Economic Analysis of Developing a Sustainable Aviation Fuel Supply Chain Incorporating With Carbon Credits: A Case Study of the Memphis International Airport

Abstract

Sustainable aviation fuel (SAF) has been considered as a potential means to mitigate greenhouse gas (GHG) emissions from the aviation sector, which is projected to continuously expand. This study examines the impact of developing a SAF sector along with carbon credits on carbon equivalent emissions from aviation using a Stackelberg leader-follower model that accounts for economic interaction between SAF processor and feedstock producers. The modeling framework is applied to an ex-ante optimization of commercial scale SAF production for the Memphis International Airport from the switchgrass-based alcohol-to-jet pathway. Results suggest that supplying 136 million gallons of SAF to the Memphis International Airport annually could reduce 62.5% of GHG emissions compared to conventional jet fuel (CJF). Incorporating with carbon credits, SAF could lower GHG emissions by about 65% in total from displacing CJF and generate additional welfare gains ranging between $12 and $51 million annually compared to the case without carbon credits. In addition, sensitivity analysis suggests advancing SAF conversion rate from biomass could lower the SAF break-even considerably and enhance the competitiveness of SAF over CJF.