Economic impacts of power-to-liquid fuels in aviation: A general equilibrium analysis of produc-tion and utilization in Germany

Green hydrogen is a promising energy carrier to decarbonize the air transportation system and offers different application options. The use of liquid hydrogen (LH2) requires extensive changes to the existing infrastructure and is therefore more realistic in the long-term. However, hydrogen can also be utilized to produce synthetic fuels, so-called Power-to-Liquid (PtL) fuels which allow for the short-term introduction of green hydrogen in the aviation industry. The techno-economics, environmental potential and technological issues of this fuel have been subject to several studies in recent years. In contrast, the broader economic impacts of sustainable alternatives in aviation are barely addressed in the literature.
This study applies a macroeconomic framework to examine the effects of introducing PtL fuel in the aviation industry. Methodologically, we combine a social accounting matrix and a computable general equilibrium model, using Germany as a case study. A detailed supply chain analysis is conducted to integrate PtL fuel into the macroeconomic framework. The scenarios build on blending quotas, as proposed by the European Union for sustainable aviation fuels. In addition, price policy instruments, such as kerosene taxation and subsidizing PtL fuel production, are simulated in the model.
The results show that the impact of low blending quotas (5-10%) is mainly limited to the aviation sector, with moderate increases in consumer prices and a slight reduction in passenger demand. When quota levels increase, however, the effects go beyond the air transportation system. On inter-sectoral level, three main patterns are identified: (1) Industries that contribute to the PtL fuel supply chain, such as metal products and electrical equipment, see increasing levels in both, domestic production, and imports. (2) Aviation upstream industries like transport infrastructure and aircraft production see reduced domestic production and imports. (3) Aviation downstream industries, such as delivery services and travel agencies, face substitution effects, where imports partly replace domestic production. Macroeconomic indicators, such as the Gross Domestic Product (GDP) and household income, are affected negatively by the PtL fuel introduction, although the relative impact is low (the GDP decrease does not exceed 0.35%). PtL fuel production subsidies can largely mitigate the decrease in aviation demand but come at the cost of stronger reductions in the GDP and government income. Moreover, the sensitivity analysis emphasizes that various assumptions and parameters, such as cost projections for Ptl fuel, import options, and elasticity of demand parameters, affect the intensity of economic consequences.
Our paper also discusses several aspects of PtL fuel in aviation, such as resource bottlenecks, international trade relations, and the implementation barriers of quota policies. In addition, a diverse technological landscape in the aviation industry is discussed as a realistic scenario, referring to the potential co-existence of PtL fuel and LH2 as complementary applications of green hydrogen in the air transportation system. Finally, the crucial role of passenger behavior and the need for more research in this field are emphasized.
Overall, this study contributes to a more holistic understanding of sustainable alternatives in the air transportation system. It considers the production and utilization perspective simultaneously and reveals the broader economic impact of hydrogen-based fuels. Although this study deals primarily with PtL fuel, the methodological approach can be applied to other technologies. In the HyNEAT project, we use macroeconomic analysis tools, such as social accounting matrices and equilibrium models, to evaluate economic impacts of LH2 as another application option for green hydrogen in aviation.

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