European Parliament vote to extend EU ETS to all international flights risks global climate agreement, warns IATA

As part of measures to revise the EU Emissions Trading System (EU ETS) to bring aviation in line with the bloc’s climate goals, the European Parliament has voted to apply the scheme to all flights departing the European Economic Area (EEA), to the anger of IATA. At present, the EU ETS covers only intra-EEA flights, as well as flights to Switzerland and the UK, but proposing to extend it to all international airlines serving the EU will raise concerns in countries outside Europe, says the airline body. The original scope of the scheme was to cover all flights arriving and departing EEA airports but after protests from third countries, particularly China and the US, the EU ETS was scaled back in 2013 under a ‘stop the clock’ mechanism to allow negotiations at ICAO on establishing an international agreement, which ultimately resulted in the CORSIA carbon offsetting scheme. The ‘stop the clock’ derogation ends in 2023 and unless extended again, the EU ETS reverts automatically to its original scope. Given Europe is pressing for a further agreement at ICAO on an international long-term emissions reduction goal, EU states will most likely oppose the Parliament’s position. Other measures agreed by MEPs include a quicker phasing out of free EU ETS allowances for airlines, the inclusion of non-CO2 emissions in the EU ETS and the creation of a SAF allowances pricing scheme.

Changes to the Aviation EU ETS is part of the EU’s ‘Fit for 55’ package that under European Climate Law plans to reduce greenhouse gas emissions by at least 55% by 2030 compared to 1990 levels, in order to reach climate neutrality by 2050.

In a plenary vote in Strasbourg on June 8, MEPs adopted their report on changes to the EU ETS for aviation with 478 votes in favour, 130 against and 32 abstentions, although proposals for the wider EU ETS were voted against and must now be revised, which may hold up the legislative timetable. Parliament representatives will hold trilogue discussions with the Commission and Council (EU member states) to agree a common position on the legislative proposals.

The agreement by Parliament to extend the EU ETS to apply to all flights departing from an airport located in the EEA, starting 30 April in the year after entry into force of the new rules, is necessary to ensure ambitious GHG emissions reductions in the aviation sector are in line with the Paris Agreement, “and to contribute to an international level playing field while ensuring equal treatment on routes,” said MEPs on the environment committee (ENVI), which has responsibility for the file.

As part of ‘Fit for 55’, in July last year the Commission proposed a number of amendments to the EU ETS Directive in respect of aviation’s contribution to the EU emissions reduction target. It provided for continued application of the EU ETS on intra-EEA flights, while applying CORSIA to extra-EEA flights. Industry association Airlines for Europe (A4E) warns the Parliament amendment to include extra-EEA departing flights in the EU ETS will have regulatory overlaps leading to a potential double burden for carriers, who may have to pay for the same emissions twice through both the EU ETS and CORSIA, it argues. However, the Parliament proposal attempts to get round this, stating: “In order to take account of the [European] Union’s commitment to, and its simultaneous participation in, CORSIA, the financial value of expenditure on credits used for CORSIA for flights from the EEA to third countries that are implementing CORSIA should be deductible from the financial obligations under the EU ETS.”

This would still leave flights to countries that have not yet agreed to join CORSIA, which include major aviation markets such as India and China, subject to inclusion in the EU ETS. When the EU decided in 2012 to include all flights to and from the EEA in the newly-adopted Aviation EU ETS, India and China, along with Russia, the United States and others formed a ‘coalition of the unwilling’ to fight the plan. China threatened to cancel a large order for Airbus aircraft and the Obama Administration passed legislation, which still stands, that gives powers to the Secretary of Transportation to prohibit US airlines from complying with the EU ETS. Trade body the Air Transport Association of America (now renamed Airlines for America) brought a case against the EU over the issue in the European Court of Justice.

Reaction from the global airline industry to the new proposal has been swift. “A unilateral decision by the EU to expand the scope of ETS extra-territorially to non-EU destinations will threaten the prospects for major global decarbonisation efforts,” said an IATA statement, which argued it would make the adoption of a long-term goal at ICAO unlikely and could “weaken and potentially dismantle the existing CORSIA agreement which states agreed would be the single global market-based measure applied to international aviation.”

Moreover, it added, expanding the EU ETS scope “would lead to serious distortion of competition and weaken the global competitive position of EU airlines and hubs.”

IATA Director General Willie Walsh described the Parliament decision as “disturbing”, adding: “Europe has already suffered the embarrassment of a unanimous global rejection of its misguided attempt to impose ETS extra-territorially in 2012. The impact of any regional initiative by the EU will be quickly neutralised or worse if it derails decarbonisation efforts in faster growing markets outside of Europe. Now is the time for Europe to support CORSIA and the adoption of ICAO’s long-term aspirational goal (LTAG), which will propel global decarbonisation efforts further.”

Unsurprisingly, the Parliament decision was welcomed by NGOs, including Transport & Environment (T&E), whose Aviation Director, Jo Dardenne, said: “Europe’s lawmakers have sent a clear signal. The bulk of Europe’s aviation emissions will no longer be ignored, marking a major step forward in tackling heavily polluting long-haul flights. It’s now up to national governments to make this a reality.”

More surprising is that there are major airlines in Europe that support a move to include all extra-EEA flights in the EU ETS. In February, T&E and four of Europe’s largest low-cost carriers – easyJet, Ryanair, Jet 2 and Wizz Air – issued a joint statement calling on EU policymakers “to address the imbalanced contributions of European airlines in tackling climate change” and that all flights departing from European airports “should abide by the same rules, regardless of destination.”

Said Michael O’Leary, Group CEO of Europe’s biggest airline, Ryanair: “It is crucial that legislative proposals, such as the ‘Fit for 55’ package, apply equally to all flights, regardless of destination or distance. There is no justification to exempt any flights, especially the most polluting indirect ones, which require at least two flights to reach their destination, and/or connect onto long-haul flights, which account for just 6% of Europe’s air passengers but over 51% of EU air travel CO2 emissions.”

Other proposals passed in the Parliament include a derogation from the EU ETS to be provided for emissions from flights between airports located in an outermost region and airports located in another EEA region, and flights between airports located within the same outermost region.

The Commission proposes the phasing out of free EU ETS allowances for aircraft operators towards full auctioning by 2027, but MEPs voted to bring this forward to 2025. However, their report calls for 75% of auction revenues primarily go towards innovations and new technologies to green the aviation sector, including for the development of sustainable aviation fuels. EU member states have so far rejected attempts by the Parliament to ring-fence auction revenues for aviation decarbonisation measures.

A4E said it was “extremely concerned” about the early phase-out of free allowances, which it says should be better aligned with the emergence of decarbonisation solutions, such as SAF, suggesting 2030 would be a better date “to mitigate competitive distortion with non-EU carriers and avoid carbon leakage.”

The trade body said airlines spent €950 million ($1bn) on EU ETS compliance in 2019, having to buy certificates for 60% of their emissions at a price of €25 ($27) per tonnes. “Buying allowances for 100% of 2019 emissions at today’s carbon price of €80 per tonne would amount to ETS compliance costs of €5.2 billion ($5.5bn) annually,” it estimates. “ETS costs may well reach €6 billion by 2025, even as aviation emissions decline.”

The decision by Parliament to include obligations for aircraft operators on non-CO2 emissions within the scope of the EU ETS was described as “premature” by A4E. “Further scientific and legal analyses are still needed on the exact impacts of non-CO2 emissions from aviation and how best to address them,” it said.

The Parliament report calls for a monitoring, reporting and verification (MRV) scheme for non-CO2 emissions – such as NOx, soot particles, sulphur dioxide and water vapour – from aircraft operators, “with a view to expanding the scope of the EU ETS to cover non-CO2 aviation emissions, if deemed appropriate.”

One proposal welcomed by A4E is for a newly created SAF allowances pricing scheme that would aim to bridge the price gap between conventional jet fuel and SAF. Airlines would be granted CO2 allowances equivalent to the amount of CO2 saved by uplifting SAF. Use of synthetic or renewable fuels of non-biological origin (RFNBOs) would count double. A4E believes such a scheme would reduce the total cost of the ReFuelEU Aviation proposal.

“For it to be successful, the SAF allowances system should increase overall SAF uptake across Europe and incentivise airlines to go beyond blending mandates, in turn reducing more CO2 emissions from the sector,” said A4E. “It would also strengthen local SAF production across Europe and help Europe to better compete with the US tax credit scheme of $1.50 to $2 per gallon.”

After the vote in the plenary, the ENVI rapporteur handling the EU ETS aviation file, Sunčana Glavak, said: “With the report, we are aligning the aviation sector with our climate goals. But within that process, we have to offer decarbonisation solutions for the sector, which we managed to achieve in the ENVI committee with the introduction of SAF allowances. We are all aware that we have to focus on our climate goals, but we also cannot allow the industry to bear the whole burden. We must preserve our mobility and industry.”

Photo: European Parliament plenary session