They are an icon of the jet age and a ubiquitous reminder of the power of aviation to shrink distances. They also can be terrible for the climate. There is consensus among scientists – and growing recognition among airlines – that contrails are a significant contributor to aviation-based climate change, and as more stakeholders move to tackle their impacts, aircraft investors need to be mindful of their environmental – but also economic – costs and opportunities.
In the past year, both IATA, the UK’s Jet Zero Council (which informs UK government policy), major OEMs, and US airlines have launched non-CO2 taskforces, with contrails high on the agenda. One step ahead of the rest, the EU is already convinced of the need to address non-CO2 impacts including contrails. The European Commission is working on a system for the monitoring, reporting, and verification (MRV) of aviation non-CO2 effects with the goal of adding them to its flagship greenhouse gas emissions reduction scheme – the EU ETS – from 2028, potentially creating new pollution costs for airlines.
To understand the risks and opportunities of contrails for aircraft investors, Ishka speaks with two of the sector’s leading contrail management and monitoring firms – SATAVIA and Estuaire – to reflect on how different assets and airlines may be impacted, and what opportunities exist for mitigation.
The basics: When do contrails happen, and how to avoid them
Aviation’s non-CO2 emissions comprise gases – chiefly nitrous oxides (NOx), sulfur dioxide (SO2), and water (H2O) – as well as particulate matter (soot), often referred to as non-volatile particulate matter (nvPM). Air quality around airports has traditionally been the focus of non-CO2 emissions (particularly SO2 and NOx), but in the past two decades, the science around water and soot-derived contrails has advanced greatly, as well as the understanding of what role contrails play in climate change.
When conditions are suitable, emissions of soot and water vapour can trigger the formation of contrails which can spread to form extensive contrail-cirrus cloud coverage. According to the IPCC, such cloud coverage is estimated to have a combined ‘effective radiative forcing’ (ERF) that is about 57% of the current net ERF of global aviation. ERF measures how much energy is coming in from the sun, compared to how much is leaving. Cloud coverage can deflect heat from the sun during the daytime (negative forcing), and trap heat at nighttime (positive forcing).
Contrails only form in ice-supersaturated air below a critical temperature threshold. Ice-supersaturated areas can cover hundreds of kilometres but are only a few hundred metres in vertical extent, making it possible to fly above or below them with relative ease.
At present, air navigation service providers (ANSPs) are not prepared to reroute flights to avoid ice-supersaturated regions, and pilots do not have access to real-time humidity data. Until ANSPs take on this role or until pilots are given better real-time visibility on atmospheric conditions, the best next thing for airlines seeking to minimise positive forcing contrails is avoidance strategies, which contrail management firms provide or help inform.
Crystal ball: ETS costs in a ‘60% to 70% higher’ ballpark
For airlines in Europe, the cost of EU ETS compliance is expected to surge in the next few years without accounting for non-CO2 effects. As per recent Ishka coverage, EU ETS will become the third-largest operating cost for many European carriers, owing to a gradual price increase of allowance and the phase-out of free allowance allocations to airlines. There is also a possibility that extra-EEA flights (i.e. largely long-haul flights) could be added to the EU ETS, which would significantly exposure to the EU ETS.
At present, there are no concrete plans for how to tax contrail climate impacts via the EU ETS, with only an MRV system set to be implemented from 2025. However, the European Commission will submit a report based on the MRV by 2027 with plans to make a proposal to address them by 2028. If operators are eventually required to surrender allowances against non-CO2 impacts, then they may need to financially plan for it. “[Airlines] are going to have to acknowledge a large new climate liability, and then the likelihood is that from 2028 onwards this will also become part of mandatory EU mitigation action,” comments Conor Farrington, chief of staff at SATAVIA.
As a guiding estimate based on the warming potential of contrails over 100 years, Estuaire CEO Maxime Meijers shares that an average carrier in Europe would be looking at reporting “between 60% and 70%” higher total emissions using a CO2 equivalent. “So, a first estimate would be that your financial exposure follows that extra 60% to 70%.” However, it is worth noting that the European Commission is at present focused on developing the MRV system, initial details of which will be published by 31st August 2024.
SATAVIA believes reductions in non-CO2 effects should not be tradeable towards offsetting CO2 emissions, and it is necessary to have an independent pool of tradeable ‘non-CO2 allowances’ allocated for this purpose. Estuaire tells Ishka it is closely following what the European Commission will propose as MRV framework, and whether later an equivalence of non-CO2 and CO2 effects is pushed forward in the EU-ETS or a separate treatment.
Not all aircraft (and airlines) are born equal
CO2 emissions are a shared problem for all airlines: one litre of jet fuel produces the same amount of tailpipe CO2 emissions anywhere in the planet. The impacts of contrails, however, have far more variance. Airlines flying through colder and more humid climates are far more likely to produce contrails. Among them, those flying at night will have a higher warming potential, as night-time contrails have a purely warming effect, whereas some daytime contrails exert a cooling effect by reflecting solar radiation back into space.
This means that the region and hours in which an airline operates can dramatically alter their radiative forcing contrail formation. “An airline flying old cargo aircraft mostly at dawn or during the night and in humid areas, then it would be more than 60% - 70%, it could be way more. So they could be in trouble,” comments Meijers on the possible future impact of non-CO2 ETS levies on European carriers.
There will also be differences between aircraft types with different optimal cruising altitude (turboprops, for example, produce very few contrails because they fly lower), and engines with lower or higher soot emissions (non-volatile Particle Matter, or nvPM) which acts as condensation nuclei for water vapour, creating contrails.
Source: Roger Teoh & Marc Stettler (2023) using data from EASA and ICAO Aircraft Engine Emissions Databank (07/2021). With permission from Roger Teoh.
The chart above shows how different aircraft types and different engine options have different soot (nvPM) emissions at different levels of thrust. On one example, an Airbus A320neo with a LEAP engine emits less nvPM (resulting in a shorter lifetime of the contrail and lower radiative forcing) than one operating with a GTF engine, a difference credited to the LEAP engine’s TAPS II (Twin Annular Premixing Swirler) lean burn combustion system. Ishka notes that soot particle size (not just quantity) may play a role in the formation of persistent contrails.
Meijers notes that in the last six months there has been growing interest by European airlines in understanding the contrail-forming potential of their route network including differences by aircraft types in their fleet. Ishka also understands that there has been a notable increase in airlines inquiring OEMs about non-CO2 emissions figures as part of new aircraft orders.
Potential revenue to compensate for small fuel penalties
Much like how tradeable Scope 3 benefits can allow third parties to support the decarbonisation of airlines, SATAVIA hopes that contrail avoidance can also generate value. The firm is developing a methodology that will enable operators to obtain tradeable units for non-CO2 aviation emissions avoided: Certified Mitigation Outcome Units or CMOUs. The firm is aiming to achieve full Gold Standard Methodology approval by early 2024, enabling their trade in voluntary markets by airlines actively avoiding positive forcing contrails, to airlines seeking to mitigate their contrail impacts. CMOUs can also be retired against net-zero targets.
SATAVIA will also seek CORSIA recognition to widen their possible market (which would require CORSIA to widen its scope), and sees a potential “on-ramp” for their use in ETS schemes in the future once non-CO2 MRVs systems are incorporated. In all cases, Farrington underlines, SATAVIA aims to keep CO2 separate from non-CO2. “[Operators] will only be able to use these units to offset non-CO2 inventories,” he explains.
Assuming a liquid market is created for these CMOUs (SATAVIA is looking at a nominal price of $12 to $20 per tonne of CO2e), airlines actively rerouting flights to minimise positive forcing contrail formation could derive revenue generated from selling CMOUs. “An airline could generate CMOUs from contrail mitigation and decide to retire them against their own sustainability targets, or they could retire some and trade some to other operators – but the overall effect will be a net reduction in non-CO2 climate impact and the CMOUs provide financing to support the reduction activity,” Farrington explains.
One use from CMOU revenue could be compensating for the additional – although relatively limited – fuel penalty of avoiding ice-supersaturated regions. According to recent research by Google-backed by Breakthrough Energy and American Airlines, in 70 test flights using Google AI-based tactical contrail avoidance, 2% additional fuel was burned, but this appears to be on the higher end. Research in 2022 by Teoh et al points at fuel impact as low as 0.3% across an airline’s flights, while SATAVIA says the fuel penalty incurred by flights it has helped re-route was “orders of magnitude” lower than what Google achieved, and in some cases it achieved fuel burn reductions. With a nominal price of $12 to $20 per CMOU, SATAVIA predicts “the revenue generated, even at that relatively low price, to vastly outweigh any fuel burn costs.”
But buying and selling CMOUs in the voluntary market is a medium-term goal. “It's purely designed to give an incentive to operators to reduce their contrail impact in advance of regulation. Once regulation comes in, that it'll be a different game altogether, it'll be part of the mandatory markets,” Farrington adds.
The Ishka View
Contrails are already an icon of visual climate communication representing aviation’s carbon-heavy footprint. As climate science understanding grows, the public may also start to (rightly) see them as blankets over a warming planet, creating questions for aircraft investors. There may be a time when most aircraft become equipped with humidity sensors and sufficient meteorological data to – within safety constraints – recommend changes in trajectory or altitude that can quantifiably limit contrails. However, these systems and sensors are not yet in widespread use. The good news is that even with these technology limitations, meaningful contrail mitigation is much easier than CO2 reductions, which hinge on new propulsion technologies or SAF availability.
Among the two contrail avoidance approaches seen to date, Ishka understands that the Google/Breakthrough Energy approach has some challenges including high fuel burn, risk of false negatives (as contrail avoidance can only take place when contrails have already been observed), and uncertainty regarding the warming or cooling effects of contrails prevented. It is also not yet commercially available. This leaves planning on the ground before flights (i.e. pre-tactical flight plan modification based on weather modelling) and accounting after flights as the only commercially available solution to take stock of contrail impacts and tackle them.
The aviation finance community is starting to educate itself on this issue, with industry-led initiatives already in conversation with companies like Estuaire and SATAVIA. Among individual lessors, Nordic Aviation Capital (NAC) has led the market by reporting non-CO2 impacts using Estuaire data in its most recent ESG report. The expectation is that once CO2 emissions accounting and reporting become standardised, non-CO2 impacts will follow. One way for lessors to take the lead on gathering this data could be to encourage lessees to use contrail monitoring systems as a way to gain visibility over what airlines and fleets are more prone to create persistent warming contrails. Long-haul-focused carriers and cargo airlines are among those expected to have higher persistent warming contrail propensity. Another focus for lessors could be engine choices, as modern combustion technology in some new-tech engines achieves significant reductions in nvPM and NOx versus rivals.
Meanwhile, on both sides of the Atlantic, several private and public-funded research projects are further validating how low-aromatic fuels (including SAF) may be able to limit contrail formation. As this report is published, Boeing was conducting tests together with the FAA on a United Airlines-destined Boeing 737 MAX flying with SAF and fossil-based jet fuel to measure how SAF affects contrails. Findings from this and other similar projects will be key in understanding how much SAF can contribute to reducing contrails, and how that reduction should be modelled by contrail monitoring systems.
