The EU’s Emissions Trading System (EU ETS) covers aviation. But what does that mean for the climate and airlines?
The European Union’s Emission Trading System (EU ETS) is a market-based mechanism established by the European Union to reduce greenhouse gas emissions, and it represents one of the key instruments in the EU’s efforts to combat climate change and achieve its emissions reduction targets. The main goal of the EU ETS is to encourage industries to reduce their emissions efficiently by setting a cap on the total amount of greenhouse gases covered installations can emit. The EU ETS covers emissions from electricity and heat generation, energy-intensive industries, aviation, shipping from 2024 and buildings and road transport from 2027.
Given the significant climate impact of aviation and the huge carbon impact of flying, the polluter pays principle is particularly important. However, given the global nature of air travel and how it necessarily cuts across geographical and governance jurisdictions, making polluter pays is more challenging than it appears at first sight.
Aviation was brought into the EU Emissions Trading System in 2012. Initially, the legislation was designed to include all flights departing from or arriving at an airport in the European Economic Area (EEA). However, following considerable pressure from both the international community and the industry, the EU decided to temporarily reduce the scope to cover only intra-EEA flights, in what is referred to as a “stop the clock” measure.
This was meant to give the International Civil Aviation Organisation (ICAO) time to reach an effective worldwide agreement. However, given the repeated failure of ICAO to put in place an effective plan to decarbonise the aviation sector, the EU decided to broaden the scope of the EU ETS.
In 2021 and 2022, the EU institutions negotiated the reform of the Emissions Trading System to revise this system and the revised legislation was published in 2023. This included the revision of the EU ETS for aviation The scope may expand to cover flights leaving the EU to other parts of the world, depending on the results of an evaluation in 2026. Free allowances to the sector will also be gradually phased out.
The discussion regarding the scope was a central and highly significant theme of the revision of the EU ETS, leading to clashes between the European Parliament and the Council of the European Union. While the first pushed for expanding the scope to include all flights departing from the EU to other parts of the world, the Council stood firm on its position to retain the current scope for the time being.
The final agreement saw, unfortunately, the Council’s position, supported by the Commission, prevailing. This means that, once again, “stop the clock” will be maintained and extended until the start of 2027. In 2026, the European Commission will evaluate the effectiveness of the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) established by ICAO. If the assessment finds that not enough progress has been made internationally, the Commission will formulate a legislative proposal that may involve the expansion of the scope.
One of the main reforms of the EU ETS for aviation relates to the granting of free allowances to airlines. The revised regulation on emissions trading will expedite the adoption of the “polluter pays” principle by gradually eliminating the freebies that airlines currently receive. Airlines will get 25% fewer free allowances in 2024 and 50% fewer in 2025. They will pay for the entirety of their emissions starting from 2026.
This means that, finally, the aviation industry will bear a greater obligation to cover the costs of its carbon footprint within the EU, fostering stronger economic incentives for emission reduction through a robust price signal.
The agreement on this topic represents an important milestone: for too many years, airlines received too many free allocations, sometimes even more than the actual emissions, such as in 2020. The principle of making polluters pay was neglected during these years, leading to insufficient incentives for decarbonisation. Although other subsidies still exist, such as the absence of a kerosene tax, a fair carbon price will help the sector to decarbonise.
Non-CO2 emissions refer to the release of greenhouse gases other than carbon dioxide (CO2) into the atmosphere. For aviation, these emissions include gases such as nitrogen oxides (NOX), contrail-cirrus clouds, sulphur dioxide (SO2), particulate matter (soot) and water vapour.
Non-CO2 emissions can have a major net heating effect, which may be up to three times worse than the warming caused by aviation’s CO2 emissions.
The European Union is moving in the direction of making airlines pay for their non-carbon emissions. The first step is the inclusion in the reformed EU ETS of a monitoring, reporting, and verification (MRV) system, through which airlines will have to disclose their non-CO2 emissions. Following an analysis of the results of the MRV, the Commission can, in 2028, put forward a proposal to address non-CO2 emissions from aviation.
Despite the phasing out of free allocations for aviation under the Emissions Trading System, the revised EU ETS introduces so-called sustainable aviation fuel (SAF) allowances in the scheme. The EU will distribute for free 20 million allowances until 2030 to increase the uptake of sustainable aviation fuels, covering the price differential with conventional jet fuel for operators using SAF.
Despite some good results on topics like free allocations and non-CO2 emissions, the new EU ETS for aviation falls short once again when it comes to the scope of the flights covered.
With the extension of the “stop the clock” measure, the majority of Europe’s aviation CO2 emissions, which are emitted by flights to and from other parts of the world , will remain unaccounted for. Member states voted against the expansion of the scope in favour of a weak and unreliable system like the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA).
To fully address the climate impact of the aviation sector’s CO2 emissions, we urgently need full coverage of all flights leaving and entering the EU from the outside world.
