European Parliament and Council Reach Compromise Agreement on Changes to the Aviation EU ETS

by Christopher Surgenor (GreenAir Online) The EU’s Council and Parliament have reached a provisional agreement on revisions to the EU Emissions Trading System (EU ETS) rules applying to the aviation sector. A proposal by the Parliament, and backed by environmental groups and major European low-cost airlines, to include all international flights departing the European Economic Area (EEA) within the EU ETS was blocked by the Council, which represents EU member states. As a result of the trilogue talks, the EU ETS will apply only for intra-European flights – including departing flights to the UK and Switzerland – while ICAO’s CORSIA will apply to extra-European flights to and from third countries participating in the global scheme from 2022 to 2027. The two institutions agreed that after the next ICAO Assembly in 2025, the Commission will assess if CORSIA implementation is sufficient to reduce aviation emissions in line with Paris climate objectives. The co-legislators also agreed to fully phase out free emission allowances for aircraft operators between 2024 and 2026 but also set aside 20 million free allowances to incentivise the uptake of eligible SAF and to transfer 5 million allowances to an innovation fund. The agreement, which also addresses non-CO2 effects for the first time, has been both welcomed and criticised by the European airline sector.

Revisions to the Aviation EU ETS were first proposed by the European Commission in July 2021 as part of its ‘Fit for 55’ package to reduce overall EU emissions by at least 55% by 2030 compared to 1990 levels and to achieve climate neutrality in 2050. EU member states and the Commission have shown strong support for CORSIA, which was considered necessary to secure international backing for an agreement to adopt the Long-Term Aspirational Goal (LTAG) at the ICAO Assembly in October. The inclusion of emissions from extra-European flights into the EU ETS also risked confrontation with third countries, including the United States, which has legislation in place to prohibit US airlines from compliance with the EU scheme. An agreement was also reached at ICAO during the Assembly to strengthen the CORSIA baseline, despite initial opposition from the airline industry not to change the baseline that had been altered during Covid-19 to help airlines deal with the added financial burden of CORSIA offsetting compliance.

However, CORSIA is criticised as an ineffective scheme by environmental groups and others, who do not see it in step with the Paris Agreement 1.5C climate target and the net zero by 2050 goal for aviation emissions adopted by both ICAO and the industry. Under the scheme’s rules, it will not be reviewed again until 2025.

“A4E (Airlines for Europe) is extremely disappointed about the decision to phase out by 2026 free ETS allowances currently granted to airlines,” said the A4E statement. “This is well before truly effective decarbonisation solutions will be available at the scale needed for them to be effective.”

On the other hand, A4E welcomed an agreement on a new system of sustainable aviation fuel allowances under the EU ETS to help stimulate the deployment of SAF and also the transfer of 5 million allowances from the aviation sector to the EU’s Innovation Fund, which uses EU ETS revenues to support innovative low-carbon technologies.

The co-legislators also agreed to set aside 20 million free allowances to further incentivise the uptake of fuels that are deemed to be in the short-term a promising path for aviation decarbonisation by aiming to bridge the price gap with conventional jet fuel. All fuels eligible under ReFuelEU, except those derived from fossil fuels, will be eligible for the SAF allowances under a mechanism to be in place until 2030. Small islands, small airports and outermost regions will be able to cover the price differential between kerosene and eligible fuels with 100% of the SAF allowances in order to ensure the availability of the eligible fuels in these locations with specific supply constraints.

For all other airports, the coverage of the price differential will differ according to the type of fuel: 95% for renewable fuels of non-biological origin (RFNBOs); 70% for advanced biofuels; and 50% for other eligible fuels.

The agreement also provides for the implementation of a monitoring, reporting and verification (MRV) system for non-CO2 effects in aviation from 2025.

The provisional agreement now requires formal adoption by the Council and the Parliament. READ MORE