Book and claim - Part 2

How SAF and green H2 are harnessing the power of Energy Attribute Certificates

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“God didn’t invent blockchain for crypto grifters to do their thing, he did it to enable book-and-claim systems to enable the green energy transition.”

John Podesta, Senior Advisor to the President for International Climate Policy

New and innovative market mechanisms are being launched to spur market development in low carbon commodities.

Up until recently Energy Attribute Certificates (EACs) had only been used to support the development of renewable energy generation. They are more commonly known as Guarantees of Origin (GOs) in Europe, or Renewable Energy Certificates (RECs) in North America.

To recap, EACs are based on a “book and claim” chain of custody market mechanism. They enable suppliers of low-carbon solutions to “book” the environmental attributes of a good they have produced (i.e., power generated via renewables, emission savings, etc), and for users to “claim” those same attributes (see Book and claim - Part 1: Energy Attribute Certificates play a vital but controversial role in the energy transition).

The trade can happen even if there is no actual physical exchange of renewable electricity between the buyer and seller. The custody model assumes that one unit of environmental attribute is equal to another, wherever it is produced or consumed. One electron equals another electron, one tonne of CO2 avoided equals another tonne of CO2, and so on.

Each certificate is unique, and its attributes include independently verified claims rights, documents of origin, and audit trails. The holder owns the legally recognised property rights to the underlying environmental attributes. The certificate can be traded between parties, but then finally retired by, or on behalf of its owner to claim usage of the environmental attributes.

EACs have been a key enabler of the energy transition. Now various industries are using the same tools to kick-start the growth in Sustainable Aviation Fuel (SAF) and green hydrogen (gH2).

The challenge facing low carbon fuels

Sustainable Aviation Fuel (SAF) is expensive to produce due to the high cost of feedstocks (e.g., Hydro-processed Esters and Fatty Acids, HEFA) and the high capex requirements, preventing it from rapidly achieving economies of scale. SAF production may have reached 600 million litres in 2023 (double the output of the previous year), but this still only represented 0.2% of global jet fuel use. In Blending in: Decarbonising air travel with 'sustainable' fuel, I highlight how a combination of strict government mandates and high carbon prices are likely to be required if the SAF price premium versus conventional jet fuel is to narrow:

“Airline industry targets are helpful, but stringent penalties (in the form of carbon pricing) coupled with minimum blending mandates may be required to embed the expectation of having to use SAF. That will help to speed up investment in the infrastructure required to ensure that supply can more adequately meet expected demand growth. Note that building new SAF production plants, in addition to related infrastructure, usually takes 5-6 years to become fully operational.

At the moment, carbon prices are nowhere near high enough to incentivise the shift from jet fuel to SAF. According to BNEF the minimum carbon price necessary for gasification and Fischer-Tropsch of non-vegetable oils is close to $250 per tonne. Other SAF feedstocks processes may require carbon prices up to and in excess of $1,000 per tonne.”

gH2 is also struggling to scale. Globally some 840 GW of clean H2 projects have been announced, but only 15 GW (1.8%) have reached Final Investment Decision (FID), according to PwC. Only 2.6% (representing 13% of the contracted volume) of the gH2 projects planned to come onstream by 2030, has a binding offtake agreement, according to BNEF (see A volatile gas: Hydrogen's latest hype cycle still suffers from overinflated expectations).¹

Research carried out by the Organisation of Economic Cooperation & Development (OECD) and the World Bank identified several offtake risks that influence whether a gH2 project proceeds to FID. They include inadequate demand signals, unavailability of credible off takers, gH2 price uncertainty, the lack of gH2 trading markets, and the potential for offtake defaults.²

Tackling the green premium

In the absence of policies that solve these challenges, industries involved with the SAF and gH2 supply chains are turning to market mechanisms that monetise individual firms willingness to pay a green premium for low carbon commodities (see Deciphering nickels green premium).

Commodity research firm CRU defines the green premium as: “An additional price, over and above that paid for the equivalent ‘standard emissions’ substitute, that the consumer or buyer will pay due to the lower CO2e emissions associated with a product.”

Green Premium Certificates (GPC) are instruments that represent the emissions attributes, and emission relate claims, after using a metric tonne of low carbon fuel. GPCs have similar characteristics to the EACs:

• They unbundle the environmental attributes from the physical fuel, enabling buyers to pay for the environmental benefits, even if the physical fuel is not yet available for them to use.

• They serve as a means to aggregate and catalyse additional demand for the low carbon commodity, in turn generating new funding that can be used to cover its price premium.

• Finally, in a nascent market such as SAF or gH2, they must also be interoperable between regions, enabling trade to take place, even when comparable standards between regions are yet to be developed.

For example, Sustainable Aviation Fuel certificates (SAFc) are linked to the creation of one tonne of neat (unblended) SAF. Exhibiting the characteristics outlined above, the SAFc buyer is able to claim even higher sustainability benefits (since the fuel doesn’t need to transported to the SAFc buyer), at a more economical cost, and via a globally recognised accounting and reporting system. By tapping into buyers willingness to pay a premium versus jet fuel, the SAFc market catalyses a SAF supply response.

RMI and the Mission Possible Partnership (MPP) conducted a survey of 23 companies (including airlines and logistics service providers, and corporate customers), and examined their willingness to pay for SAF and SAFc. The average price the airline industry was willing to pay for SAF was $6 per gallon, three times the current jet fuel price. Meanwhile, analysis of corporate demand for SAFc indicates a green premium in the range of $2.34 - $3.93 per gallon.³

Source: RMI

Aggregating demand for SAF

The Sustainable Aviation Buyers Alliance (SABA) was co-founded by RMI and the Environmental Defense Fund (EDF). Launched in April 2021, SABA worked with aviation customers, airlines, and fuel producers to develop a rigorous, transparent SAF certificate system. It now harnesses the collective buying power of major corporations to aggregate demand for SAFc and in turn send a clear signal to SAF producers.