How Europe's carbon market can help airlines build back better

With the EU set to overhaul the bloc’s aviation carbon market next summer, a new study has found that capping the number of pollution permits airlines can buy, while abolishing the free ones they receive, will be necessary for a cleaner coronavirus recovery. 

Under the EU’s current carbon trading system, there is little incentive for airlines to start the transformation towards clean technologies. This is down to existing carbon trading prices not reflecting the true environmental costs of flying.

In 2019, carbon allowances under the emissions trading system cost €25 on average and airlines received a large portion of their emission permits for free. This resulted in a benefit to airlines of around €900 million, according to the study commissioned by T&E. This is a negligible cost compared to jet fuel tax exemptions estimated to be worth €27 billion a year

Creating sufficient price signals within the next few decades will be essential for triggering the necessary changes to achieve carbon neutrality in aviation by 2050, while funds recouped from scrapping free permits could be used to support the development of green e-fuels for aircraft. 

Jo Dardenne, T&E’s aviation manager, said: “If the aviation sector is serious about greening its recovery, now is the moment to use the EU carbon market to lock in the emissions reductions seen during the pandemic. Once the crisis recedes, airlines need to pay a real price for their carbon emissions, one that ensures new technologies like e-fuels can come to the market.”

However, reforming only the EU emissions trading system would not be enough to achieve significant reductions in emissions, T&E cautioned. The EU and governments would also need to mandate the use of sustainable e-fuels by airlines while also taxing the kerosene they burn.

T&E said that if European airlines want to make good on their pledge to significantly cut CO2 emissions by 2030, as part of the industry’s pandemic recovery, they should support these reforms. The European Commission has said it will propose reforms of the emissions trading system for aviation in June 2021.