The EU Emissions Trading System

The EU Emissions Trading System (EU ETS) [73] is the cornerstone of the EU’s policy to combat climate change. It is the EU’s key tool for reducing, in a cost-effective manner, greenhouse gas emissions from the power and heat, industry and aviation sectors. This means that emissions are cut where the costs are lowest. Working as a cap and trade system with an ambitious reduction of emissions over time, the EU ETS either incentivises CO2 mitigation within the sector, or through trading of allowances with other sectors of the economy where more options for reductions are available and abatement costs can be lower.

Aviation and the EU Emissions Trading System

In 2008, the EU decided to include aviation activities in the EU ETS [74]. Emissions from aviation are therefore subject to the EU’s domestic greenhouse gas emission reduction targets of 20% and 40% for 2020 and 2030 respectively, and are thereby part of the EU’s contribution to meeting the Paris Agreement objectives. In 2017, CO2 emissions from aviation accounted for 3.6% of the EU’s total CO2 emissions and 13.4% of the EU’s total transport greenhouse gas emissions [17].

The initial scope of the EU ETS covered all flights arriving at, and departing from, airports in the European Economic Area which includes the EU Member States, Norway, Iceland, Liechtenstein and closely related territories. However, flights to and from airports in non-European Economic Area countries have subsequently been excluded from the EU ETS until the end of 2023 through a temporary derogation. This exclusion, first resulting from the ‘stop the clock’ decision in 2013 [75], and subsequently extended [76], [77], was made to facilitate negotiation of a global market-based measure for international aviation emissions at the International Civil Aviation Organization (ICAO). ICAO decided on a roadmap for the development of a global market-based measure at its 2013 Assembly, and agreed on a resolution containing the main parameters of the measure at its 2016 Assembly. The implementation of the offsetting requirements is foreseen from 2021.

Therefore, at present only flights between airports located in the European Economic Area are included in the EU ETS. Flights to and from the outermost regions of the EU are covered only if they occur in the same outermost region. This temporary scope derogation until the end of 2023 may be reviewed in the light of developments in the international context, also in view of CORSIA.

EUROCONTROL works with the European Commission, States and aircraft operators to support the implementation of the aviation element of the EU ETS, in particular to harmonise data and reduce compliance costs. The ETS Support Facility provides 24 States with access to ETS-related data, and provides traffic and emissions data to over 300 aircraft operators. The ETS List, which allocates aircraft operators to their administering States, is developed by EUROCONTROL and published annually by the European Commission.

Aviation emissions under the ETS current phase (2013-2020)

The initial cap for aviation in the EU ETS was based on average historic aviation emissions between 2004 and 2006, representing 221.4 million tonnes (Mt) of CO2 per year for all participating countries. The cap for aviation activities set for the current phase of the ETS (2013-2020) was set to 95% of these historical aviation emissions, adjusted for the change in applicability scope related to the ‘stop the clock’ decision. While aircraft operators may use aviation allowances as well as EU Allowances (EUAs) from the stationary sectors, stationary installations are not permitted to use aviation allowances for compliance. In addition, some international credits can be used by aircraft operators for up to 15% of their verified emissions in 2012. Since 2013, each aircraft operator is entitled to use certain international credits up to a maximum of 1.5% of its verified emissions during the current phase, in addition to any residual entitlement from 2012. In 2017, 677 operators, which included more than 200 non-European carriers, operated under the scope of the system.

During the 2013-2017 phase, the total verified CO2 emissions from aviation covered by the EU ETS have increased from 53.5 Mt in 2013 to 64.3 Mt in 2017 [78]. This implies an average increase in CO2 emissions of 4.7% per year.

Since 2013, with the scope of intra-European Economic Area flights in the EU ETS, the amount of annual EU Aviation Allowances (EUAAs) issued is around 37.5 Mt. The EUAAs cover emissions under the EU ETS cap for aviation. About 15% of these allowances are auctioned, while 85% are allocated for free. For CO2 emissions exceeding the EU ETS aviation cap, aircraft operators have to purchase EU Allowances. The purchase of EU allowances by the aviation sector has gone up from 14.9 Mt in 2013 to 26.8 Mt in 2017. Over this period, there has been a total mitigation of over 100 Mt of CO2 emissions in the European Economic Area achieved by incentivising emission reductions in all sectors covered by the ETS (Figure 6.1).

EU ETS carbon prices varied between €4 and €6 per tonne of CO2 during the 2013-2017 period [79]. Consequently, total aircraft operator costs linked to purchasing EU Allowances (EUAs) have gone up from around €89 million in 2013 to €189 million in 2017. For 2017, it is estimated that these EUA costs represent about 0.3% of total operating costs for aircraft operators on flights within the scope of the EU ETS. As of September 2018, EU Allowances representing one tonne of CO2 were being traded at over €20, and consequently the fraction of operating costs is expected to be higher.

As shown in Figure 6.2, the total CO2 emissions are expected to increase to 69.7 Mt in 2020 (+8.5% relative to 2017) and the purchase of EUAs by the aviation sector increases from 28.4 Mt in 2018 to 31.5 Mt in 2020. Moreover there could be a relative demand reduction within the aviation sector over the years 2018-2020 of 2.3 Mt, resulting in an overall aviation related emission reduction of 92.2 Mt for this period. In total, the net reduction in aviation related emissions for the entire 2013-2020 phase is estimated to be 193.4 Mt of CO2 emissions.

Aviation emissions under the ETS fourth phase (2021-2030)

For the fourth phase of the EU ETS, from 2021 to 2030, the system will see a number of modifications that will also affect the aviation sector [77], [80]. The linear reduction factor of 2.2% per year will also be applied to the aviation cap. Emission reductions will have to be exclusively domestic; therefore only EU Aviation Allowances (EUAAs) and EU Allowances (EUAs) will be eligible for compliance, as will be the case for all other sectors under the EU ETS.

The 2017 revision to the EU ETS Directive [77] includes a mandate from the European Parliament and the Council to the Commission to consider ways for CORSIA to be implemented in the EU through a revision of the Directive, consistent with the EU 2030 climate objectives. To that end, the Commission will conduct a comprehensive assessment including all relevant aspects of CORSIA’s ambition and environmental integrity and, where appropriate, make a legislative proposal. Environmental integrity includes the need for proper mechanisms to prevent an offset from being counted twice.