ahead of us towards 2030, Singapore will have the production capacity to meet its targets, but concerted efforts will have to be orchestrated between key stakeholders (government, airlines, corporates) to procure sufficient SAF feedstock. While the CAAS’s initiatives are applauded for pushing Singapore to the forefront of sustainable aviation within ASEAN, supply-based policies will need to ramp up to meet demand, with financial institutions and the private sector playing an integral role in catalysing growth within the aviation sector.

[1] To reduce domestic aviation emissions from airport operations by 20% from 2019 levels in 2030 and achieve net zero domestic and international aviation emissions by 2050.

[2] The four initiatives are national SAF target & SAF levy, centralized SAF procurement, increasing regional SAF production and improvements to operations and airline fleets.

[3] CAAS estimates the levy for an economy class passenger for short-haul, medium-haul, and long-haul flights to be S$3, S$6 and S$16 respectively (CAAS, 2024)

This article is co-written by:

Clive Tan, a year 2 SMU undergraduate who co-heads the research division at SMU Sustainable Investment Club. He is currently researching tech-based decarbonization solutions at Temasek Holdings.
Lam Ting Kang, a Year 2 SMU Accountancy undergraduate who co-heads the research division at SMU Sustainable Investment Club. He is currently working on transfer pricing at BDO LLP.
Adele Lim, a Year 3 SMU undergraduate who co-heads the research division at SMU Sustainable Investment Club. She is currently fulfilling her summer at MAS’s Sustainable Finance division

Glossary

Hydroprocessed Esters and Fatty Acids (HEFA) - HEFA refines vegetable oils, waste oils, or fats into SAF through a process that uses hydrogen (hydrogenation).

Fischer-Tropsch (FT) - The FT process takes any carbon containing material and breaks it into individual building blocks in a gas form (synthesis gas).

Power-to-liquid (PtL) - PtL is a new alternative fuel production pathway from renewable energy sources, water, and carbon dioxide.

References

What does it take for Singapore to meet its SAF targets?

Recent Posts

Comments