By Alan Chan, Chief Investment Officer, The Hong Kong and China Gas Company Limited (Towngas) / Managing Partner and Co-Founder of Full Vision Capital
The move to build a third runway at Heathrow Airport is, to put it mildly, controversial. The angst and opposition over the cost, the time to build and the subsequent noise and air pollution, seemingly in defiance of the UK net-zero carbon emissions commitment, is understandable.
Yet, take a step back and you will see an aviation industry that is developing rapidly amid growing demand for travel and green transition. The latter includes growing usage of Sustainable Aviation Fuel (SAF). There’s plenty to consider and, while there are valid concerns over carbon emissions, there are powerful mitigating factors that suggest the proposed long-term strategy for Heathrow may be the right one.
According to the International Energy Agency (IEA), aviation accounted for 2.5% of global CO2 emissions in 2023, rising back to above pre-pandemic levels. To give that some context, automotives account for around 12% and fast fashion about 10%. However, aviation as a sector is growing fast. The EU estimates that commercial flights could increase as much as 42% by 2040.
The commercial case for an extra runway is a powerful one, but public concerns about increased pollution and meeting net-zero-emission commitments need to be addressed. The UK, the European Union and several other countries have legally binding net-zero commitments, mostly by 2050. All have interim targets – stepping stones to net-zero – that are critical. Aviation has a big part to play and that’s where SAF comes in.
SAF is produced from sustainable feedstock that includes waste and residue fats, such as vegetable oil, used cooking oil, and animal fats, as well as purpose-grown crops like jatropha and camelina. These feedstocks are processed with hydrogen to remove oxygen and create hydrocarbon fuel components. SAF has the same energy intensity as jet fuel and can be safely blended with it. SAF can reduce carbon emissions by an estimated 75%-90%, depending on the feedstock composition.
Regulation, SAF driving change in aviation
So, what factors support the airport expansion? Besides the economic benefits, there are two major factors.
The first is regulatory impetus. The EU has mandated the use of SAF in aviation fuel, rising in incremental amounts through to 2050. The ReFuelEU Aviation Regulation, which took effect at the start of 2024, requires aviation fuel to have a minimum 2% of SAF from 2025. This percentage rises to 20% by 2030 and 70% by 2050. Use of synthetic SAF is mandatory too with 5% in 2030 rising to 35% in 2050.
Yes, the UK is no longer in the EU, but it is surrounded by EU countries and will need to follow suit. Singapore has similar legislation and Hong Kong will do likewise, as will other airports with flights that go to Europe. The UK’s Sustainable Aviation Fuel Mandate will see incremental increases in SAF usage, similar to the EU.
The second factor is the amount of SAF coming on stream, helping to meet current global demand of about two million tons – demand that is forecast to reach 10 million tons by 2030. Finland’s Neste Corporation is the world’s largest producer, but more manufacturers entering the market. One of the leading and most exciting producers is Hong Kong-based EcoCeres Inc., a company which received early funding from Full Vision Capital and is now 43% owned by Towngas.
Innovative startups supported by TERA Awards developing clean fuels
EcoCeres is a major producer of SAF and major feedstocks for SAF, hydro-treated vegetable oil (HVO) and cellulosic ethanol (CE). SAF and HVO are ISCC certified as offering emissions reductions of up to 95%. CE can offer reductions of up to 80%. With new plants in Suzhou, China, and Johor, Malaysia, that are scaling up output, EcoCeres is an example of the rapid growth in this sector.
It’s true that although SAF effectively eliminates CO2 emissions, there are still non-CO2 emissions, such as water vapor, sulphur dioxide (SO2), soot particles, and nitrogen oxides (NOx). However, SAF emits far fewer non-CO2 pollutants than jet fuel, and this can be reduced with high blends and quality feedstock.
In Hong Kong, where Towngas is based, a new third runway opened in 2022 after six years in construction. It was controversial. But air traffic has risen sharply since, albeit from low pandemic levels, and is set to continue upwards over next decade. Heathrow will see the same over the next decade and beyond – that’s inevitable. It makes sense to be ready.
It all ties in nicely with the TERA Award 2025, the smart energy innovation competition organised by Hong Kong-based Towngas and backed by Full Vision Capital, that has already contributed significantly towards supporting startups in the development of clean fuels, such a SAF, and other smart energy systems.
