Time to tap into the full potential of the EU ETS for aviation 

Introduction

The EU ETS has shown that carbon pricing works: emissions from covered sectors have fallen by about 50% since 2005. Aviation, however, remains a major gap in the system. Its emissions have continued to grow and are expected to keep rising, indicating that the current ETS does not yet provide strong enough incentives to drive the sector’s transition at the pace required.

The upcoming EU ETS review is therefore a critical opportunity to strengthen the ETS, both as a tool to cut emissions and as a means to support Europe’s leadership in next-generation aviation technologies.

As a coalition of innovative companies developing e-kerosene and zero-carbon emission solutions, we call for a stronger EU ETS that provides the long-term certainty needed to scale decarbonisation in Europe by:

1. Extending the EU ETS to international flights

The EU ETS currently covers only flights inside the European Economic Area (EEA), leaving nearly two-thirds of aviation emissions linked to Europe unpriced. From 2012 to 2023, the exemption for extra-EEA flights left 1.1bn tonnes of CO₂ outside the system, equivalent to Greece’s total greenhouse gas emissions over the same period. International emissions are instead foreseen to be addressed through CORSIA, a global offsetting scheme with significant flaws.

Extending the EU ETS to international flights would not only cover significantly more aviation emissions but also ensure that carbon pricing revenues help finance Europe’s own transition

2. Reinvesting a significant share of ETS revenues into the aviation sector

Member States must use all collected ETS revenues to support climate action and energy transformation, and an increasing portion is also channelled into EU funding programmes to finance decarbonisation projects. While earmarking ETS revenues for wider climate and energy priorities is needed, there is no dedicated mechanism ensuring that a share of revenues generated by aviation is channelled back into the sector’s own decarbonisation.

A significant share of aviation ETS revenues, both at Member State level and through EU funding programmes, should be earmarked to finance the uptake of e-fuels and zero-carbon emission technologies in Europe.

3. Including zero-carbon emission technologies

Zero-carbon emission technologies such as battery-electric and hydrogen-powered aircraft are a complementary pillar of aviation decarbonisation, alongside e-fuels. Yet the EU ETS remains almost entirely focused on alternative fuels uptake. Without a dedicated support mechanism within the ETS, Europe risks missing the opportunity to help build this business case and maintain leadership in next-generation aviation innovation.

Zero-carbon technologies should become an integral part of the EU ETS, creating a clear signal to encourage ETS revenues and private investments to support their development and the infrastructure needed for their uptake. It should also ensure integration between the ETS and the Alternative Fuels Infrastructure Regulation (AFIR) review, so that investments signals and infrastructure targets can be aligned. The EU should also expand FEETS support to also include zero-carbon emission technologies, which will reward investments in these aircrafts.

4. Ringfencing SAF allowances for e-fuels and zero-carbon technologies only

SAF allowances can be useful as an early market-creation tool, but their long-term effectiveness depends on being strategically targeted. Because e-fuels are not yet commercially mature, most allowances today benefits biofuels instead.

Post-2030, ETS allowances should be reserved exclusively for e-fuels and zero-carbon emission technologies. For e-fuels in particular, an ex-ante allocation model is better suited than the current ex-post approach, as it provides the forward visibility needed, reduce revenue uncertainty and strengthen the bankability of projects. For zero-carbon emission technologies, a dedicated e-FEETS-type mechanism should also be developed to create a credible long-term support framework and provide the investor certainty needed to accelerate deployment.

In addition, the revised ETS must end the blanket zero-rating on all so-called Sustainable Aviation Fuels and maintain it exclusively for RFNBOs, as they deliver the highest long-term decarbonisation potential while facing the greatest price gap challenges. As so-called SAF deliver varying levels of emissions reductions, a differentiated approach will be needed to ensure incentives are proportionate to their respective climate benefits.

5. Establishing market de-risking mechanisms

The EU ETS creates an important carbon price signal for aviation, but it is not yet sufficient to launch the e-fuels market at the scale Europe needs. Facing fossil kerosene, which benefits from decades of subsidised mature infrastructure, established supply chains and lower production costs, e-fuels are still in an early market phase and face an important price gap. At the same time, e-fuels production and availability will remain geographically uneven during the first years of deployment.

Supported by ETS revenues, the EU should introduce double-sided auctions to give European producers long-term revenue certainty while offering buyers more competitive short-term contracts. An EEA-wide book-and-claim system should also be established to improve market access until physical supply is sufficiently available in Europe. To effectively close the current price gap and avoid perpetuating the cost advantage of more mature yet less sustainable biofuel pathways, both mechanisms should be restricted to e-fuels only.