Updates on the EU ETS

8 July 2022: The Council adopted its general approach for the EU ETS for aviation.

The Council has agreed on its general approach of the EU ETS for aviation:

• To phase out free emission allowances for the aviation sector gradually by 2027
• Align the proposal with CORSIA
• Scope
  • ETS for intra-EU flights (incl. UK and Switzerland)
  • CORSIA for extra-EU flights
• 20 mln of the free allowances are to compensate SAF use

At this stage, both Council and EP have officially agreed on their positions on the EU ETS for aviation and trilogues may start.

9 June 2022: SAF allowances in EU ETS.

This week saw the associations’ joint push for the creation of SAF allowances making a significant step forward, the scheme being now officially endorsed by all three EU institutions, thereby paving the way for the creation of an unprecedented pricing mechanism supporting SAF use and production across Europe in the next months.

9 June 2022: The European Parliament has adopted the EU ETS for aviation.

There were with 479 votes in favour, 130 votes against and 32 abstentions. The proposal states that:

• EU ETS should apply to all flights departing from an airport located in the European Economic Area (EEA).
• Free allocations to the aviation sector should be phased out by 2025! (Note that the current EC proposal is 2026 and the industry is requesting to delay the phase out at least until 2030).
• A derogation from the EU ETS should be provided for emissions from flights between airports located in an EU outermost region and airports located in another EEA region, and flights between airports located within the same outermost region.
• 75 per cent of the revenues generated from the auctioning of allowances for aviation are to be directed towards the support of innovation and new technologies.

More details of the EP position on the EU ETS can be found here.

MEPs also agreed to amend ETS rules on member states’ notification to EU-based airlines of their 2021 offsetting under the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA). More details here.

25 January 2022: The ENVI Committee has published its draft amendments on the Commission proposal of the EU ETS for aviation.

The following amendments have been proposed:

• The Member States and the European Commission (EC) should publish their emissions data per airline in a user-friendly manner.
• The need for a stronger CORSIA fit for purpose, which has to be part of the solution and help to fulfil the Union’s commitments under the Paris Agreement.
• It has been proposed to accelerate the phase-out of free allowances by one year, from 2027 to 2026, given that it generate additional allowances, which can be used towards the avoidance of the cross-sectoral correction factor.
• A significant part of the innovation fund should support the innovation in the aviation sector, in the area of new technologies, SAF and operational, aeronautics, airframe and engine innovation.
• Measures to prevent increase of regulatory burden on the sector should be taken.

The report also highlights the necessity to ensure the new burdens for consumers and industry to be kept at a minimum and ensure a level playing field for airlines on the same routes, in terms of their obligations.

You can find the ENVI draft report here (draft amendments are in bold).

13 July 2021: The TRAN Committee has requested a study on The aviation and maritime sectors and the EU ETS System: challenges and impacts.

The paper gives an initial overview of the market structure in a revised EU ETS for the European aviation and maritime sectors. This is the stage of the research looking at how key design options like the scheme’s geographical scope, the baseline year(s), cap and allocation of allowances, and the relationship with CORSIA, can have impacts on the competitiveness of EU carriers.

The analysis of the Commission’s proposal is expected to follow in autumn 2021.

You can read the full report here.

17 March 2021: European Commission’s assessment on CORSIA. On 17 March, Transport & Environment revealed the European Commission’s assessment on CORSIA, which it received back in September 2020 but has delayed publishing.

The study on CORSIA was launched by DG CLIMA in light of the revision of the EU ETS for aviation and requirement under Article 28b of the EU ETS, assessing the economic, social and environmental impacts of the different policy options and ability for aircraft operators to pass through their carbon costs. The study finds major flaws in the scheme, questioning whether it can be compatible with the EU’s Green Deal.

In particular, the study looks at:

1. The ambition of CORSIA relative to the Paris Agreement goals and EU targets

• A number of CORSIA features imply that its level of ambition is misaligned with and weaker than the global ambition necessary to achieve the temperature targets of the Paris Agreement.
• CORSIA is less ambitious than the EU ETS-  participating in CORSIA and leaving international flights outside the EU ETS scope, the EU would risk undermining its climate objectives and weaken the current EU climate policies.
• If the EU participation in CORSIA would replace part or all of its existing regulation for aviation, it is unlikely that aviation would sufficiently contribute to the EGD’s target of 90% reduction in transport emissions.

2. Some points on environmental integrity:

• State participation in CORSIA will be partial and the extent to which CORSIA would be binding on participating Sates is uncertain.
• There Is lack of transparency: compared to the EU, which follows principles for Better Regulation, the Chicago Convention does not mention transparency nor public consultations. The transparency of CORSIA compliance reporting is affected by the confidentiality of the information that is reported as well as the aggregation of data.
• Enforceability: the legal instruments chosen by ICAO (Resolution, SARPs and technical provisions) will not have a (Strong) binding effect.
• Quality of offset credits: some criteria to assess the eligible emissions units have not been uniformly and consistently applied in regards to an assessment of the programme application. Most approved programmes meet most of the criteria, however, the assessment found variance on how programmes approach critical elements (sustainable development, additionality, baselines, MRV, performance…). Also, none of the programmes have comprehensive provisions to avoid double counting with pre-2020 commitments.
• MRV of emissions of the EU ETS and CORSIA are comparable, however, there are some difference: scope, applicability, data validation requirements, AVR bodies, definitions of gap thresholds and small emitters, to name a few.
• Potential climate impacts of CORSIA: the climate objective is unlikely to be achieved because participation in CORSIA is partial  and the ability of ICAO to enforce compliance is limited. CORSIA is unlikely to materially alter the direct climate impact associated with air travel as the price signal is not expected to provide sufficient financial incentives to reduce emissions.

3. Economic, social and environmental impacts of policy options:

• The study assesses each policy option of the EU ETS revision in detail.
• Of the policy options explored, when taking into account the effect of ETS revenue recycling to increase government expenditure or reduce taxes, extending the EU ETS to cover all flights (Option 1) would have the greatest positive impact on EU27 employment and GVA. The full-scope CORSIA scheme (Option 3) is associated with the weakest macroeconomic outcomes, while the other options with a mix of CORSIA and ETS scopes are expected to have broadly similar intermediate outcomes. However, the variation in expected macroeconomic effects between policy options is small.
• Without the recycling of government revenues, there are weaker macroeconomic outcomes than in the case of revenue recycling for all options.

4. Cost pass through for airlines depends on the degree of competition, the level of airport congestion, demand elasticity, exposure to international trade/competition and carbon cost distribution.

• The obtained cost pass-through figures range from 15% on long intracontinental routes connecting two congested airports with low competition, to 100% on short routes connecting two uncongested airports with high competition. Many airlines will pass the majority of the additional carbon cost on to the passengers, manifesting in higher ticket fares. However, the increase will be small compared to the total expenditure of a holiday or a business trip and is likely to have a small impact on aggregate demand.
• The costs imposed by the EU ETS and CORSIA can influence airline network development in three ways – higher costs will increase the revenue cost for route viability, uneven allocation of costs can result in competitive advantages/disadvantages, or uneven geographical participation can result in reorientation of networks towards lower cost destinations. However, the carbon cost will likely be a relatively small factor in route profitability studies.

13 January 2021: EU ETS updated rules for aviation. The European Commission has opened the public consultation on the EU ETS revision for aviation. The survey closes on 14 January 2021.

This initiative is part of the broader package of legislation under the European Green Deal. It will propose to amend the EU’s emissions trading system to:

• Implement the carbon offsetting and reduction scheme for international aviation (CORSIA) in a way that is consistent with the EU’s 2030 climate objectives.
• Increase the share of allowances auctioned under the system for aircraft operators to further contribute to reducing greenhouse gas emissions.

You can find more information here.