The International Air Transport Association (IATA) and its more than 300 airline members have committed to achieving net-zero carbon emissions by 2050, a goal largely driven by the industry’s use and investment in sustainable aviation fuel (SAF). With that public commitment to reducing emissions has come increased greenwashing scrutiny and new disclosure requirements under evolving regulatory rules.
Despite a strong increase in the use of SAF in 2023, it only accounts for 3% of all global renewable fuel production. With much of the airline industry still relying on liquid fuels, the time, investment, and adoption of clean technologies, or cleantech, has arrived.
SAF is a nonconventional (non-fossil derived) aviation fuel that is derived from alternative feedstocks rather than crude oil and can be blended with fossil jet fuel. Demand for this kind of fuel is on the rise, driven by increasing policy initiatives and investments in production infrastructure. The Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA), a global market-based measure designed to offset international aviation carbon dioxide emissions, further encourages the use of SAF.
SAF, however, is not without its limitations. Currently, it is not a one-to-one replacement for conventional jet fuel, and it is not as energy dense as conventional jet fuel. Limited production capacity translates to higher costs as compared to those of traditional fuels.
In 2024, there is a wide gap between existing SAF production and projected demand. Investments totaling up to $1.45 trillion will be needed between now and 2050 for the infrastructure to deliver the needed quantities of SAF. Potential investment structures include the following:
Given the gap between available SAF and other technologies, many aviation companies are turning to carbon offsets to help meet their net-zero or emissions-reduction goals. A carbon offset is a credit that represents the reduction or removal of one ton of carbon dioxide emissions from the atmosphere. Emissions-reducing projects can generate a carbon offset by capturing and destroying a greenhouse gas that would otherwise be emitted, or by producing energy with a clean, renewable resource. A carbon offset can be purchased or sold to allow the holder of the carbon offset to mitigate or negate the impact of the greenhouse gas emissions from its own activities to achieve its climate commitments and emissions-reduction goals.
Aviation companies purchasing carbon offsets are taking into account many factors as they transact carbon offsets, including the different standards and protocols that are applied to carbon offset projects, the permanence of the emissions reductions represented by the offsets transacted, retirement of the carbon offsets, and additionality.
Over the last two years, the Commodity Futures Trading Commission (CFTC) has taken measures to pursue potential fraud or manipulation in the carbon markets. These measures included the following:
Companies transacting carbon offsets, either physically or through futures contracts that reference carbon offsets, will want to ensure that their agreements address key issues and risks (including those discussed above), that they stay apprised on regulatory developments and oversight over carbon offsets, and that they have the necessary documentation to support their climate and net-zero related representations and disclosures.
On March 6, the US Securities and Exchange Commission (SEC) adopted final rules requiring climate-related information disclosure from public companies, which was immediately challenged in court and is now on pause, pending review by the US Court of Appeals for the Eighth Circuit. The new rules mandate extensive climate-related risk disclosures in annual reports and registration statements. Disclosure of expenditures and impacts from actions taken to achieve publicly set climate-related targets or goals is required. Larger companies must disclose Scope 1 and Scope 2 greenhouse gas emissions if material and obtain third-party attestations.
Litigation will likely impact the SEC’s proposed timeline for implementing the new climate-related information disclosure rules. The Eighth Circuit proceedings could extend for 18 months or more, and review by the US Supreme Court, if granted, could increase the delay significantly. Companies should continue to proactively plan for eventual compliance and be mindful of the SEC’s prior guidance, such as its 2010 interpretive release on how existing rules may require climate-related disclosures and the Division of Corporation Finance’s 2021 sample letter on climate-related disclosures that public companies should consider, which remain in place.
In addition, there is a trio of related disclosure laws passed in California. Effective January 1, the Voluntary Carbon Market Disclosures Act imposed new disclosure obligations for any business that purchases, sells, or markets voluntary carbon offsets in California, as well as any business that makes net-zero or carbon-neutral claims. If broadly interpreted, the law could apply to any business that transacts or does business in California or makes net-zero or carbon-neutral claims through marketing, advertisement, or sales of products involving such claims in California.
Two other California climate laws—the Climate Corporate Data Accountability Act and the Climate-Related Financial Risk Act—will require any company in virtually any industry that meets certain revenue thresholds to make climate-related disclosures starting in 2026, regardless of their emissions levels and regardless of whether they predominantly do business outside of California. On January 30, the first legal challenge was filed by a coalition of business groups on First Amendment grounds.
In the United States, greenwashing claims are often brought as class actions, where an individual plaintiff or small group of plaintiffs seek to represent the larger group of persons who bought the defendant’s goods or services. As aviation companies make net-zero claims and disclosures, there has been a rise of litigation challenging them. Plaintiffs have filed suit against airlines, challenging the validity of carbon offsets and otherwise claiming misleading advertising concerning the true environmental impact of air travel. These claims typically focus on consumer protection laws and breach of warranty.
Action in Europe, on the other hand, relies more on government enforcement actions and non-governmental organizations, such as consumer groups, rather than the class-action mechanism prevalent in the United States. Indeed, on April 30, the European Commission and other European consumer authorities announced they had sent letters to 20 airlines, alleging potentially misleading green claims. European authorities suggest these airlines’ representations could be misleading actions or omissions, prohibited under the EU’s Unfair Commercial Practices Directive. If the airlines do not take necessary compliance steps, European authorities may initiate further enforcement actions.
Greenwashing litigation poses significant risks for companies. They can be costly to defend, create distraction for employees, and cause reputational damage from negative publicity. Companies engaging in green marketing should carefully evaluate environmental claims, including with counsel, to identify potential issues before publication and mitigate risk.
The road to sustainable aviation requires a multifaceted approach. While SAF presents a powerful solution, ongoing research and development are crucial for cost reduction, production scaling, and potential energy density improvements. SAF, hydrogen, and carbon offsets form a comprehensive strategy for decarbonizing the aviation industry. With the regulatory landscape evolving rapidly, companies operating in this space should closely monitor these developments, ensure compliance with relevant regulations, and be conscious of greenwashing.
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