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Climate Tech

Global airlines crave green fuel. Few are willing to bet on it.

Three hundred airlines have set a green fuel production goal of 23 billion liters by 2030, but current supply trends project production levels will reach less than half of that.

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A consortium of 300 airlines—responsible for more than 80% of global air passengers—has committed to reaching net-zero by 2050, if not earlier. The industry’s strategy relies heavily on the rapid transition to sustainable aviation fuels, or SAFs.

But where the rubber meets the tarmac, the checks that airlines are writing for green fuel technology are paltry compared to the estimated $2 trillion task ahead.

To put the numbers in perspective, SAF production reached a record 300 million liters in 2022, according to estimates by the International Air Transport Association, a trade group. But that’s still less than 0.1% of the annual production target that the industry has set for the year 2050: 449 billion liters.

Last month, United Airlines Ventures and five corporate partners launched a $100 million fund dedicated to sustainable aviation fuel, which will invest exclusively in companies developing new tech solutions to abate an inevitable fuel crunch. Landmark policies in the US and Europe are spurring a huge swell of optimism for climate-tech fundraising.

United has invested in SAF startups 1PointFive and Cemvita, as well as made investments paired with purchase agreements of 1.5 billion gallons from Alder Fuels and 900 million gallons from Fulcrum BioEnergy, among others. United is just starting to make the first investments from its new fund public, including $5 million to Viridos, an algae-based fuel producer.

But still, funds like United’s remain the exception, not the rule. It’s an especially rare move by a corporate VC to concentrate so much capital into such a nascent industry.

“I’m biased, but no one else is doing it like United,” Andrew Chang, managing director of United Airlines Ventures, said.

The data backs up Chang’s claim: PitchBook has recorded fewer than 20 VC deals per year over the past decade specifically targeting SAFs and fewer than 10 CVCs actively investing in related technologies.

Other airline CVCs are taking on less risky bets. Alaska Star Ventures, the venture arm of Alaska Airlines, has held off making direct investments so far in SAFs.

“We’re looking at that space. It’s so nascent right now, super early stage and there’s a supply shortage,” Pasha Saleh, head of corporate development at Alaska Star Ventures, said.

JetBlue Ventures, founded in 2016, has backed startups Air Company and Universal Hydrogen, but is also reluctant to go all-in on the tech in the way United’s fund has.

“I don’t think there’s anything wrong with putting all your money in SAF, I think that the United Fund is a great idea … We aren’t opposed to that per se, we just have chosen to invest differently,” Amy Burr, president at JetBlue Ventures, said. JetBlue has an even more aggressive target of net-zero by 2040.

Scalability and commercial success are still elusive for SAF startups: Green fuel is four times as costly as traditional kerosene fuel, feedstocks are scarce relative to demand, and much of the next-generation tech is untested.

The scale of the task ahead is towering. What will be the world’s largest SAF refinery, run by Finnish company Neste, will open its doors later this year, but even once fully operational it will only produce less than 0.3% of the annual global demand for jet fuel, Bloomberg reported.

To Air Company co-founder Gregory Constantine, investment is far behind where it needs to be.

“The growing interest needs to continue to grow at a more rapid pace to support companies that are viable,” Constantine said.

‘Scars of the past’

For VCs looking to make investments in the space, opportunities are abundant, but they should choose wisely, according to Jane O’Malley, a researcher at the International Council on Clean Transportation.

“We do expect SAF to be one of the primary methods for achieving decarbonization in the long term. But it’s really important to get the rules right and to ensure that we’re not repeating history with what happened for the biofuel sector,” O’Malley said.

The biofuel bubble, which peaked in the late 2000s, was spurred by bullish VC investment in cleantech startups amounting to $25 billion. When it burst in 2011, VCs lost over 50% of their investments, according to a post-mortem by the MIT Energy Initiative.

The crash spooked investors for years, but eventually the market started trickling back. Since 2020, VC dollars in climate tech and cleantech have returned with a roar. In 2022, carbon and emissions tech startups raised $13.8 billion, according to a PitchBook report, just shy of 2021’s record-breaking $14.1 billion, despite a much rockier fundraising environment.

Constantine has seen the impact that the bubble burst had on investor confidence firsthand.

“Across the entire cleantech community, there is a lot of hesitation because of the scars of the past,” he said.


But the tide is turning. The Inflation Reduction Act changed the fundraising game for Constantine’s carbon-negative fuel company, as well as for many similar startups. Among its policies are an income tax credit for clean hydrogen produced and the SAF tax credit, which offers $1.25 for each gallon of SAF produced in a 50-50 mix.

“Certainly, we’re getting more competitive with all these different incentives in the IRA,” said Andrew Stevenson, VP of project development and partnerships at hydrogen SAF startup Twelve. According to Stevenson, the various tax credits bring Twelve’s prices to a point that “approaches cost parity with conventional fuel.”

Twelve is only now building its first products at a commercial scale, having raised a $130 million Series B in June led by DCVC. Twelve has partnerships to supply fuel to Mercedes-Benz, Procter & Gamble, NASA and the US Air Force, among others.

Most startups working on next-generation technology are only just now planning a commercial debut: “It’s a super risky time for a company,” Stevenson said.

For investors, deciphering which startups have a commercially viable product is the name of the game, and it’s a challenge. “Some people are waiting it out to see which part of SAF, which category might actually play out,” according to Burr.

Direct air capture is, in Saleh’s view, one of the most exciting technologies available. But it’s expensive and has only been demonstrated at a lab scale for aviation fuel. “From an investing standpoint, it’s going to take more work to figure out where the good investments are,” Saleh said.

He added, “United Ventures do have an appetite for risk that is different from most airlines.”

Featured image by Drew Sanders/PitchBook News

  • rosie-headshot.jpg
    Written by Rosie Bradbury
    Rosie Bradbury is a reporter covering startups and venture capital for PitchBook News. Based in New York, she previously reported for the Bureau of Investigative Journalism, Business Insider and Wired. Rosie studied history and politics at the University of Cambridge.
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