The role of sustainable aviation fuel in CORSIA : an economic analysis

Abstract

Under the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA), airlines can decarbonize their operations by purchasing either sustainable aviation fuel (SAF) or carbon offset credits. We develop an economic model to compare airlines' profits and social welfare outcomes under different scenarios. We first assume that SAF and offset credits are equal, and then we introduce a SAF multiplier that promotes SAF usage. Our findings show that for SAF to be more profitable for airlines, its unit cost must be lower than that of offset credits. Additionally, if uncompensated emissions of SAF and offset credits are high, SAF needs greater economies of scale to be more socially beneficial than profitable. We also find that when airline competition increases, lower economies of scale for SAF production are needed for SAF to be cheaper or more beneficial than offset credits. Finally, a small SAF multiplier can reduce the appeal of SAF for airlines and society, while a SAF tax credit enhances its benefit.