Navigating the EU ETS for Aviation

Introduced in 2005, the EU Emissions Trading System (EU ETS) is a market-based cap and trade system devised by the European Union to help reduce greenhouse gas emissions (GHGs).

EU ETS aviation allowances work like this - where an airline emits more than its allocated allowance, the ETS requires airlines to purchase carbon allowances.

As a policy instrument, the system is designed to encourage the sector to reduce its emissions over time.

At CFP Energy, we’re at the forefront of providing EUA trading solutions. To see how we can help you meet your carbon compliance obligations within aviation, get in touch with our carbon team today.

Understanding the EU ETS for Aviation

The EU ETS was set up to encourage industries, like aviation, to reduce their emissions.

This is achieved by setting a cap on the total amount of greenhouse gases the industry can produce before having to purchase additional allowances.

The total cap on emissions is deliberately kept below the average rate of emissions that airlines produce.

From 2024 to 2027, the allowance is set to reduce by 4.3% each year, while from 2028 onward, the reduction rate will increase to 4.4% per year.

The progressive decarbonisation mandate of the EU ETS

• A limit (cap) is set on the total amount of greenhouse gases emitted by airlines, which is in line with the EU’s climate target
• The cap is reduced over time to lower total emissions without disrupting operational efficiency
• Airlines are allowed to receive or buy emissions allowances, with each allowance permitting them to emit a set amount of GHGs (usually 1 tonne of CO₂)
• If an airline emits less than its allowance, it can then sell its surplus, while if an airline emits more than its allowance, it must buy extra allowances (EUAs)
  
  

EU ETS Aviation Allowances -How Policy Shapes the Aviation Sector

 The EU regulates the availability of allowances, with policy directly affecting how many are issued and how quickly the overall cap declines.

From free allocation to reporting and verification requirements, the EU ETS covers a range of measures to reduce carbon emissions and ensure continued growth in sectors, including EU ETS aviation.

Acquiring Allowances 

Free Allocation (Primary Source)

• Airlines receive approximately 85% of their allowances for free
• Allocation is based on historical activity data and 54 separate benchmarks
• Free allowances are distributed annually based on the airline's reported activity levels

Market Purchases (Secondary Source)

• Airlines must purchase additional allowances to cover the remaining ~15% of emissions
• Secondary market trading allows airlines to buy/sell allowances, helping them manage compliance costs and respond to market dynamics
• Banking is allowed - unused allowances can be saved for future years

Surrendering Requirements 

Annual Compliance Cycle

• Airlines must monitor and verify their CO₂ emissions throughout the year
• By 31st March each year, airlines must report their verified emissions to their administering authority
• The deadline for surrendering allowances is usually 30th April of the following year

The Shift to "Polluter Pays" in EU ETS for Aviation

 Starting in 2026, the EU is instigating a fundamental restructuring of the EU ETS for aviation. Under the new rules, airline subsidies through free allowances with be phased out and replaced by a “polluter pays" framework.

This change represents a radical shift and strengthening of the EU’s environmental policy. To ensure carbon emissions stay within mandated thresholds. Airlines will soon be required to purchase all emission allowances at market value.

The timeline of the EU ETS for Aviation

These changes are likely to increase future allowance prices and require new abatement technologies to achieve future emissions reduction targets.

Airliners now face a choice of whether to decarbonise over the next 5 years, budget for higher carbon prices, or use the carbon market to lock in compliance costs.

In addition, starting this year, EU ETS2 will also introduce monitoring, reporting and verification (MRV) regulations. These will require airlines to track and report non-CO₂ emissions for all flights coming in or out of the European Economic Area (EEA).

In a regulatory landscape that is constantly evolving, airlines must act fast. Talk to our team of compliance carbon and EU ETS experts today to protect your position.

Global & National Schemes

At present, the UK operates its own Emissions Trading System, called UK ETS, which specifically covers flights departing from the UK to the EEA, as well as domestic UK flights and flights to Gibraltar and Switzerland. In principle, however, the UK ETS works much the same as the EU’ ETS: both systems place a cap on total emissions and both systems permit airlines to buy and trade allowances to remain within that cap.

In addition to the ETS, airlines are also subject to CORSIA. Under CORSIA, airlines are required to purchase carbon credits to offset CO₂ emissions that cannot be mitigated through downsizing, operational improvements, or Sustainable Aviation Fuels (SAF).

EU ETS - Cutting Emissions  

As aviation emissions are set to increase by 1% to 2.4% every year until 2050, emission reduction protocols are more important than ever. Navigating schemes like the EU ETS, as well as its UK equivalent – UK ETS - will be crucial to meeting emissions caps and achieving long-term decarbonisation goals that ensure sustainable growth.

At CFP Energy, we have 20 years’ experience in helping companies navigate carbon compliance.

With offices in Poland, Germany, the UK and beyond, we’re perfectly positioned to respond to new legislation and evolving mandates throughout Europe. Speak to one of our carbon compliance experts today to see how we can abate your emissions and future-proof your business.