UK ETS for aviation: broken, but fixable

In 2021, UK airlines received more free UK ETS allowances (i.e free pollution permits) from the Government than they were required to submit. In effect, this meant that the industry as a whole received a direct subsidy from the British taxpayer. In total, 4.4 million allowances were handed out for free: using the average 2021 UK ETS price of £55.59, these allowances were worth £242 million.

However, only 3.4 million allowances were required to be submitted to cover for airline emissions. This meant that on top of receiving free allowances to cover their ETS costs, airlines could sell the ‘excess’ allowances on the ETS secondary market and financially profit. If airlines sold at the height of the market (£79.20 per allowance), these excess allowances equalled a potential direct subsidy from the British taxpayer to the airline industry of £72 million.