Aviation in the EU ETS
- Category: European Union Carbon Market Glossary
Aviation activities were included in the EU ETS by Directive 2008/101/EC of the European Parliament and of the Council of 19 November 2008 amending Directive 2003/87/EC so as to include aviation activities in the scheme for greenhouse gas emission allowance trading within the Community.
Aviation accounts for approximately 2.1 % of global CO2 emissions. International flights account for around 1.3 % of emissions. With the anticipated growth in air traffic, emissions in 2050 are expected to be seven to ten times higher than 1990 levels, according to ICAO projections. In the EU, direct CO2 emissions from aviation account for about 3 % of total emissions (CO2 emissions from aviation, European Parliament Briefing, EU legislation in Progress).
The EU ETS Directive included in the EU ETS, since the start of 2012, emissions from all flights within airports in the European Economic Area (EEA), from flights departing from airports in the EEA to third countries and, if not exempted through delegated legislation, from incoming flights to airports in the EEA from third countries (the two latter categories covered by derogation).
The rules, in principle, apply regardless of whether the aircraft operator is based inside or outside the EEA.
Obligations have been imposed on the aircraft operators to monitor, report and verify their emissions, as well as surrender emission allowances corresponding to these emissions.
The aviation scope of the EU ETS was limited to flights within the EEA until the end of 2016, pending the adoption of a global approach by the International Civil Aviation Organization (ICAO), the said derogation has been currently extended.
This was to allow for the development by ICAO of emission-reduction measures with a global scope and to avoid conflicts with international trading partners.
In September 2013 the ICAO Assembly agreed to develop by 2016 a global market-based mechanism (GMBM) to be implemented from 2020 to tackle emissions from international aviation.
This outcome was welcomed by the EU, and in response to it, the EU legislation was amended.
In this regard, Regulation (EU) No 421/2014 of the European Parliament and of the Council of 16 April 2014 amending Directive 2003/87/EC establishing a scheme for greenhouse gas emission allowance trading within the Community, in view of the implementation by 2020 of an international agreement applying a single global market-based measure to international aviation emissions (OJ L 129, 30.4.2014, p. 1) temporarily reduced the scope of the EU ETS to emissions from flights within the EEA between 2013 and 2016.
CORSIA as a global market-based measure to tackle international aviation emissions
In October 2016, the ICAO adopted a global market-based measure and agreed on a resolution on the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA), which would become operational in 2021.
CORSIA has been established in order to monitor, report and ofset any annual CO2 emissions from international civil aviation that are above 2020 levels.
It will only apply to international fights, not domestic ones.
Participation will be voluntary during the pilot and first phase (2021-2026), and will become mandatory for all states in the second phase, as of 2027.
Exemptions would apply to fights from and to small-island developing states, least developed countries, landlocked developing countries, and countries with low levels of aviation activity.
Contrary to the ETS, which is a ‘cap and trade’ scheme that sets an upper limit for the total amount of emissions, CORSIA is an ‘ofsetting scheme’, implying that emissions can grow, but must be compensated by offsets.
Emissions’ reduction at source is not the indispensable element of this model.
To compensate for CO2 emissions above 2020 levels in international aviation and achieve carbon-neutral growth over time, emitters (that is, airlines) would buy ‘emissions units’ arising from diferent sources of emission reductions achieved through mechanisms (such as the UNFCCC’s Clean Development Mechanism), programmes (such as REDD+ for forest management), or projects.
The scope of the scheme covers only CO2 emissions. Three-year compliance cycles are envisioned.
ICAO is expected to make the otfsetting scheme operational in 2021.
As underlined by the EFET Discussion Paper of 27 May 2020 “Future role of the EU ETS in achieving Europe’s decarbonisation targets”, the alignment between the EU ETS and CORSIA needs to be assessed.
It is unclear how the two system are expected to function alongside each other since the paragraph 18 of the ICAO’s Resolution 17/1 on CORSIA includes an exclusivity clause, which positions CORSIA as “the only global market-based measure applying to CO2 emissions from international aviation so as to avoid a possible patchwork of duplicative state or regional market-based measures, thus ensuring that international aviation CO2 emissions should be accounted for only once.”
The issue may arise in the context of CORSIA and EU ETS coexistence how to maintain the level playing field in the air transport market.
It is dealt with in the European Commission's document "Questions and Answers - Sustainable transport, infrastructure and fuels", published as part of the Fit for 55 package on 14 July 2021.
According to the European Commission:
1. EU ETS rules apply to all flights within the EEA, regardless of the operator's country of origin - therefore, airlines operating on a given route are treated equally under the EU ETS rules to avoid market distortions;
2. CORSIA rules require both the country that a flight is departing from and the country of destination to be included in CORSIA for any offsetting requirements to apply - this ensures that operators on the same route are treated equally under CORSIA rules.
Reform of the EU ETS framework for aviation in 2017
In light of the outcome of the CORSIA agreement, in February 2017 the European Commission proposed a regulation to prolong the derogation for extra-EEA fights, gradually reduce the number of aviation allowances from 2021 onwards, and prepare for the implementation of the GMBM (Proposal for a regulation of the European Parliament and of the Council amending Directive 2003/87/EC to continue current limitations of scope for aviation activities and to prepare to implement a global market-based measure from 2021, COM(2017) 54, 3.2.2017, 2017/0017(COD)).
The proposal amended Article 28a of the Directive, adds two more articles (28b and 28c) and modified its Annex I:
- Article 28a: amendments are made to article 28a of the EU ETS Directive on the derogations applicable in advance of the implementation of an international agreement applying a single global market-based measure. Following the same approach as under Regulation (EU) No 421/2014 for the 2013-2016 period, the application of the EU ETS Directive to flights to and from outermost regions and third countries is derogated from after 2016, while flights between aerodromes in the EEA remain fully covered. Given that the scope remains as in 2016, the amount of free allocation received by aircraft operators will continue to be the same as in 2016 so, proportional to the intra-EEA activity, and the linear reduction factor applicable to all sectors under the EU ETS Directive will apply but only from 2021 onwards. Allocation from the special reserve should be treated equally and thus its issuance must be adjusted to the intra-EEA scope. The amounts to be auctioned should also continue being the same as in 2016. The system will apply to flights with countries with whom a bilateral agreement to link cap and trade systems is reached in only in line with the terms of such agreement;
- Article 28b: a new article 28b in the EU ETS Directive is introduced to prepare for the implementation of a global market-based measure from 2021. It requires the Commission to report to the European Parliament and the Council on international developments of relevance for the implementation of the GMBM, as well as on the actions taken by third countries to implement the GMBM. Thereby, the Commission is to consider ways to implement the relevant ICAO instruments in Union law through a revision of the EU ETS Directive. This may be accompanied with legislative proposals as appropriate;
- Article 28c: also to prepare for the implementation of the GMBM the Commission is empowered to adopt delegated acts to provide for the appropriate monitoring, reporting and verification of emissions applicable to aircraft operators for the purpose of implementing the global market- based measure being elaborated in ICAO;
- Annex I to Directive 2003/87/EC is amended by extending the exemption for non-commercial aircraft operators emitting less than 1 000 tonnes CO2 per annum from 2020 until 2030.
A provisional agreement between Parliament and Council on the said proposal was reached on 18 October 2017.
European Parliament’s Briefing of 10 November 2017 “CO2 emissions from aviation, EU legislation in Progress” accentuates the following elements of the modified framework (p. 7):
- the derogation for fights departing from or arriving at airports outside the EEA is prolonged,
- there is no fixed date for when the derogation would end, but the regulation is subject to review, depending on progress with the GMBM,
- flights within the EEA remain subject to the ETS,
- until 2020, the cap and the free allocation to aviation operators remain the same as currently,
- from 2021, the same linear reduction factor for the cap applies as to all sectors under the EU ETS Directive,
- the European Commission should report on progress with the GMBM, consider ways to implement it in EU law through revision of the ETS Directive and possibly through new legislative proposals,
- the European Commission is empowered to adopt delegated acts to provide for the monitoring, reporting and verifcation of emissions for the purpose of implementing the GMBM,
- in order to reduce the administrative efort, Annex I of the regulation extends the current exemption for non-commercial aircraft operators emitting less than 1 000 tonnes of CO2 per year, from 2020 to 2030 (although this provision applies to 2 200 aircraft operators, they are responsible for only 0.2 % of the emissions from aviation).
The legislative process for the above issues has been finalised in December 2017 with the adoption of the Regulation (EU) 2017/2392 of the European Parliament and of the Council of 13 December 2017 amending Directive 2003/87/EC to continue current limitations of scope for aviation activities and to prepare to implement a global market-based measure from 2021.
Emission allowances cap for the aviation sector under the EU ETS
Starting in 2013, the total number of allowances (the cap) has been set at 95 % of historic emissions in the years 2004-2006.
Aircraft operators receive free allowances calculated on the basis of their activity in 2010.
The aviation sector cap was originally set at 210 349 264 aviation allowances per year, i.e. 5% below the average annual level of aviation emissions in 2004-2006.
The cap was increased by 116 524 aviation allowances on 1 January 2014 due to Croatia joining the EU ETS.
This cap was meant to reflect the 2008 legislation which included aviation in the EU ETS and stated that all flights from, to and within the EEA would be included in the EU ETS.
However, given the scope of the EU ETS was temporarily limited to flights within the EEA between 2013 and 2016, the number of aviation allowances put into circulation in 2013-2016 has been significantly lower than the original cap.
In light of the progress on the global measure in October 2016, the Commission has proposed to continue the current approach beyond 2016 (Report of 23 November 2017 from the Commission to the European Parliament and to the Council on the functioning of the European carbon market (COM(2017) 693 final,p. 10).
According to the aforementioned Report of 23 November 2017 (p. 11) volumes for the aviation allowances put into circulation annually for the years 2013-2020 were as follows:
Free allocation accounts for 82 % of emission allowances and auctioning for 15 %.
The remaining 3 % go to a special reserve for later distribution to new entrants and fast-growing airlines.
CO2 emissions from aviation in numbers
Greenhouse gas emissions from aviation accounts for approximately 2.1 % of global CO2 emissions.
According to the Article 21 reports submitted in 2015, 611 aircraft operators had a monitoring plan.
Of these, 50% (305) were Commercial Aircraft Operators and the other 50% (306) were Non Commercial Aircraft Operators. A total of 329 (53.8% of the total) qualified as small emitters.
Report of 23 November 2017 from the Commission to the European Parliament and to the Council on the functioning of the European carbon market (COM(2017) 693 final indicates that the number of aircraft operators within the EU ETS is stabilising and refers to the following facts regarding the coverage of monitoring plans as regards the aircraft operators (p. 9):
- 503 aircraft operators in 2016 were reported to have a monitoring plan (compared to 524 reported for 2015, and 611 for 2014),
- nearly 60% (300) of the reported operators were commercial while the other 40% (203) were non-commercial,
- a total of 249 (nearly 50%) qualified as small emitters (compared to 274 (52%) in 2015 and 329 (54%) in 2014).
The said Report of 23 November 2017 also mentions that according to submissions in 2017, in the case of aircraft operators with low emissions, four countries have taken advantage of the provision offered by Article 13 of Commission Regulation (EU) No 601/2012 (Monitoring and Reporting Regulation) to allow use of simplified monitoring plans (BE, FI, IS and PL), with Belgium joining since 2015.
According to the said Report of 23 November 2017 slightly over 500 aircraft operators flying between EEA's airports.
According to EUTL public website verified CO2 emissions from aviation activities carried out between airports located in the EEA amounted to 53.4 million tonnes of CO2 in 2013 and 54.9 million tonnes of CO2 in 2014, which represents an increase of 2.8% in 2014 compared to 2013.
Aircraft operators' initial allocation was also adjusted to the reduced intra-EEA scope.
The adjusted free allocation amounted to 32.4 million allowances in 2013 and 32.3 million allowances in 2014.
The amounts of allowances to be auctioned for the years 2013 and 2014 were determined on the basis of an expected annual amount of 5.7 million, following the adjustments made to auction volumes in accordance with Regulation (EU) No 421/2014.
These allowances were auctioned between 1 January and 30 April 2015.
As regards developments in aviation emissions within the EU ETS in 2016, according to the said Report of 23 November 2017 (p. 27) verified emissions continued to grow and amounted to 61 million tonnes of CO2, an increase of 7.9% compared to 2015.
The free allocation amounted to slightly over 32.0 million allowances in 2016.
The amount of allowances auctioned between January and December 2016 was approximately 6.0 million.
In 2017, pending the adoption of the legislative proposal on the EU ETS for aviation, allowances were issued in line with the intra-EEA scope.
The adjusted free allocation amounted to slightly over 32.0 million allowances in 2017.
In addition, nearly 1.1 million free allowances were allocated from the special reserve for new entrants and fast growing operators.
This is the first of four annual issuances, corresponding to the 2013-2020 period.
The amount of allowances to be auctioned during 2017 will be proportional to the total number of allowances issued.
CO2 emissions from aviation and the Paris Agreement
The Paris Agreement on climate change, adopted in 2015 under the United Nations Framework Convention on Climate Change (UNFCCC), does not make explicit reference to international aviation.
Emissions from international aviation are calculated as part of the national greenhouse gas inventories of the UNFCCC parties, but are excluded from national totals and reported separately.
They are not subject to the limitation and reduction commitments under the UNFCCC and are generally not included in the nationally determined contributions (NDC) to the Paris Agreement.
However, emissions from domestic fights are part of the national totals, reduction commitments and NDCs.
Swiss ETS coverage
Once the Swiss ETS covers aviation sector, flights within Switzerland, flights between Switzerland and the EU and flights between EU Member States will be treated similarly.
The linking agreement clarifies that Switzerland will mirror the EU ETS provisions on aviation in the Swiss ETS before the agreement enters into force.
Aviation operators will be administered by an EEA State or Switzerland under the 'one-stop shop' approach, so that a single authority takes responsibility of the implementation of the two systems (Proposal for a Council Decision on the conclusion, on behalf of the European Union, of an Agreement between the European Union and the Swiss Confederation on the Linking of their Greenhouse Gas Emissions Trading Systems, 16.8.2017).
The relevant amendments have been introduced into the EU ETS Directive by the Commission Delegated Decision (EU) 2020/1071 of 18 May 2020 amending Directive 2003/87/EC of the European Parliament and of the Council, as regards the exclusion of incoming flights from Switzerland from the EU emissions trading system.
The limited scope for aviation to only flights within the European Economic Area has been extended until 2023.
As from 2021, a linear reduction factor will for the first time apply to the aviation sector, reducing the cap on aviation emissions by 2.2% annually.
Another important factor is that starting from phase 4 of the EU ETS (as from 1 January 2021) aviation allowances can be surrendered in order to meet the compliance obligations of both aviation operators and stationary installations.
Consequently, operator holding accounts with the EU ETS Registry may hold aviation allowances (this does not depend on the issuance year of the allowances).
To be precise, in accordance with the revised ETS Directive, stationary installations may use aviation allowances for emission in the fourth trading period, i.e. for emissions in 2021 and later - this means that it is not possible to use (surrender) them for emissions in 2020, during the compliance period that ends on 30 April 2021.