As part of measures to revise the EU Emissions Trading System (EU ETS) to bring aviation in line with the bloc’s climate goals, the European Parliament has voted to apply the scheme to all flights departing the European Economic Area (EEA), to the anger of IATA. At present, the EU ETS covers only intra-EEA flights, as well as flights to Switzerland and the UK, but proposing to extend it to all international airlines serving the EU will raise concerns in countries outside Europe, says the airline body. The original scope of the scheme was to cover all flights arriving and departing EEA airports but after protests from third countries, particularly China and the US, the EU ETS was scaled back in 2013 under a ‘stop the clock’ mechanism to allow negotiations at ICAO on establishing an international agreement, which ultimately resulted in the CORSIA carbon offsetting scheme. The ‘stop the clock’ derogation ends in 2023 and unless extended again, the EU ETS reverts automatically to its original scope. Given Europe is pressing for a further agreement at ICAO on an international long-term emissions reduction goal, EU states will most likely oppose the Parliament’s position. Other measures agreed by MEPs include a quicker phasing out of free EU ETS allowances for airlines, the inclusion of non-CO2 emissions in the EU ETS and the creation of a SAF allowances pricing scheme.

Changes to the Aviation EU ETS is part of the EU’s ‘Fit for 55’ package that under European Climate Law plans to reduce greenhouse gas emissions by at least 55% by 2030 compared to 1990 levels, in order to reach climate neutrality by 2050.

In a plenary vote in Strasbourg on June 8, MEPs adopted their report on changes to the EU ETS for aviation with 478 votes in favour, 130 against and 32 abstentions, although proposals for the wider EU ETS were voted against and must now be revised, which may hold up the legislative timetable. Parliament representatives will hold trilogue discussions with the Commission and Council (EU member states) to agree a common position on the legislative proposals.

The agreement by Parliament to extend the EU ETS to apply to all flights departing from an airport located in the EEA, starting 30 April in the year after entry into force of the new rules, is necessary to ensure ambitious GHG emissions reductions in the aviation sector are in line with the Paris Agreement, “and to contribute to an international level playing field while ensuring equal treatment on routes,” said MEPs on the environment committee (ENVI), which has responsibility for the file.

As part of ‘Fit for 55’, in July last year the Commission proposed a number of amendments to the EU ETS Directive in respect of aviation’s contribution to the EU emissions reduction target. It provided for continued application of the EU ETS on intra-EEA flights, while applying CORSIA to extra-EEA flights. Industry association Airlines for Europe (A4E) warns the Parliament amendment to include extra-EEA departing flights in the EU ETS will have regulatory overlaps leading to a potential double burden for carriers, who may have to pay for the same emissions twice through both the EU ETS and CORSIA, it argues. However, the Parliament proposal attempts to get round this, stating: “In order to take account of the [European] Union’s commitment to, and its simultaneous participation in, CORSIA, the financial value of expenditure on credits used for CORSIA for flights from the EEA to third countries that are implementing CORSIA should be deductible from the financial obligations under the EU ETS.”

This would still leave flights to countries that have not yet agreed to join CORSIA, which include major aviation markets such as India and China, subject to inclusion in the EU ETS. When the EU decided in 2012 to include all flights to and from the EEA in the newly-adopted Aviation EU ETS, India and China, along with Russia, the United States and others formed a ‘coalition of the unwilling’ to fight the plan. China threatened to cancel a large order for Airbus aircraft and the Obama Administration passed legislation, which still stands, that gives powers to the Secretary of Transportation to prohibit US airlines from complying with the EU ETS. Trade body the Air Transport Association of America (now renamed Airlines for America) brought a case against the EU over the issue in the European Court of Justice.

Reaction from the global airline industry to the new proposal has been swift. “A unilateral decision by the EU to expand the scope of ETS extra-territorially to non-EU destinations will threaten the prospects for major global decarbonisation efforts,” said an IATA statement, which argued it would make the adoption of a long-term goal at ICAO unlikely and could “weaken and potentially dismantle the existing CORSIA agreement which states agreed would be the single global market-based measure applied to international aviation.”

Moreover, it added, expanding the EU ETS scope “would lead to serious distortion of competition and weaken the global competitive position of EU airlines and hubs.”

IATA Director General Willie Walsh described the Parliament decision as “disturbing”, adding: “Europe has already suffered the embarrassment of a unanimous global rejection of its misguided attempt to impose ETS extra-territorially in 2012. The impact of any regional initiative by the EU will be quickly neutralised or worse if it derails decarbonisation efforts in faster growing markets outside of Europe. Now is the time for Europe to support CORSIA and the adoption of ICAO’s long-term aspirational goal (LTAG), which will propel global decarbonisation efforts further.”

Unsurprisingly, the Parliament decision was welcomed by NGOs, including Transport & Environment (T&E), whose Aviation Director, Jo Dardenne, said: “Europe’s lawmakers have sent a clear signal. The bulk of Europe’s aviation emissions will no longer be ignored, marking a major step forward in tackling heavily polluting long-haul flights. It’s now up to national governments to make this a reality.”

More surprising is that there are major airlines in Europe that support a move to include all extra-EEA flights in the EU ETS. In February, T&E and four of Europe’s largest low-cost carriers – easyJet, Ryanair, Jet 2 and Wizz Air – issued a joint statement calling on EU policymakers “to address the imbalanced contributions of European airlines in tackling climate change” and that all flights departing from European airports “should abide by the same rules, regardless of destination.”

Said Michael O’Leary, Group CEO of Europe’s biggest airline, Ryanair: “It is crucial that legislative proposals, such as the ‘Fit for 55’ package, apply equally to all flights, regardless of destination or distance. There is no justification to exempt any flights, especially the most polluting indirect ones, which require at least two flights to reach their destination, and/or connect onto long-haul flights, which account for just 6% of Europe’s air passengers but over 51% of EU air travel CO2 emissions.”

Other proposals passed in the Parliament include a derogation from the EU ETS to be provided for emissions from flights between airports located in an outermost region and airports located in another EEA region, and flights between airports located within the same outermost region.

The Commission proposes the phasing out of free EU ETS allowances for aircraft operators towards full auctioning by 2027, but MEPs voted to bring this forward to 2025. However, their report calls for 75% of auction revenues primarily go towards innovations and new technologies to green the aviation sector, including for the development of sustainable aviation fuels. EU member states have so far rejected attempts by the Parliament to ring-fence auction revenues for aviation decarbonisation measures.

A4E said it was “extremely concerned” about the early phase-out of free allowances, which it says should be better aligned with the emergence of decarbonisation solutions, such as SAF, suggesting 2030 would be a better date “to mitigate competitive distortion with non-EU carriers and avoid carbon leakage.”

The trade body said airlines spent €950 million ($1bn) on EU ETS compliance in 2019, having to buy certificates for 60% of their emissions at a price of €25 ($27) per tonnes. “Buying allowances for 100% of 2019 emissions at today’s carbon price of €80 per tonne would amount to ETS compliance costs of €5.2 billion ($5.5bn) annually,” it estimates. “ETS costs may well reach €6 billion by 2025, even as aviation emissions decline.”

The decision by Parliament to include obligations for aircraft operators on non-CO2 emissions within the scope of the EU ETS was described as “premature” by A4E. “Further scientific and legal analyses are still needed on the exact impacts of non-CO2 emissions from aviation and how best to address them,” it said.

The Parliament report calls for a monitoring, reporting and verification (MRV) scheme for non-CO2 emissions – such as NOx, soot particles, sulphur dioxide and water vapour – from aircraft operators, “with a view to expanding the scope of the EU ETS to cover non-CO2 aviation emissions, if deemed appropriate.”

One proposal welcomed by A4E is for a newly created SAF allowances pricing scheme that would aim to bridge the price gap between conventional jet fuel and SAF. Airlines would be granted CO2 allowances equivalent to the amount of CO2 saved by uplifting SAF. Use of synthetic or renewable fuels of non-biological origin (RFNBOs) would count double. A4E believes such a scheme would reduce the total cost of the ReFuelEU Aviation proposal.

“For it to be successful, the SAF allowances system should increase overall SAF uptake across Europe and incentivise airlines to go beyond blending mandates, in turn reducing more CO2 emissions from the sector,” said A4E. “It would also strengthen local SAF production across Europe and help Europe to better compete with the US tax credit scheme of $1.50 to $2 per gallon.”

After the vote in the plenary, the ENVI rapporteur handling the EU ETS aviation file, Sunčana Glavak, said: “With the report, we are aligning the aviation sector with our climate goals. But within that process, we have to offer decarbonisation solutions for the sector, which we managed to achieve in the ENVI committee with the introduction of SAF allowances. We are all aware that we have to focus on our climate goals, but we also cannot allow the industry to bear the whole burden. We must preserve our mobility and industry.”

Photo: European Parliament plenary session

Two draft reports on European Commission proposals to amend the Aviation EU ETS directive and introduce a regulation to kickstart large-scale use of sustainable aviation fuels in the EU have been presented to European Parliament committees by their respective rapporteurs. The Commission is proposing a phasing out over three years of free allowances granted to aircraft operators under the EU ETS, with a transition to full auctioning in 2027, but the EP rapporteur calls for an accelerated transition. The amendments also take into account the introduction of the ICAO CORSIA international carbon offsetting scheme and the temporary geographic scope of the EU ETS, currently limited to intra-EEA flights under a ‘stop the clock’ measure, which is due to expire at the end of next year. The second proposal before the Parliament relates to the RefuelEU Aviation initiative that introduces a SAF blending mandate in the EU. The rapporteur calls for a flexibility mechanism for fuel suppliers and airlines to meet their obligations over a transitional period and the setting up of a new Sustainable Aviation Fund.

Both proposals are based on aviation’s expected contribution to the Union’s economy-wide emission reduction target laid out in the ‘Fit for 55’ legislative package published in July 2021, which envisions Europe becoming a climate-neutral continent by 2050 and reducing emissions by 55% in 2030 based on 1990 levels.

Opening a debate (recording here at 10:37:24) held by the Parliament’s environment committee (ENVI), the rapporteur responsible for the Aviation EU Emissions Trading System (EU ETS) legislative proposal by the Commission, Croatian MEP Sunčana Glavak, said “concrete and appropriate” measures were needed to reduce aviation emissions in line with EU climate law and commitments under the Paris Agreement.

Phasing out free allowances to aircraft operators one year earlier than proposed by the Commission, transitioning instead to full auctioning by 2026, would generate additional allowances to be auctioned in the period up to 2030, she said. The Commission puts the number of aviation allowances (each allowance gives the holder the right to emit one tonne of CO2) issued for 2021 at around 24.5 million, with 20.7 million issued for free and 3.8 million auctioned.

Volumes of EU ETS allowances are made available to the EU’s Innovation Fund, which is expected to provide around €25 billion ($28bn) of support over the period 2020-2030 for innovative low-carbon technologies. Glavak proposes in her draft report a “significant” amount of the fund should be earmarked for projects in the aviation sector, particularly those involving sustainable aviation fuels.

“It is important to consider instruments to help foster innovation and manufacturing inside the EU and to create a business ecosystem that would attract investment and result in new jobs,” said Glavak in the report. “This presents an opportunity for the EU to set the foundation for innovation breakthroughs in the global aviation industry.”

She said the EU was a global leader in the fight against climate change but it could not achieve the Paris Agreement commitments and environmental ambitions alone, and emphasised the need for a stronger CORSIA “fit for purpose” as part of the solution.

“Therefore, it is important to achieve the highest possible number of participating countries and to ensure that CORSIA is implemented in those countries by 2027 at the latest,” she said, adding that reported emissions data per airline should be published in a “user-friendly manner” by EU member states and the European Commission.

The original scope of the Aviation EU ETS, which was to regulate the emissions of all flights to and from airports in the European Economic Area (EEA), was curtailed shortly after the aviation sector entered the EU ETS in 2012 as a result of international pressure and to allow ICAO to agree a global market-based measure. Known as ‘stop the clock’, only flights within the EEA are currently subject to the EU ETS directive. However, this exemption ends automatically on 31 December 2023. The Commission proposal is to maintain the current coverage of intra-EEA flights, including departing flights to Switzerland and the UK (which have their own ETS schemes that include departing flights to EEA airports), and to apply CORSIA to flights to third countries that are participating in the ICAO scheme.

The rapporteur has agreed with the Commission’s proposal. However, there are some MEPs, such as Green MEP Bas Eickhout, who would like to see a reinstatement of the full scope.

Also calling for all flights to non-EEA destinations to be included in the EU ETS are four European low-cost carriers – easyJet, Ryanair, Jet 2 and Wizz Air – and European NGO Transport & Environment (T&E). They argue the proposal by the Commission fails to address the bulk of EU aviation emissions that take place on extra-EU flights, with departing long-haul flights alone representing just 6% of all flights but generating 51% of the emissions from European aviation.

“No exemptions should be granted, especially not to airlines operating transfer and long-haul flights, as some long-haul airlines and associated hub airports have asked for,” they said in a statement. “Their requests to have ETS and sustainable fuel costs subsidised for long-haul flights are unreasonable and unjustified.”

A spokesperson for T&E told GreenAir: “The Commission’s own findings show that CORSIA is the worst option for the climate and can’t be used to regulate emissions on extra-EU flights. It is a cheap offsetting scheme that continues to allow emissions to grow. And while industry often voices unsubstantiated claims of carbon leakage and competitiveness issues, the Commission’s study found that adding all flights to the ETS has large environmental benefits, relatively low cost impacts and the greatest positive impact on employment and the economy. Limiting the scope to intra-EEA not only fails to address the majority of aviation emissions, it also creates an unfair advantage for airlines operating predominantly in Europe.

“ICAO has had a decade to come up with an effective measure to reduce emissions and they have failed on all accounts. We cannot wait another decade trying to improve something that is doomed to fail. It is time for the EU to take action and do what is best for the climate.”

In June 2020, as a result of the dramatic downturn in 2020 traffic because of the Covid pandemic, ICAO agreed to an industry request to replace CORSIA’s 2019-20 emissions baseline (above which airlines from participating countries are required to offset emissions) with emissions from 2019 only. The Commission, in its legislative proposal, says the 2019 baseline should only apply in respect of emissions during the 2021-23 pilot phase of CORSIA and then revert to 2019-20 levels for subsequent years, which is agreed by the ENVI rapporteur.

Offering his support, Dr Peter Liese, a former rapporteur on the Aviation EU ETS and now rapporteur on the overall EU ETS legislation, said some had criticised the Glavak report as being unambitious while others had found it too ambitious, “but that is the essence of a good compromise.”

It is high time for full auctioning as there was little risk of carbon leakage in the aviation sector, unlike with other stationary industries, Liese told the ENVI debate. He recounted a meeting that had just taken place with a European shipping industry representative who had told him the EU should lead the way on tackling emissions from his sector as IMO, the UN’s maritime agency, had missed every opportunity for collective meaningful climate action.

“This is a voice from the maritime sector strongly criticising IMO,” said Liese. “My clear position, knowing both industries and the regulations, ICAO is worse. They have only delivered words, with no progress and not realising the climate challenge. We need to consider broadening the scope [of the EU ETS] when the time is right and keep this option on the table.”

He agreed that a significant part of the Innovation Fund should go towards aviation sustainability although funding should also be directed towards modal shift, particularly from air travel to railways.

While agreeing the aviation sector should benefit from the Innovation Fund, Bas Eickhout, a long-standing critic of the industry and ICAO, said financial support should go towards breakthrough technologies, like fuels, that offered “real innovation”, rather than to large companies like Airbus.

He revealed it was the intention to send again a group of ENVI members to Montreal to attend the ICAO Assembly in October. “I’m sure this time they will welcome us with open arms, as they didn’t last time,” he said tongue in cheek. “I’m looking for a change of heart there. If the EU had not taken steps in 2012 [when aviation was included in the EU ETS] I’m sure there would not have been any international action. We have to take the next step now. CORSIA, which is a pretty useless offsetting mechanism to be very honest, will not be enough. That is why I expected more ambition from the Commission in its proposal, both within Europe and also on flights going in and out of Europe. This is the moment to do that. We have to be tougher on the scope and free allowances.”

Eickhout also called for action on aviation’s non-CO2 effects. “How long has the Parliament being asking for this? We haven’t seen much movement from the Commission,” he complained.

Responding in the debate for the European Commission, Beatriz Yordi, Director for European and International Carbon Markets, said aviation was a key element of the ‘Fit for 55’ package and welcomed the Glavak draft report. Bringing forward the phasing out of free allowances by a year was a political decision, she said, but supported aviation participation in the Innovation Fund. Regarding aviation’s non-CO2 impacts, she said the Commission was fully aware of the issue but was concentrating on the impact of CO2.

She revealed that an impact assessment of the carbon costs of the EU ETS on intra-European flights would be less than 1% of airline operating costs by 2030, leading to an average extra cost of €2 per ticket.

Europe is playing a key role at the international level, said Yordi, adding: “We are supporting wide participation and a high level of ambition in CORSIA, and I stress the importance of the ICAO Assembly this year.”

A final position on the Commission’s proposals is expected to be discussed and voted in a plenary session of the full Parliament in early June.

EU SAF regulation

Meanwhile, Danish MEP Søren Gade, as the rapporteur responsible for the file, presented his draft report to the Parliament’s Transport and Tourism Committee (TRAN) on the Commission’s proposals (here and here) around introducing a blending mandate regulation to incentivise the uptake of sustainable aviation fuels in the EU as part of the EU’s strategy to decarbonise the air transport sector.

The Commission recognises the introduction of SAF will represent an additional fuel cost for airlines as they are currently more expensive to produce. “This is expected to exacerbate the pre-existing issues of a level playing field on the air transport market as regards aviation fuel, and to cause further distortions among aircraft operators and airports,” it says. “This regulation should take measures to prevent the introduction of sustainable aviation fuels negatively affecting the competitiveness of the aviation sector by defining harmonised requirements across the Union.”

In his report, Gade said the creation of a sound EU SAF market “will greatly depend on the credibility and sustainability of the final provisions that will be adopted under this regulation.”

Because competition for feedstocks between the energy and transport sectors will increase, he said it will be important to maintain the same European blending mandates across the EU. “This is to avoid a fragmentation of the SAF market, as well as a competition for feedstock that would lead to a severe shortage of supply in certain regions of the Union, undermining the ability of aircraft operators from those regions to decarbonise,” said the report. “Moreover, the rapporteur considers that it is of the utmost importance to preserve the integrity of the SAF and aviation internal markets, and in this respect the current blending mandate targets should be kept as they are because they reflect this limited availability of feedstock.”

The mandate proposed by the Commission starts from 1 January 2025 with a minimum share of 2% of SAF and with a 0.7% sub-mandate for synthetic fuels starting in 2030. Gade proposes the sub-mandate should be introduced from the beginning, with a minimum share of 0.03% of synthetic fuels.

Responding to concerns raised by the industry on the physical supply and uplift of the mandated SAF volumes at EU airports under the Commission proposal, Gade proposes a ‘flexibility mechanism’ for an eight-year period after the introduction of the mandate obligations. “This should act as a transitional period to provide for the necessary flexibility for fuel suppliers and airlines to meet their obligations of providing and uptaking sustainable aviation fuels in the most cost-effective manner, and to avoid imposing undue burdens on air transport operations at small airports. After the eight-year period, SAF will be available in the lion’s share of Union airports and be uplifted by the majority of aircraft operating from the Union.”

To further boost the uptake of SAF, he proposes that a part of the overall amount of EU ETS allowances, within the limit of the cap, should be allocated for free to aircraft operators for uplifting SAF. To avoid tankering, the proposed regulation requires all aircraft operators, both EU and from third countries, to annually uplift at least 90% of the aviation fuel required in those EU airports they depart from. For safety reasons, the rapporteur proposes an exemption from administrative fines if the operator proves non-compliance was caused by exceptional and unforeseen circumstances.

As aviation is an integrated and competitive international market, the rapporteur proposes text in the regulation that the EU sustains efforts at ICAO for an ambitious global system to incentivise the uptake of SAF and provides for an international level playing field.

In addition to SAF and synthetic fuels, Gade proposes that new technologies including hydrogen and electric, along with the appropriate airport infrastructure, should be included in the regulation to encourage and accelerate their development. He also proposes the introduction of an EU-wide labelling system, to be developed and implemented by the EU’s aviation regulatory agency EASA, to help consumers make more informed choices around the environment when choosing flights.

“A labelling scheme, with clear and comprehensive information, could provide the needed transparency in the market in order to drive consumers’ choices and further incentivise the use of sustainable aviation fuels and other sustainability measures by aircraft operators,” he says.

Lastly, the rapporteur proposes the setting up of a centrally-managed Sustainable Aviation Fund to provide the appropriate resources to stimulate innovation, research and investment in zero-emission technologies and sustainable infrastructure, with the revenues coming from fines collected under the regulation.

Photo: European Parliament