Can ‘Green Market Makers’ Accelerate Clean Tech?

In 2021, I flew from Chicago to Washington DC on a United Airlines flight billed as the first with an engine running exclusively on sustainable aviation fuel, or SAF for short. The flight aimed to draw attention to the possibility of SAF, in this case made from recycled cooking oil, reducing aviation emissions – and remembering that the technology works today and can be used on existing planes.

SAF production has grown substantially since then, but airlines still use it for only a small fraction of their fuel. Perhaps the biggest reason is that there is no easily accessible market where airlines can turn to purchase the product and SAF producers can sell it.

SAF is one of many low-emission products facing this problem. Thanks to years of enthusiasm for the green transition, as well as government incentives, a wide range of companies are now preparing to produce low-carbon products, and many companies are eager to buy them, even at a slight premium.

But connecting supply to demand is easier said than done. Producers often want long-term contracts; buyers want short ones. Goods may be located in the wrong place or produced at the wrong time. In short, green products need their own markets – but new markets can take decades to develop.

Join a working group led by the Bezos Earth Fund with participation from a range of private sector and civil society organizations that aims to facilitate the creation of so-called market makers that will enter the green commodity space and rapidly build new markets.

“The markets for green fuels and materials are at an early stage and we are very confident they will emerge and be cost-competitive,” said Paul Bodnar, director of sustainable finance, industry and diplomacy at Bezos Earth. Bottom. “But if we are concerned about climate change, we don’t have to wait 30 years.”

In today’s economy, market makers play a key role in connecting supply and demand. Think of a financial company that matches buyers and sellers of stocks, enabling fast transactions for traders large and small. Or a commodities company that matches long-term contracts with short-term buyers. It is a service that allows our economy to function well – and also a profitable business for companies that act as market makers.

The previously undisclosed working group, which includes participation from JP Morgan, Bain & Co. and the environmental group RMI, among others, envisions private companies taking on the same role as other market makers – just focusing on a list of green goods. The group plans to publish research in September showing the scope of the market-making opportunity. Green hydrogen, steel and cement are likely targets. In the meantime, some of the players started to advance.

SAF, an umbrella term for a wide range of low-carbon jet fuels, is an obvious opportunity. The fuel is proven, can power existing aircraft and, if widely adopted, could reduce aviation emissions by up to 90%. Although SAF is substantially more expensive than traditional kerosene-based jet fuel, many business customers have offered to pay airlines more for their air travel if the airlines adopt it. Governments are also offering incentives for the use of SAF. The problem is that airlines cannot afford to sign expensive long-term contracts that could leave them uncompetitive as oil prices fluctuate. And SAF refineries cannot start increasing production without the guarantee that they will have customers.

And so JP Morgan is looking at how it can raise and structure capital for a SAF market maker. The market maker would buy SAF with long-term contracts and then resell it to airlines at a spot price. Maximizing a range of government incentives and potential carbon credits that may be associated with the fuel would also help define the numbers. “You reduce the green premium by being too commercially oriented,” says Rama Variankaval, global head of corporate advisory at JP Morgan.

Over the last year or so, the energy transition appears to have faced a zeitgeist shift as the term ESG loses popularity and consumers worry about inflation. The elections also now threaten some of the climate policies that have boosted green technologies. But many efforts to find ways to reduce emissions in cost-effective ways are underway, and it’s only a matter of time before their dividends increase – at least for those paying attention.