Working Paper

Priorities for government spending on net-zero aviation

Decarbonizing international aviation is a monumental task, demanding up to $5 trillion in technology investments by 2050. As governments and the aviation industry commit to cleaner aircraft and fuels, this study investigates the crucial role of government fiscal support in addressing market shortcomings and prioritizing spending. The research advocates for a strategic approach, emphasizing that fiscal support should initially focus on research and development (R&D) and early capital expenditure (CapEx) for emerging clean aviation technologies before market subsidies aimed at narrowing cost gaps with fossil fuels. Government funding is proposed to cover approximately 20% of the total investments over 30 years, an estimated $0.8–1.4 trillion, with a significant portion allocated to subsidies for emerging sustainable aviation fuel pathways.

The aviation industry’s recent commitment to decarbonization is underscored by the historic 2050 net-zero CO2 goal announced in 2022 by the International Civil Aviation Organization (ICAO). Decarbonization roadmaps emphasize the need for accelerated fuel efficiency improvements and widespread adoption of renewable energy to achieve a net-zero pathway. This study advocates for a combination of public and private funding for clean energy transitions but highlights the importance of frontloading public investments and gradually shifting cost burden towards the industry (Figure).

This analysis outlines a strategy for government spending in clean aviation technologies and proposes utilizing fiscal incentives to mature low-readiness technologies, while emphasizing the need to avoid over-subsidizing mature technologies with limited long-term sustainability. The modeling concludes that 95% of subsidies through 2030 should go to e-fuels and advanced biofuels and only 5% to crop-based fuels. The study also explores various fiscal incentives, such as tax breaks, grants, loans, and subsidies, and offers a comprehensive framework for optimizing the allocation of resources to accelerate the decarbonization of international aviation.

Figure 4. Annual technology investment by funding source. Dashed areas represent industry investment in the subsidy phase-out approach or government subsidies in the carbon price approach.