This Boeing 737 will likely takeoff with biofuels before the end of the decade. Source: The Motley Fool/ Flickr.

What comes to mind when you think of the airline industry? Perhaps you think about the positives, such as the 3.1 billion passengers that flew in 2013 or the 8.1 million jobs enabled globally. Perhaps you think of the negatives, such as the 705 billion metric tons of carbon dioxide emitted into the atmosphere in 2013 -- representing 12% of all transportation emissions -- or the roughly 63 billion gallons of jet fuel consumed. Truthfully, any number of things could come to mind, but if biofuels aren't included, then you should adjust your mental laundry list of associations pretty soon. 

The global aviation industry, led by The Boeing Company (BA +0.83%) and major airlines such as American Airlines Group (AAL +1.23%), has set ambitious goals to reduce its environmental footprint and increase its use of drop-in fuels such as renewable jet and renewable diesel. Specifically, the global fleet will improve its fuel efficiency by 1.5% every year between now and the end of the decade. From there, the industry aims to achieve carbon neutral -- or carbon negative -- growth and slash carbon dioxide emissions to 50% of 2005 levels by the year 2050. It's an ambitious plan for sure, but substantial momentum behind efficient aircraft design and drop-in biofuels points to the potential for success.

The "plan"
While there is positive momentum building, there is plenty of criticism to go around, too. For instance, the International Air Transport Association, which represents airlines that make up 84% of the world's air traffic (referred to as the "aviation industry"), took stock of its current state of affairs and announced ambitious, albeit voluntary, efficiency goals in 2009. It forgot to outline a true road map, however, which has made the "plan" easy to label as marketing noise rather than a concrete commitment. (By comparison, the United Kingdom has outlined a road map for sourcing 30% of its aviation fuels from renewable sources by 2050.)

Road map or not, the industry has awakened to the value of more efficient fleets and the fragility of petroleum fuels. After all, fuels remain the largest single expense for an airline company -- and a bottom line-destroying expenditure when energy prices spike. Here's how expenses stack-up, on average, for a $300 airline ticket.

Source: Airlines for America.

There are two ways to decrease the amount of petroleum fuel used: (1) purchase more efficient aircraft and (2) purchase renewable drop-in fuels such as renewable jet and renewable diesel. Having multiple fuels to choose from reduces a company's exposure to risk from pricing pressures in any single market, thereby decreasing the volatility of a company's fuel expenditures. In a 63 billion gallon per year industry, taking advantage of even small price fluctuations between acceptable fuels could be the difference between profit and loss. Additionally, several types of renewable jet fuels are more energy dense than petroleum fuels, meaning jet engines would require less fuel to travel the same distance. It's a win-win.

While renewable fuels for aviation may sound like more of a pipedream at the moment, there are currently around 800 million gallons of renewable diesel (a second-generation drop-in diesel fuel not to be confused with biodiesel) capacity worldwide. Yet, if dedicated solely to aviation, it would only meet 1.3% of the industry's needs. A concerted effort will be needed to catalyze development and expand the market -- and that's exactly what many companies and governments have set out to do.

What momentum?
Since 2008 airlines around the world have been conducting demonstration flights powered in part by renewable aviation fuels and gobbling up offtake agreements with renewable fuel producers. Honeywell International (HON +0.95%) has powered more than 20 demonstration flights for military and commercial partners with its Green Jet Fuel. The renewable fuel is made from renewable, non-food feedstocks and can be used in 50/50 blends with petroleum fuels, has a higher energy density than petroleum fuels, and can result in 65%-80% reductions in greenhouse gas emissions. Honeywell is also one of the refiners working with renewable oils manufacturer Solazyme on its own long-term quest to create cost-competitive aviation fuels.

There are plenty more demonstration flights -- more than 1,500 actually -- and investments to choose from. Some notable selections:

• In 2011 Alaska Air Group paid $16 per gallon for a biofuel made from used cooking oils to power 75 passenger flights.
• Also in 2011, Qantas signed a non-binding letter of intent with Solazyme to purchase 200 million-400 million liters of renewable jet fuel per year.
• In 2013 United Airlines committed to purchasing 15 million gallons of renewable diesel through 2016 from AltAir.
• In April British Airways partnered with Solena Fuels to produce 50,000 metric tons of renewable jet fuel per year from London's garbage. The airline agreed to purchase about $510 million worth of fuel over an 11-year period.
• In June synthetic biology pioneer Amyris (AMRS +0.00%) and its partner Total SA gained ASTM approval for drop-in jet fuel containing up to 10% farnesene-based renewable fuel. The first international commercial flight took place the next month when Brazilian airline GOL flew a Boeing 737 from Florida to Brazil -- a route that will now use the fuel regularly.
• Earlier this month, Boeing partnered with South African Airways to create renewable jet fuel from tobacco plants engineered for use as energy feedstocks.

The demonstration flights and biofuels investments can also be easily characterized as marketing ploys. Why else would a company pay 2 times or 4 times market prices for the input that already represents the largest single expense (renewable jet and renewable diesel fuels can be cost-competitive with current market prices depending on production method)? Airlines were positioning themselves for a revised ASTM standard for jet fuel that included renewable fuels, which finally arrived earlier this summer. Giddy up for a flurry of deals and development!

What does the future hold?
It will take time to gain market share, but early progress is encouraging. The commercial scale facilities and partnerships listed above will de-risk each approach to renewable aviation fuels, thereby catalyzing future developments on a much larger scale. For instance, on the quarterly conference call last week Amyris CEO John Melo hinted that fast-falling production costs of its farnesene may nudge Total SA to fund the construction of up to three massive commercial scale fuel facilities by the end of the decade. A (potential) drop in the bucket perhaps, but such capacity would represent a historic milestone for renewable fuels. Just last week, Total SA invested another $11 million in Amyris for the sole purpose of lowering its production costs of farnesene.

Also last week, the U.S. Department of Agriculture, Boeing, and Airlines for America announced the Farm to Fly 2.0 initiative with the goal of producing 1 billion gallons of drop-in aviation biofuels per year by 2018. It's not clear if that includes the nation's current renewable diesel capacity or only dedicated projects under construction now, but 1 billion gallons would represent 4.3% of the American aviation industry's total annual fuel use and cut its emissions by 3.5%.

What does it all mean for you? Well, if you're an airline passenger, then it will translate into lower ticket prices in the long-term. Then again, the changes will occur over such a long time period that the savings will likely go unnoticed -- but at least you'll have cleaner air. If you're an investor, then it could translate into some interesting opportunities, if you know where to look. We'll investigate some of the investment opportunities in aviation biofuels together in the coming weeks.