IAG Sustainability Chief Talks Global Political Shifts, Repercussions

As the Group sustainability officer at International Airlines Group (IAG), one of the world’s largest airline groups, Jonathon Counsell has a high profile within the company and within the greater aviation sustainability community. IAG airlines—British Airways, Iberia, Aer Lingus, Vueling and Level—have hubs across Europe and the UK, where many industry sustainability initiatives and government rules have led the green drive. IAG airlines all operate internationally, so their executives are also fully familiar with sustainability efforts and challenges worldwide.

Talking exclusively with ATW towards the end of the year, Counsell sounded a note of optimism about where the industry is headed generally, and IAG specifically, against their sustainability goals. But he also drew attention to the challenges and obstacles.

He began by talking about the European Union (EU) and UK sustainable aviation fuel (SAF) mandates that kicked off on Jan. 1, 2024, that will take different paths this year.

While both mandates started at requiring airlines to uplift a 2% mix of SAF, the EU mandate will remain at 2% until 2029 before climbing to 6% in 2030, Counsell explained. The UK mandate, however, increases linearly to 10% by 2030.

“We’ve also got non-CO₂ regulations kicking in, in Europe. Essentially, that’s for all intra-European travel, where airlines are required to basically provide data to determine when and if non-CO₂ effects are taking place. And essentially what we’re talking about there are contrails. And then the third thing that will increase in 2025 is CORSIA (the ICAO Carbon Offsetting and Reduction Scheme for International Aviation), because now that the global industry has hit the baseline level, which was set at 85% of 2019 emissions, we’re starting to build up a liability for CORSIA compliance,” Counsell said.

He said the good news was that airlines have known about the mandates and the CORSIA milestone for a long time, were able to prepare, and are reasonably confident there will be adequate SAF supply to comply with the rules.

But he sees potential “pinch points” coming from 2030, particularly with so-called eFuels’ sub-targets in EU countries. The first concern, he pointed out, is the current lack of eFuels.

“The other is, the UK has capped the amount of HEFA you are allowed to meet the target. That’s okay up to the late 2020s. But from 2030, 71% of the 10% can come from HEFA. But you’ve got to find 29% from non-HEFA or 2G SAF. That equates to about 350,000 tons a year and today there’s very little volume there. So, they’re the two future concerns we have around the ability to comply with SAF mandates.”

Counsell believes that depending on how much growth the airline industry sees, there could be a need for up to 500,000 tons of eFuel in Europe. Today, there is none, either in Europe or globally.

“When we look out to 2035, the overall [EU] SAF mandate jumps to 20%, but 5% of the 20% has to come from eFuels, and that’s again anywhere between 3 and 5 million tons. So, we need lots of eFuel in the next 10 years. It is the least mature SAF, so there are longer lead times to get them produced, which is why we [IAG] have worked hard to partner with eFuels companies,” Counsell said.

To that end, IAG signed a 14-year offtake deal with Twelve and another 10-year offtake agreement with Infinium in 2024. Both are US-based companies that are looking to start producing eFuels from as early as 2026.

Counsell acknowledges there is risk in being locked into long-term contracts on a still in-development product, but he believes the IAG deals “hit the sweet spot.”

BANKABILITY & POLITICS

“We can talk about bankability and that is absolutely the key role that airlines can play. They provide long-term offtake agreements that have committed price in them. We call them take-or-pay contracts. And what that means is the SAF producer can then go to the capital markets and raise finance on the back of that, so those contracts are bankable. You’ll hear a lot of airlines announce offtake agreements, but generally they’re memorandums of understanding. They are not bankable; SAF producers can do nothing with those. So, we very much try to set the example for other airlines. If they’re going to help develop the SAF market, they have to provide these longer-term offtake agreements with a committed price,” Counsell said.

IAG also played strategically, locking into a higher price where there’s potential for risk of another technology superseding the first-to-market down the road.

“We think, with the relative maturity of power-to-liquids, you can be pretty certain. We don’t think there’s going to be a technology that’s going to supersede that in the next 10 to 15 years. They are, in themselves, very innovative fuels. They take CO_2, capture it from the atmosphere and they mix it with green hydrogen. So, that’s pretty exciting technology,” Counsell said.

Looking at the political landscape and shifts of 2024 and this year, Counsell sounds cautiously optimistic that government changes both sides of the Atlantic will not negatively impact aviation sustainability efforts.

“In the UK, we spent four years in an industry-government partnership with the Jet Zero Council, first developing the mandate and then the uncertainty mechanism. So, with a change of government, there is always a risk that might, at worst, get dropped or get delayed. But we were very pleased that the incoming government very quickly made a commitment that they will implement the SAF mandate. And in the King’s speech there’s also reference to the revenue certainty mechanism. So that was great and gave us the exact certainty that we needed. So, we’re pretty comfortable and confident that we’re going to get the policy instruments here in the UK to help the SAF market. The US, of course, very much have gone down the producer incentives and that’s where the majority of investment is going into production capacity,” Counsell said.

“We believe that, with the change in government, that is relatively secure because it’s an economic opportunity for the US. The US very much sees itself as the primary producer of sustainable aviation fuels for the whole industry. So, there is huge economic opportunity. We think there might be a change in the structure of those incentives. We know that the [Biden administration] Inflation Reduction Act will probably change. But overall, the drivers don’t change. And particularly concerning a lot of the Midwest states, where a lot of the investment has gone to SAF capacity, there is a lot of local support for that and we think that will remain,” he said.

“For the UK and Europe, I think it’s positive. One of the key items that we always have to address is, how certain are the SAF mandates? Policy uncertainty is the thing that kills investment. But in all the conversations we’ve had, there seems to be an extremely low likelihood that the mandates will change. That’s exactly what we want to hear, because we need that certainty. The US is in early days; we’ll wait and see. But so far, everything we’ve heard is encouraging. I say so because there is huge economic opportunity for the US in terms of SAF production.”