What's Happening?
The European Union is set to revise its Emissions Trading System (ETS) by July 2026, aiming to expand its scope to include all flights departing from the EU. This revision is intended to incorporate an additional 80 million tonnes of CO2 emissions into
the scheme, compared to the current 64 million tonnes. The current ETS only covers flights within Europe, leaving a significant portion of emissions from private jets and other flights unaccounted for. The proposed changes are expected to increase revenues from €3 billion in 2024 to an additional €7 billion, which will be reinvested in the decarbonization of the aviation sector. The revision also includes reforms to the Sustainable Aviation Fuels (SAF) allowances to better support the uptake of e-SAFs, and the introduction of contrail allowances to address non-CO2 warming effects.
Why It's Important?
The revision of the EU ETS is crucial for meeting the temperature targets set out in the Paris Agreement and ensuring the 'polluter pays' principle is applied fairly. By expanding the scope of the ETS, the EU aims to cover a greater amount of emissions, thereby accelerating the decarbonization of the aviation sector. This move is expected to benefit countries like Germany, Poland, and Italy the most. The increased revenues from the expanded ETS will provide significant financial resources to support the green transition in aviation, making it a smart industrial policy. Additionally, the reforms to SAF allowances and the introduction of contrail allowances are expected to drive innovation and investment in sustainable aviation technologies.
What's Next?
The EU plans to implement these changes by 2027, with a focus on including all departing flights in the ETS and removing the de minimis emissions threshold for private jets. The Hydrogen Bank will be upgraded to boost the uptake of e-SAFs, and a portion of aviation ETS revenues will be allocated to market intermediaries. The SAF allowances mechanism will be reformed to provide more support for e-SAFs, and the scope of non-CO2 monitoring, reporting, and verification will be expanded to cover all departing and incoming flights. These steps are expected to enhance the EU's ability to meet its climate goals and support the aviation sector's transition to sustainability.
