In 2021, I flew from Chicago to Washington D.C. on a United Airlines flight billed as the first with an engine running exclusively on sustainable aviation fuel, or SAF for short. The flight was meant to draw attention to the possibility of SAF, in this case made from recycled cooking oil, to cut aviation emissions—and a reminder that the technology works today and can be used on existing planes.
SAF production has grown substantially since then, and yet airlines still use it for only a small fraction of their fuel. Perhaps the biggest reason is that there’s no easily accessible market where airlines can turn to acquire the product and SAF producers can sell it.
SAF is one of many lower-emissions commodities facing this problem. Thanks to years of enthusiasm about the green transition, as well as government incentives, a wide range of companies are now preparing to produce low-carbon commodities, and many companies are eager to buy them, even at a slight premium.
But connecting supply with demand is easier said than done. Producers often want long duration contracts; buyers want short ones. Commodities may be located in the wrong place or produced at the wrong time. In short, green commodities need their own markets—but new markets can take decades to develop.
Enter a working group led by the Bezos Earth Fund with participation from a range of private sector and civil society organizations that aims to facilitate the creation of so-called market makers that will jump into the green commodities space and quickly build out new markets.
“Markets for green fuels and green materials are at a nascent stage, and we have a lot of confidence that they are going to emerge and be cost competitive,” says Paul Bodnar, director of sustainable finance, industry, and diplomacy at the Bezos Earth Fund. “But if you’re concerned about climate change, you don’t have 30 years to wait.”
In the economy today, market makers play a key role connecting supply with demand. Think of a financial firm that matches buyers and sellers of stock, allowing for rapid transactions for traders big and small. Or a commodities firm that matches long-term contracts with short-term buyers. It’s a service that allows our economy to run smoothly—and also a lucrative business for the companies that act as market makers.
The previously unreported working group, which includes participation from J.P. Morgan, Bain & Co. and the environmental group RMI, among others, envisions private companies taking on the same role as other market makers—just with a focus on a list of green commodities. The group plans to publish research in September showing the scope of the market making opportunity. Green hydrogen, steel and cement are likely targets. In the meantime, some of the players have started to move forward.
SAF, an umbrella term for a wide range of low-carbon fuels for airplanes, is an obvious opportunity. The fuel is proven, can power existing aircraft, and, if adopted widely, could reduce aviation emissions by as much as 90%. While SAF is substantially more expensive than traditional kerosene-based jet fuel, many corporate customers have offered to pay airlines more for their air travel if the airlines adopt it. Governments, too, are offering incentives for using SAF. The problem is that airlines can’t afford to sign expensive long-term contracts that might leave them uncompetitive as oil prices fluctuate. And SAF refiners can’t start ramping up production without a guarantee that they’ll have customers.
And so J.P. Morgan is looking at how it might be able to raise and structure capital for a SAF market maker. The market maker would buy SAF with long-term contracts and then resell it to airlines at a spot price. Maximizing a range of government incentives and potential carbon credits that might be associated with the fuel would also help the numbers pencil out. “You squeeze the green premium by being very commercially oriented,” says Rama Variankaval, global head of corporate advisory at J.P. Morgan.
For the last year or so, the energy transition seems to have faced a zeitgeist shift as the term ESG fades from popularity, and consumers worry about inflation. Elections, too, now threaten some of the climate policies that have propelled green technologies. But many efforts to find ways to cost effectively bring down emissions are in train, and it’s only a matter of time before their dividends grow—at least for those paying attention.