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Expanding the EU’s carbon market for aviation: Study and Briefing

A study commissioned by Carbon Market Watch and Transport & Environment (T&E), and conducted by TAKS, analysed the emission reductions, costs and auctioning revenues generated by extending the scope of the Emission Trading System (ETS) for aviation.

The three scenarios analysed are 1) the European Commission’s (EC) proposal as part of the Fit For 55 (FF55) package where the ETS only applies to intra-European flights, 2) semi scope: ETS scope is expanded to include all departing flights from the EU and 3) full scope: ETS scope is expanded to cover all incoming and departing flights. In scenarios 2 and 3, the UN’s offsetting scheme (Corsia) costs for routes covered by the ETS are reimbursed to avoid double coverage. The study also assesses the impact of different baselines and levels of participation in Corsia on the overall results.

Main findings of the study

  • Applying the EU ETS to departing flights would reduce emissions by over 50% more than the EC’s initial proposal, and applying it to all flights leaving and arriving in the EU would reduce emissions even more (113%), making it the best option for the climate. 
  • Carbon costs related to the ETS are only a small fraction of an airline’s operating costs even in the case of the full scope scenario with 5.5% for intra-EEA flights and 6.8% for extra-EEA flights.
  • Full scope combined with an immediate phase-out of free allocation will raise the most revenues by more than three times the amount than the EC proposal (107€ billion over 15 years compared to 29€ billion).
  • The future of Corsia is highly uncertain and could lead to 77% less emission savings compared to the EC’s expectations, which is another reason for the EU not to rely on this ineffective offsetting scheme to regulate long-haul aviation emissions.

Policy recommendations

  • Stop relying on Corsia and extend the EU ETS to cover at least all departing flights. Extending the scope will also address competitive distortions between low cost and legacy carriers. 
  • Accelerate the phase-out of free allowances to 2024 as there is no reason for it to continue any longer. The Commission’s own impact assessment found no risk of carbon leakage and concluded that the excessive amount of free allowances undermined the price signal. Ending free allocation  would also generate additional revenue for climate action.
  • Invest the auctioning revenue in clean technologies such as direct air capture, synthetic aviation fuels, zero-emission aircraft but also modal shift and re-skilling of workers.    

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