The European Commission’s Sustainable Transport Investment Plan (STIP) is a promising step towards promoting cleaner fuels in aviation and maritime transport. However, directing revenue from the EU Emissions Trading System towards these sectors should go hand in hand with expanding the EU ETS to cover all shipping and aviation emissions.
This week, the European Commission released its proposed Sustainable Transport Investment Plan (STIP) which sets out a roadmap that seeks to accelerate the energy transition of aviation and shipping.
However, even with support for cleaner fuels, overall emissions from aviation and shipping may continue to grow due to the likely future expansion of these sectors. Only full inclusion in the EU ETS can ensure these sectors actually reduce their overall emissions. Nevertheless, large portions of aviation and shipping emissions remain unpriced, as the EU ETS currently excludes all flights and half of the shipping voyages departing from and arriving in the European Economic Area (EEA).
Our recent study shows that expanding the EU ETS to cover all flights leaving the EEA would generate €9 billion more in carbon pricing revenues each year. If non-CO2 effects and private aviation were also included, the EU ETS would generate an additional €58 billion yearly. This extra revenue could play a major role in financing more sustainable forms of transport, as well as supporting the development of cleaner technologies and fuels.
Within the STIP, funding for cleaner fuels will partly be sourced from ETS revenue via the EU Innovation Fund (€446 million for aviation and maritime fuel projects) and the European Hydrogen Bank (€300 million for aviation and maritime off-takers). Additionally, the Commission will encourage national governments to allocate ETS revenue for sustainable and low-carbon aviation and maritime fuel production.
Aviation already benefits directly from ETS revenue. In 2024, €100 million was gifted to 53 airlines for the use of eligible aviation fuels – so far only bio-kerosene, which, without strict safeguards, can harm the environment and has limited climate benefits. The same mechanism can also fund e-kerosene, a renewable fuel of non-biological origin (RFNBO) under EU regulations. Encouragingly, the Commission plans to assess the possibility of extending the volume and duration of the mechanism for aviation and explore a support mechanism for maritime fuels as well.
As highlighted in our study, this mechanism should no longer support biofuels – only e-kerosene out of the drop-in fuels. Biofuels are already not charged for their emissions under the EU ETS, which provides them with additional financial support – around €25 million in 2024.
Truly sustainable solutions
The Commission will start preparing an EU-wide double-sided auction to boost the production of “sustainable“ aviation and maritime fuels, potentially through the Innovation Fund. Double-sided auctions use a market intermediary to take the financial risks from the producers and help scale up production. There are also plans to mobilise €2 billion for “sustainable alternative“ fuel sector from InvestEU until 2027. However, since the Commission currently classifies biofuels as sustainable, this additional funding is likely open to them as well. Given limited EU resources, funding should focus solely on genuinely scalable and truly sustainable climate solutions.
Our study shows that ETS revenue from aviation should also support more sustainable forms of transport, including the completion of the Trans European Transport Network (TEN-T) for a unified railway network across the EU. Redirecting ETS aviation revenue to support a shift towards railways would not only apply the “polluter pays” principle but also reduce transport emissions.
However, the Commission’s newly published plan for TEN-T high-speed rail network does not dedicate any ETS revenue to completing the network by 2040, which would cost a total €345 billion. Expanding the network threefold would cost €546 billion by 2050, deliver a net positive benefit to society of €750 billion, and cut 5 billion tonnes of CO2 emissions.
The Sustainable Transport Investment Plan can help clean up aviation and shipping, but its success depends on aligning funding with truly sustainable solutions and fair carbon pricing. Expanding the EU ETS to cover all aviation and shipping emissions would generate significant revenue and ensure these sectors contribute to the EU’s climate goals.
