The European Commission has proposed a targeted revision of the EU Emissions Trading System to strengthen Europe’s industrial competitiveness and support the delivery of the EU’s 2040 climate target. The proposal reinforces the EU ETS as a driver of investment with additional support for industrial decarbonisation through a new Industrial Decarbonisation Bank an Investment Booster and continued funding under the Innovation Fund and the Modernisation Fund. It also modernises the carbon market strengthens incentives for companies to invest in decarbonisation in Europe and updates the rules on free allocation and the Carbon Border Adjustment Mechanism.
Aviation is a highly energy-intensive sector with a person flying from Lisbon to New York and back generating roughly the same level of emissions as an average EU citizen does by heating their home for a whole year. In 2022 aviation contributed 2pc to global carbon dioxide emissions experiencing a faster growth rate in recent decades compared to rail road or shipping. According to the International Energy Agency aviation emissions for 2022 reached almost 800 Mt of CO2 which is approximately 80pc of pre-pandemic emission levels.
Under the EU ETS all airlines operating in Europe are required to monitor report and verify their emissions and to surrender allowances against those emissions. Free allocation to aircraft operators will be reduced by 25pc in 2024 and by 50pc in 2025 moving to full auctioning for the sector by 2026. Some 20m ETS allowances have been reserved to cover some or all of the price gap between conventional fossil fuels and eligible alternative aviation fuels uplifted from January 2024.
