The International Air Transport Association (IATA) has outlined a series of changes to the EU’s Emissions Trading System (ETS) to improve the competitiveness of the region’s aviation sector amid ongoing geopolitical upheaval.
The move comes after European Commission president Ursula von der Leyen on Thursday (19 March) promised to “modernise” the ETS and “make it more flexible” in the wake of an impending energy crisis and as fuel prices surge following the outbreak of war in Iran and the surrounding Gulf region.
The ETS places an emissions cap on airlines operating within the European Economic Area and has gradually phased out free carbon allowances for aviation (each allowance covers one tonne of CO2). These free allowances will be completely removed this year, prompting concerns among airline leaders about higher costs and competitive disadvantages – even before the Middle East conflict began.
IATA is now urging EU policy makers to enable a book-and-claim system for the use of alternative aviation fuels (also referred to as ‘sustainable aviation fuel or SAF) under the ETS and to reinvest a greater portion of ETS revenues into industry’s decarbonisation efforts – particularly to cover the cost of alternative fuels.
The association argues that current incentives – such as the SAF Allowance scheme, which is designed to bridge the SAF price premium – remain “disproportionately small” compared to the aviation sector's total ETS contribution.
While the ETS aligns with ICAO’s Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA), IATA is also calling for the full implementation of CORSIA for all international flights – including those on EEA routes – to “prevent market fragmentations” and avoid “overlapping measures that add cost and complexity without environmental gain”.
“European aviation policy must bolster competitiveness as it advances decarbonisation,” said IATA director general, Willie Walsh.
“Amid global economic strain and geopolitical volatility, the EU ETS review must deliver a harmonised climate policy framework that balances the sector’s competitiveness with its climate ambitions.”
Additionally, IATA is urging the EU to reinstate free allowances “to protect European competitiveness”.
“The pace and scale of cost exposure matter,” said IATA in a statement. “A sudden increase in compliance costs, especially in a fragile geopolitical and economic context, risks weakening connectivity, reducing consumer choice and diverting resources away from decarbonisation investments.”
The European Regions Airline Association (ERA) and Airlines for Europe (A4E), in a joint report released this month, also highlighted implementation challenges linked to the ETS.
Like IATA, the European associations support a book-and-claim system for alternative aviation fuels and are also calling for greater alignment between the ReFuelEU and EU’s ETS reporting frameworks.
Ursula von der Leyen, in her recent address, promised to announce changes “in the next days” and additionally proposed an “ETS Investment Booster” of €30 billion (financed by 400 million ETS allowances) to help fund decarbonisation projects.
“The key points are speed and solidarity. Speed means first come, first serve, and the moment a project is ready, we have to be ready too,” she said.