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Scope extension, revenue generation and the use of SAF and contrail allowances under the EU ETS
The revision of the EU Emissions Trading System (ETS) in July 2026 represents a unique opportunity for European aviation. In order to meet the temperature targets set out in the Paris Agreement and ensure that the 'polluter pays' principle is applied fairly, the EU must expand the scope of the current EU ETS, which currently covers flights within Europe, and reinvest the generated revenues in the decarbonisation and the green transition for European aviation.
Why is extending the ETS scope to all departing flights a smart industrial policy?
Currently, the EU ETS only covers flights within Europe, accounting for only a fraction of European aviation emissions. Extending the scope to include all flights departing from the EU would incorporate an additional 80 Mt of CO₂ emissions into the scheme, compared to the current 64 Mt.
Furthermore, the current scope does not take into account all flights by private jets, leaving 67% of private jet emissions uncovered.
An extension of the scope would not only cover a greater amount of emissions, but it would also increase revenues from €3 billion in 2024 to an additional €7 billion. This increase in revenue would help to accelerate the decarbonisation of the aviation sector. The biggest beneficiaries of a scope extension would be Germany, Poland and Italy.
Why should reforming the SAF allowances mechanism be part of the revision?
Under the current regulation, the EU has earmarked allowances - called SAF allowances - to incentivise airlines to use Sustainable Aviation Fuels (SAFs) by partially closing the price gap with conventional kerosene. However, the mechanism falls short of supporting the long-term offtake agreements and revenue certainty needed for e-kerosene, also known as e-SAF.
To boost the uptake of e-SAFs, the SAF allowances should be extended in terms of both time and quantity to support SAF producers. 50% of these allowances should be earmarked for e-SAFs to prevent them from flowing into bio-SAFs. The SAF allowances mechanisms should move away from an ex-post to an ex-ante mechanism to better support the supply of e-SAF, by giving more visibility to producers.
With these reforms, T&E’s data shows the supported e-SAF volumes could be around five times higher than in a scenario that simply extends the current mechanism in time without further adjustments.
How would introducing a 'contrail allowance' help to tackle non-CO₂ warming?
Contrails - the white lines in the sky left by aircraft - contribute to global warming in a way that is comparable to aviation’s CO₂ emissions. Contrail avoidance - e.g. tweaking the flight paths of just a handful of flights to avoid contrails - is a low-cost climate fix that places a negligible burden on both industry and passengers. Yet airlines currently have no incentive, positive or negative, to perform contrail avoidance.
An incentive mechanism designed to support contrail avoidance for flights departing and incoming the EU could avoid an estimated 20–40 million tonnes of CO2 equivalent annually. It would utilise a small fraction of EU ETS revenues over a 3–5-year period.
Contrail avoidance will be further supported by the automatic extension of reporting requirements. From 2027 onwards airlines will have to report the non-CO2 effects of all flights departing and incoming Europe, compared to the current, limited scope intra-EEA flights only. This will allow further data gathering, especially for long-haul flights.
T&E recommends:
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1
From 2027, the EU must include all departing flights in the ETS, instead of continuing to rely on CORSIA.
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2
Include private jets into a full scope ETS (e.g. departing and incoming flights), removing the de minimis emissions threshold.
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3
Upgrade the Hydrogen Bank into a European-wide double sided auction mechanism to boost the uptake of e-SAF. Allocate e.g. 25% of aviation ETS revenues to the market intermediary.
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4
Reform the SAF allowances in order to better support e-SAF by extending the mechanism in time and amount; earmarking allowances for e-SAF and advanced biofuels; phasing out support for HEFA-SAF; reducing the price coverage of the different types of fuels; and by moving away from an ex-post allocation to an ex-ante system.
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5
Automatically expand the scope of the non-CO2 MRV to cover departing and incoming flights, to better the understanding of aviation’s full climate impact.
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6
Introduce an incentive scheme for airlines called contrail allowances using ETS revenues, to support airlines to perform contrail avoidance manoeuvres.
