On Tuesday, 18 April, the European Parliament approved the deals reached with EU countries in late 2022 on several key pieces of legislation that are part of the “Fit for 55 in 2030 package”, EU’s plan to reduce greenhouse gas (GHG) emissions by at least 55% by 2030 compared to 1990 levels in line with the European Climate Law.
The reform of the Emissions Trading System (ETS) increases the ambition of the ETS, as GHG emissions in the ETS sectors must be cut by 62% by 2030 compared to 2005-levels. It also phases out free allowances to companies from 2026 until 2034 and creates a separate new ETS II for fuel for road transport and buildings that will put a price on GHG emissions from these sectors in 2027 (or 2028 if energy prices are exceptionally high).
The Parliament also agreed to the revision of the ETS for aviation. The deal includes an end to free allocations of allowances to the aviation sector by 2026, one year ahead of the timetable proposed by the European Commission. To ensure the gradual phase out, a decrease of 25% in free allocations is foreseen for 2024 and 50% for 2025.
Negotiators agreed to reserving 20 million allowances, between 1 January 2024 and 31 December 2030, for commercial aircraft operators that increase their use of sustainable aviation fuels (SAF), such as hydrogen from renewable energy sources, renewable fuels from non-biological origin and advanced biofuels.
The EU now needs to throw its weight behind SAF production to ensure the well doesn’t run dry for sustainable fuels before it even gets started.Airlines for Europe
These SAF allowances will help stimulate and incentivise the rapid deployment of sustainable aviation fuels in Europe, said Airlines for Europe (A4E), welcoming the vote. Without them, the phase out of free ETS allowances by 2026, well before truly effective decarbonisation solutions will be available at scale, could negatively impact air transport. This is because the cost of compliance for the ETS will likely increase fivefold by 2025 to over €5-6 billion annually which would impact ticket prices, route availability and ultimately connectivity.
According to A4E, now more than ever, all revenues generated from ETS aviation allowances should:
- Contribute to lowering the price gap between conventional fuels and SAF;
- Fund R&D and innovation projects for low- and zero-carbon fuels and propulsion technologies;
- Fund the scaling up and deployment of SAF.
“The SAF allowances are just the first step in bringing about their widescale production and use in Europe”, stressed A4E. “The EU now needs to throw its weight behind SAF production to ensure the well doesn’t run dry for sustainable fuels before it even gets started. European airlines continue to urge regulators to introduce mandatory calls dedicated to the aviation sector in the ETS Innovation Fund and to finance these calls through the revenues generated from ETS aviation allowances.”