EU Emissions Trading System

The cornerstone of the EU’s policy to combat climate change is the EU Emissions Trading System. Various economic sectors (e.g. power, heat, manufacturing industries, maritime, aviation) have been included within this cap-and-trade system to incentivise CO₂ reduction within each sector, or through trading of allowances with other economic sectors included in the EU ETS where emission reduction costs are lower.

Aviation and the EU ETS

The EU decided to include aviation activities within the EU ETS in 2008

[1]

, and the system has been applied to aviation activities since 2012. As such, they are subject to the EU's greenhouse gas emissions reduction target of at least minus 55% by 2030 compared to 1990. The initial scope of the EU ETS covered all flights arriving at, or departing from, airports in the European Economic Area (EEA)¹ However, flights to and from airports in non-EEA countries or in the outermost regions were subsequently excluded until the end of 2023 through a temporary derogation. This exclusion facilitated the negotiation of a global market- based measure for international aviation emissions at the International Civil Aviation Organisation (ICAO).

In July 2021, the European Commission adopted the ‘Fit for 55’ Legislative Package to make the EU's climate, energy, transport and taxation policies fit for achieving the 2030 greenhouse gas emissions reduction target. This included proposed amendments to the EU ETS Directive for aviation activities, which entered into force on 5 June 2023

[2]

. The main changes to the aviation ETS are applicable from 2024 onwards, and include the following:

Applying EU ETS for flights within and between countries in the European Economic Area, as well as departing flights to Switzerland and to the United Kingdom, while applying CORSIA for flights to and from third countries.
Applying EU ETS for flights between countries in the European Economic Area and the outermost regions, as well as between the outermost regions, unless they connect to the respective Member State’s mainland.
EU ETS also applies to flights from the outermost regions to Switzerland and the United Kingdom.
Gradual phase-out of the free ETS allocation to airlines as follows: 25% in 2024; 50% in 2025 and 100% from 2026, meaning full auctioning of EU Allowances to the aviation sector from 2026. The free allocation for the years 2024 and 2025 is distributed according to the aircraft operators' share of verified emissions in the year 2023.
Applying an annual linear reduction factor of 4.3% to the EU Allowances issued for aviation from 2024 onwards.
Creation of a new incentive scheme for Sustainable Aviation Fuels (SAF). For the period from 2024 to 2030, a maximum of 20 million ETS allowances will be allocated to aircraft operators for the uplifting of SAF to cover part or all of the price difference between SAF and fossil kerosene, depending on the type of SAF used.
Setting up a monitoring, reporting and verification system for non-CO₂ aviation effects (see Chapter 2 on Environmental Impacts).
Assessment of CORSIA’s environmental performance after the 2025 ICAO Assembly. The Commission will report in 2026 on the progress at ICAO negotiations every three years, accompanied by legislative proposals, where appropriate.

More detailed amendments to the ETS Directive are implemented though various delegated and implementing acts, which are referenced in the Directive itself.

Linking the EU ETS to other emissions trading systems is permitted provided that these systems are compatible, mandatory and have an absolute emission cap. An agreement to link the systems of the EU and Switzerland entered into force on 1 January 2020. Accordingly, flights from the EEA area to Switzerland are subject to the EU ETS, and flights from Switzerland to the EEA area fall under the Swiss ETS. Allowances from both systems can be used to compensate for emissions occurring in either system.

The Environmental Management Information Service (EMIS) of Eurocontrol, which superseded the EU ETS Support Facility in 2023, continues to provide 28 States with access to EU ETS and ICAO CORSIA related data, as well as traffic and emissions data to over 400 aircraft operators.

Historic and forecasted aviation emissions under EU ETS

The initial total amount of aviation allowances within the EU ETS in 2012 was 95% of the average annual emissions between 2004 and 2006 of flights within the full ETS applicability scope (all flights departing from or arriving in the European Economic Area), representing 221.4 million tonnes (Mt) of CO₂ per year. The EUAAs issued for aviation activities in the ETS's third phase (2013-2020) was adjusted for the applicability scope. While aircraft operators may use EUAAs as well as EU Allowances (EUAs) from the stationary sectors, stationary installations are not permitted to use EUAAs. In addition, aircraft operators were entitled to use certain international credits (CERs) until 2020 up to a maximum of 1.5% of their verified emissions. In 2023, there were 254 aircraft operators reporting a total of 53 million tonnes (Mt) of CO₂ emissions under the EU ETS.

Aircraft operators are required to report verified emissions data from flights covered by the scheme on an annual basis. As is shown in

total verified CO₂ emissions from aviation covered by the EU ETS increased from 53.5 Mt in 2013 to 68.2 Mt in 2019. This implies an average increase of CO₂ emissions of 4.15% per year. The impact of the COVID-19 pandemic on international aviation saw this figure fall to 25.3 Mt in 2020, representing a decrease of 63% from 2019 levels. From 2013 to 2020, the average amount of annual EUAAs issued was around 38.3 Mt of which about 15% have been auctioned by the Member States, while 85% have been allocated for free. The purchase of EUAs by the aviation sector for exceeding the EUAAs issued went up from 20.4 Mt in 2013 to 32.4 Mt in 2019 contributing thereby to a reduction of around 155.6 Mt of CO₂ emissions from other sectors during 2013-2019. As a result of the COVID-19 pandemic, the verified emissions of 25.3 Mt in 2020 were below the freely allocated allowances for the first time (see

Since 2021, a gradual recovery of aviation activities has been observed: total verified aviation CO₂ emissions covered by the EU ETS in 2021, 2022 and 2023 were 27.7 Mt, 48.8 Mt and 53.0 Mt respectively. The free allowances allocated to the aviation sector were 23.9 Mt in 2021, 23.1 Mt in 2022 and 22.5 Mt in 2023. Following the rebound of aviation sector’s CO₂ emissions from the COVID-19 pandemic, the sector became a net purchaser of EUAs again in 2022 (22.0 Mt) and in 2023 (24.8 Mt). From 2021 until 2023, a linear reduction factor of 2.2% has been applied to the Allowances issued for aviation, and this factor will increase to 4.3% for the period of 2024-2027.

As also shown in

, the modelled CO₂ emissions under the aviation ETS are expected to grow to 59.5 Mt in 2026. In line with the gradual phase out of the free allowances to the aviation sector, the annual amount of freely allocated EUAs for aviation is expected to reduce from 16.1 Mt in 2024 to 10.7 Mt in 2025 and then become zero from 2026 onwards. Purchase of EUAs is expected to grow from 30.2 Mt in 2024 to 34.5 Mt in 2026. Emissions benefits from the claiming of Sustainable Aviation Fuels (SAF) could grow from 0.5 Mt in 2024 to 1.7 Mt in 2026, assuming a zero emissions factor of SAF as per the EU ETS Directive. Moreover, there could be a relative demand reduction within the aviation sector over the years 2024-2026 of 9.8 Mt as a result of the carbon price incurred due to the EU ETS.³

As shown in

, the annual average EU ETS carbon price varied between €4 and €30 per tonne of CO₂ during the 2013-2020 period. Consequently, total aircraft operator costs linked to purchasing EU Allowances (EUAs) have gone up from around €84 million in 2013 to around €955 million in 2019. Since 2021, the EUA price has increased significantly, reaching average annual EUA prices of more than €80 in 2022 and 2023, resulting in total aircraft operator cost of approximately €1.8 billion in 2022 and €2.1 billion in 2023. Peak EUA prices exceeding €90 per tonne of CO₂ were observed in early 2022 and again in 2023. For the period of 2024-2026, it is estimated that the ETS cost could represent approximately 4-6% of airlines’ total annual operating costs.⁴

From 2024 until 2030, airlines can apply for additional ETS allowances to cover part or all of the price differential between the use of fossil kerosene and SAF on their flights covered by the EU ETS. A maximum amount of 20 million allowances will be reserved for such a support mechanism, and airlines can apply for an allocation on an annual basis. The Commission will calculate the price differentials annually, taking into account information provided within the annual ReFuelEU Aviation report from EASA.

European Model for Impact Assessments of Market-based Measures

The EASA AERO Modelling System (AERO-MS) has been developed to assess the economic and environmental impacts of a wide range of policy options to reduce

international and domestic aviation GHG emissions. These policies include taxes (e.g. fuel and ticket taxation), market-based measures (e.g. EU ETS, CORSIA), as well as the introduction of sustainable aviation fuels and air traffic management improvements. The model can provide insight into the effect of policy options on both the supply side and demand side of air travel due to higher prices, and the forecasted impact on emission reductions.

During the last 20 years, the AERO-MS has been a key part of more than 40 international studies where the model results have informed policy discussions and decisions. Beneficiaries of the AERO-MS include a wide range of organizations, including the European Commission, Member States, EASA, IATA, ICAO, aviation industry and NGOs. As a part of a project funded by the EU Horizon 2020 research programme, an update to AERO-MS was completed in 2024 to enhance its capabilities for future studies. This included a new base year of 2019 traffic and emissions, latest information on price elasticities, the addition of particulate matter emissions modelling and the inclusion of the impacts of SAF. Modelling results from AERO-MS have been used as input for various Figures included within this Chapter.

¹ The European Economic Area includes EU27, Norway, Iceland and Liechtenstein.
² In addition, the Swiss (CH) ETS is forecast to result in a purchase of ETS allowances by aviation sector as follows: 0.3 million in 2023; 0.4 million in 2024; 0.5 million in 2025 and 0.6 million in 2026.
³ Estimation from EASA AERO-MS model. See Appendix C for more details.
⁴ Estimation from EASA AERO-MS model.

Published in collaboration with