The ETS investment engine: scaling Europe’s strategic e-fuel market for shipping and aviation
Making the ETS a strategic investment tool for aviation and shipping
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Summary
The EU Emissions Trading System (ETS) review proposal published in July 2026 is intended to make the EU’s most vital climate policy mechanism fit for its 2040 climate targets. It also carries the ambition to turn the ETS into an ‘’engine for innovation and investment”.
This policy brief looks at the investment dimension of the ETS proposal with respect to the aviation and maritime sectors. They are major contributors to the ETS revenue generation. We argue, however, that the proposed framework is not fit for purpose to adequately support clean fuel investments in these hard-to-abate sectors.
The ETS Review is an opportunity to set up a tailor-made investment tool to de-risk and boost the production and uptake of e-fuels, using the ETS funds from aviation and shipping. Early financial support is crucial for the development of a domestic e-fuels value chain, Europe’s geostrategic autonomy and the EU's industrial position in the global competition for clean technologies. RFNBOs are the most scalable fuels needed to reach the targets under FuelEU Maritime and ReFuelEU Aviation.
Key recommendations:
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1
Use national ETS revenues: earmark 50% of national ETS revenues for decarbonisation support in priority sectors, including for the production and uptake of aviation and maritime e-fuels, and ensure compliance via stricter reporting rules.
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2
EU-level ETS funds: include aviation and maritime sectors in the scope of the ETS Investment Booster, Industrial Decarbonisation Bank (IDB) and Modernisation Fund to enable e-fuels support and ensure equity across hard-to-abate sectors.
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3
Create an e-fuels funding pool: channel ETS revenues and other funding sources to finance a market intermediary for e-fuels by 2028.
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4
Implement market-making schemes like double-sided auctions (DSAs): these instruments are needed to unlock pending final investment decisions and scale the emerging European e-fuels market by de-risking and connecting supply.
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Improve SAF and SMAP allowance design: while these market-based schemes cannot replace the structural market-making and de-risking function of DSAs, their design should be improved to help maximise offtake support for e-fuels.
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