Southwest Airlines has agreed to purchase over 400,000 carbon credits from SMBC Aviation Capital, the world’s second largest aircraft leasing company, to support the airline’s employee business and charitable travel, or to meet CORSIA requirements. As the first aircraft lessor to develop a carbon credit programme, SMBC Aviation Capital announced in September 2022 an initial investment of $53.3 million in projects that align with up to 10 of the 17 UN Sustainable Development Goals (SDGs), including good health and well-being, gender equality and climate action. Part of the investment will also support local community initiatives such as irrigation schemes and micro finance opportunities for women. Carbon credits can be obtained from the Ireland-based lessor by airlines either as part of an aircraft lease contract or independently. It has placed 12 Boeing 737-8 MAX aircraft with Southwest and is also collaborating with partners on scaling up sustainable aviation fuel production.

“Southwest continues to make sustainability a priority and we are delighted to partner with them as the first customer of our newly-established carbon credit programme,” commented David Swan, Chief Operations & Sustainability Officer at SMBC Aviation Capital. “This announcement supports our objective of working with our airline customers to accelerate their path to environmental sustainability. We believe that by taking tangible actions and working together we can make a positive change, especially in a hard-to-abate sector like aviation.”

Through Belgium-based CO2 Logic, SMBC Aviation Capital has invested in a project in Burkina Faso, West Africa, that will provide energy-efficient cookstoves to 28,000 families who have previously relied on traditional cooking methods that are harmful to health and the environment. According to the Clean Cooking Alliance, the use of open fires and solid fuels for cooking causes nearly 4 million premature deaths each year and, according to the US Environmental Protection Agency, the average open fire produces nearly as much CO2 as the average motor vehicle.

Separately, the lessor is working with US carbon project developer C-Quest Capital to forward purchase carbon credits from a range of cookstove projects across Africa, Asia and Central America, which aim to reach over 3.2 million households and meet a minimum of seven SDGs.

Due diligence across all projects has been independently undertaken by Climate Focus, which is based in the Netherlands.

Under the agreement with Southwest, the airline will be acquiring over a five-year timeframe carbon credits certified by either Gold Standard or Verra from SMBC Aviation Capital’s funded projects in Africa and Central America.

“We recognise the important roles that both in-sector and out-of-sector levers play in our sustainability journey,” said Chris Monroe, SVP Finance Treasury & Sustainability, Southwest Airlines. “Expanding our existing partnership with SMBC Aviation Capital supports these projects that are expected to help mitigate carbon while contributing positively to local communities.”

In October 2021, Southwest laid out a 10-year plan to maintain carbon neutrality to 2019 levels, which included the first US-based carbon offset initiative that offered customers loyalty points, and for every dollar contributed towards offsetting Southwest’s carbon emissions, the airline would match the contribution.

The plan also incorporated a target to reduce carbon emissions per available seat mile (including scope 1 and scope 2 emissions) by at least 20% by 2030 through fleet modernisation, route optimisation and other initiatives. The airline also plans to replace 10% of its total jet fuel consumption with sustainable aviation fuel by 2030.

Towards the end of 2021, Southwest signed a 15-year offtake agreement with Velocys Renewables for 219 million gallons of SAF, with deliveries commencing as early as 2026 from the Velocys Bayou Fuels facility in Natchez, Mississippi. The airline estimates the fuel could avoid 6.5 million tonnes of CO2 over the term of the agreement.

In June last year, Southwest announced an investment in SAFFiRE Renewables, a company formed by D3MAX, which in 2021 was awarded a grant by the US Department of Energy towards a pilot-scale facility. The grant is being matched by Southwest and the SAFFiRE project is expected to utilise technology developed by the DOE’s National Renewable Energy Laboratory to convert corn stover, a widely available waste feedstock in the US, into renewable ethanol that then would be upgraded into SAF. The investment and grant supports phase one of the project, which is expected to include technology validation, preliminary design and a business plan for a pilot plant.

“This is a unique opportunity to invest in what we believe could be game-changing technology that could facilitate the replacement of up to approximately 5% of our jet fuel with SAF by2030, with the potential to significantly continue to scale beyond the decade,” commented Southwest CEO Bob Jordan at the time of the announcement. “This first-of-its-kind investment is another step we are taking to address our environmental impact and it also supports our efforts to partner with organisations and government entities to help our industry reach the goal of carbon neutrality by 2050.”

SMBC Aviation Capital has an owned, managed and committed fleet of over 900 aircraft and is working to a target of up to 80% of new technology aircraft in its fleet by the end of 2025. It is working with shareholder Sumitomo Corporation to explore ways to increase the supply of SAF and is also collaborating with Aircraft Leasing Ireland on starting production of SAF in Ireland. It has developed its own framework to achieve net zero in its own operations by 2050 and has offset all of its operational emissions since 2019. Scope 3 emissions are determined by Fexco Group company PACE.

Image (Boeing): Southwest Airlines Boeing 737 MAX

Christopher Surgenor

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As the Environmental, Social and Governance (ESG) reporting obligations for aviation industry players relating to carbon emissions become more stringent and onerous, a variety of providers are stepping forward with software solutions that they say will independently and accurately help, discovers Mark Pilling. Suppliers such as Fexco/Avocet, IBA and the Aviation Working Group are all fielding products they claim can address this requirement. The increased obligation for ESG reporting is becoming a live issue for the air finance community with banks, lessors and insurance companies all required to provide detailed reporting on their aircraft assets on a regular basis, often annually. To assist, Irish financial and business solutions provider Fexco and Avocet Risk Management, an aviation risk management firm, have partnered to launch the Platform for Analysing Carbon Emissions (PACE), which they believe will set a new benchmark for analysing actual and predicted CO2 emissions.

“PACE is the first data and analytical solution for the aviation sector that delivers sustainability-linked analysis and translates the carbon footprint for all stakeholders into financial and climate risk,” said John Nozell, Chairman and Director of Avocet. “All businesses have a societal, legal and collective responsibility to measure, manage and disclose the climate-related risks derived from the asset portfolios in which they invest. PACE takes multiple inputs and leverages AI technology to automatically measure the carbon for all stakeholders and support sustainability-linked financing opportunities for the businesses that use their aircraft the most efficiently.”

The system, which has been under development for 18 months and is being trialled by some major lessors and banks, will provide accurate carbon emissions analysis for investors, financiers and aircraft owners to measure and forecast emissions from their assets and provide TCFD (Task Force on Climate Related Financial Disclosures) “reporting as a service”.

PACE aims to provide users with an insightful view of their portfolio and the ability to fully control, accurately measure and incentivise emissions reductions, say the partners, while also forecasting future carbon performance and proactively alerting the asset stakeholder to any exception events in real time. “This ensures all stakeholders have full transparency of their aircraft assets, their current, historic and future carbon output, as well as the carbon reduction trajectory against science-based targets, that will enable them to take the necessary remedial action to remain within carbon reduction KPIs and performance trajectories,” they added.

In March, aviation data and advisory company IBA, launched its InsightIQ Carbon Emissions Calculator, a carbon modelling tool that enables users to calculate and compare the emissions of airlines and lessors, entire aircraft fleets and regions over different periods of time, in addition to supporting analysis of specific commercial aircraft models and routes. Users can also map emissions geographically and gauge the potential impact of adding varying percentages of different types of sustainable aviation fuel.

Also in March, the Aviation Working Group launched the AWG Carbon Calculator, developed, it says, to generate accurate, reliable, and consistent carbon dioxide emissions data for aircraft and aircraft portfolios, with the data presented visually through various tabular and graphical outputs. AWG is a not-for-profit entity comprised of major aviation manufacturers, leasing companies and financial institutions that contribute to the development of policies, laws and regulations that facilitate advanced international aviation financing and leasing. Members include Airbus, Boeing, AerCap and Avolon.

Robert Neale, Chief Product Officer of PACE says the product automatically compiles actual flight data and applies a blend of aircraft data and industry standard methods to provide “consistent, comparable and reliable” information for aircraft portfolio modelling, investor relations and regulatory reporting requirements. The firm said it is the first platform to combine these capabilities with historic and predictive analysis, emissions target forecasting and real time exception event notifications, including emissions trading scheme credit risk exposures and sanctioned territory infringement alerts. It aims to provide up-to-date reporting on allowances, units surrendered and fleet lien exposures for schemes including EU ETS, UK ETS, Swiss ETS and CORSIA.

Another potential use of the PACE system is to enable financiers to independently report on the carbon emissions of their aircraft to obtain cheaper finance terms to incentivise the use of fuel-efficient types, said Neale. In a statement, Fexco said: “New sustainability linked finance/leasing products and transition linked finance/leasing products are starting to emerge in European markets, with global adoption likely.” There has been a handful of aircraft finance deals that have featured such terms but the data capture element to prove carbon emissions has been manual. A product like PACE will automate this process, said Neale.

PACE user dashboard:

Top photo: Rolls-Royce

Mark Pilling

GreenAir Contributing Editor

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