From 2026, airlines and other aircraft operators within the European Union will no longer benefit from free carbon emission allowances. They will have to pay for emissions, while at the same time allowances will be reduced annually by 4.2 percent. These measures are part of the “Fit for 55”-proposal that has been presented by the European Commission on July 14.
The Commission says that the aviation industry, like other industries and sectors, has to significantly reduce its emissions to meet the 2030 climate target of a 55 percent reduction compared to 1990. The industry has been allowed to offset emissions under the Emission Trading System (ETS) since 2012, which saved 193.4 Megatons of CO2 between 2013 and 2020. Yet, the Commission also notices that between 2013-2018, emissions have continued to increase by five percent per year. In 2018, the EU was responsible for 15 percent of global aviation CO2 emissions. A Eurocontrol forecast expects emission to increase by 53 percent in 2040 compared to 2017, while an ICAO survey sees a 150 percent increase compared to 2020.
In the Fit for 55-policy package, the Commission proposes to amend the ETS aviation rules. “Flights within the European Economic Area (EEA), as well as flights to Switzerland and the UK, will continue to be covered by the EU ETS. The total number of aviation allowances in the ETS will be capped at current levels, and be reduced annually by 4.2 percent (linear reduction factor). The number of free allowances allocated to aircraft operators will be reduced progressively, with the aim of stopping free allocation to aviation by the end of 2026.”
The Commission proposes to base allowances for 2024 on the total allocation to active aircraft operators in 2023, to be reduced by the linear reduction of 4.2 percent. From 2025, there should be an increase in auctioning of emissions. The Commission is reviewing if it is still justifiable to exempt aircraft under 5.700 kilograms from the ETS scheme, as has been the case since 2012.
CORSIA implemented for extra-European flights
In parallel to the revised ETS scheme, the Commission proposes to implement the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) for extra-European flights. “The EU ETS Directive will apply CORSIA to EU-based airlines’ emissions from flights to and from countries outside the EEA. When emissions from flights outside the EEA reach levels above 2019 they will have to be offset with corresponding carbon credits.” Offset credits must be reliably accounted for to avoid them being counted twice, the proposal adds: “Each offset credit should represent a ton of CO2 that has been reduced or avoided.”
Another and most sensitive proposal is to implement taxation of aviation fuels. Since the 1944 Chicago Convention, fuel has been exempt from taxes to prevent double-taxation. This has been a growing insult with environmentalist groups, but also with EU member states. For instance, the Dutch government has been calling on others to support the implementation of fuel taxation since 2019. The ‘Fit for 55’-package now includes a taxation proposal that will be gradually implemented from 2023 over the next ten years to at least €10.75 for each intra-European flight. This will most likely result in increased ticket prices as airlines will try to pass on the bill.
The share of SAFs should increase to 63 percent in 2050
At the same time, the EC is pushing for more sustainable aviation fuels (SAF). It wants the share of SAFs to be available to the airline industry to grow to two percent in 2025, five percent in 2030, 32 percent in the 2040s, and 63 percent in 2050. “On the supply side, the ReFuelEU Aviation initiative could introduce an obligation for fuel suppliers to supply only SAF-blended fuels at EU airports. On the demand side, the ReFuelEU Aviation initiative could oblige airlines departing from an EU airport to use a share of SAF. In order to prevent fuel tankering (a practice whereby an airline refuels with more jet fuel than necessary at an airport outside the EU with less strict SAF obligations and thus cheaper fuel), the ReFuelEU Aviation initiative could foresee an obligation for airlines to refuel before departure at an EU airport with an amount of jet fuel corresponding to that necessary to operate the next flight.”
Included in ReFuelEU plan are synthetic fuels that could be produced through carbon capture but which only make sense when the energy required is from green sources. Synthetic fuels should have a 28 percent share in 2050.
The proposal acknowledges that SAFs are more expensive: “The EU ETS’ current price incentive of approximately €115 per ton for zero-emission jet fuel, is by itself insufficient to bridge the price gap with conventional kerosene. However, by investing auctioning revenues through the Innovation Fund, the EU ETS can also support the deployment of breakthrough technologies and drive the price gap down.”
IATA most critical about taxation
It is no surprise that IATA is most critical of the taxation plan, as it already said it would be during last week’s media days. “Aviation is committed to decarbonization as a global industry. We don’t need persuading, or punitive measures like taxes to motivate change. In fact, taxes siphon money from the industry that could support emissions’ reducing investments in fleet renewal and clean technologies”, Director General Willie Walsh says in a media statement. “To reduce emissions, we need governments to implement a constructive policy framework that, most immediately, focuses on production incentives for SAF and delivering the Single European Sky.”
IATA is missing comprehensive production incentives that will drive down the price of SAFs or other alternative fuels. “Without specific measures to reduce SAF costs, it does, however, propose a mandate to increase SAF utilization to two percent of jet fuel use by 2025 and at least five percent by 2030”, says the association.
The European Regions Airlines Association (ERA) has advised the EC to have a new look at its Destination 2050 roadmap that was presented earlier this year.