About
The EU ETS operates on the "cap and trade" principle. A maximum cap is set on the total amount of greenhouse gases that can be emitted by all entities covered by the system. Within that limit, entities are allowed to buy and sell a fixed amount of so-called "allowances" as they require. One allowance gives the holder the right to emit one tonne of CO₂ or the equivalent amount of another greenhouse gas.
A separate cap calculation applies to emissions from aviation under Article 3c of the EU ETS Directive. In 2024, approximately 27.6 million aviation allowances were issued, while in 2025, approximately 26.2 million allowances were issued. In 2026, approximately 24.9 million allowances will be issued for aviation. The cap decreases annually in line with the strengthened linear reduction factor, reflecting the EU's overarching target of reducing emissions by 62% by 2030 compared to 2005 levels.
Free allocation of allowances to aircraft operators has been gradually phased out as follows:
- 25% reduction in free allocation for 2024
- 50% reduction in free allocation for 2025
- 100% phase-out (full auctioning) from 2026 onwards
For 2024 and 2025, the remaining free allowances have been distributed among aircraft operators proportionately to their 2023 verified emissions. From January 2025, aviation allowances are no longer a separate allowance category and are instead treated as general allowances. In addition, 20 million ETS allowances have been reserved to support the uptake of eligible sustainable aviation fuels (SAF), covering some or all of the price gap between conventional fossil fuels and eligible alternative aviation fuels uplifted from January 2024.
Scope of the EU ETS for Aviation
The EU ETS currently applies to intra-European flights, meaning flights between aerodromes in the EEA. The scope also includes flights from the EEA to Switzerland and to the United Kingdom. From 2024, the geographical scope was broadened to re-include non-domestic flights involving the EU's outermost regions.
For extra-European flights to and from non-EU states participating in CORSIA, the CORSIA scheme applies as the relevant carbon market measure until 31 December 2026. By July 2026, the Commission will carry out an assessment of whether CORSIA is sufficiently delivering on the goals of the Paris Agreement. Subject to the outcome of this assessment, the Commission will make a legislative proposal that could extend the scope of the EU ETS to include departing flights from the EEA from 2027, while exempting incoming flights. Alternatively, the proposal could be to maintain the intra-European scope if CORSIA is strengthened and has a high level of global participation and implementation.
Aircraft Operators and Exemptions
For the purposes of the EU ETS, an "aircraft operator" is defined as a natural or legal person that operates an aircraft at the time it performs an aviation activity specified in Annex I to the EU ETS Directive. If the identity of the operator cannot be ascertained, the aircraft owner is deemed to be the operator unless the owner identifies the relevant operator. Under a wet lease arrangement, the lessor is presumed to be the aircraft operator, while under a dry lease arrangement, the lessee is presumed to be the operator.
There are a number of exemptions from the EU ETS for aviation. These include flights performed for the transport of a reigning monarch and their immediate family, flights performed in the course of military, customs or police service, search and rescue flights, firefighting flights, humanitarian or medical flights, flights performed exclusively under visual flight rules, flights that terminate at the aerodrome from which the aircraft has taken off and during which no intermediate landing has been made, training flights performed exclusively for the purpose of obtaining a licence, flights performed exclusively for the purpose of scientific research, and flights performed by aircraft with a certified maximum take-off mass of less than 5,700 kg. Commercial aircraft operators with fewer than 243 flights per period for three consecutive four-month periods, or with total annual emissions lower than 10,000 tonnes of CO₂ per year, are also excluded.
Procedure for Verifying Emissions
All aircraft operators covered by the EU ETS must have an approved monitoring plan. The monitoring plan must be approved by the national competent authority of the administering Member State and sets out the methodology for monitoring fuel consumption and calculating emissions.
Each year, the aircraft operator's emissions are reported and an accredited verifier verifies the reported emissions. Aircraft operators emitting less than 25,000 tonnes of CO₂ per year may use a simplified approach, determining their emissions through the small emitters tool approved under the relevant Commission regulations using data originating from Eurocontrol.
The annual compliance cycle is as follows: for emissions in each calendar year, aircraft operators must carry out monitoring procedures and prepare an emissions report. The verified emissions report must be submitted to the competent authority by 31 March of the following year. By 30 September of that same year, operators must surrender emission allowances equivalent to their verified emissions in the Union Registry.
Monitoring of Non-CO₂ Effects
From 1 January 2025, aircraft operators are required to monitor, report and verify the non-CO₂ effects of their aviation activities. In addition to CO₂, aircraft engines release nitrogen oxides (NOₓ), sulphur dioxide (SO₂), water vapour, and particulate matter, including sulphate and soot. When emitted at high altitude, these substances contribute to the greenhouse effect, and non-CO₂ effects have been estimated to account for more than half of aviation's net climate forcing.
Until 2026, mandatory monitoring and reporting of non-CO₂ effects applies only to intra-EEA flights, including outermost regions, as well as flights from the EEA to Switzerland and the United Kingdom. Voluntary reporting on all routes is encouraged. From 2027, the reporting obligation automatically applies to all flights. Aircraft operators are not required to surrender allowances for non-CO₂ effects for the time being. By 31 December 2027, the Commission will submit a report and, where appropriate, a legislative proposal to mitigate non-CO₂ effects.
The Responsible Party
Each aircraft operator is allocated to an administering Member State, which is responsible for overseeing the operator's compliance with the EU ETS. The allocation is generally determined by the operator's air operator certificate or, for non-EU operators, by the Member State associated with the greatest estimated attributed aviation emissions from the operator. The European Commission publishes an EEA-wide list of aircraft operators and their corresponding administering Member States.
A management company may represent an aircraft operator before the competent authorities in relation to EU ETS matters, provided it is duly empowered. However, management companies are not themselves considered aircraft operators for the purposes of the EU ETS unless they also operate flights covered by Annex I of the EU ETS Directive. Allowances can only be issued directly to a registry account held by the aircraft operator, although an operator may nominate an additional authorised representative with limited rights on the account.
Sanctions and Enforcement
In case of non-compliance, aircraft operators are liable to pay an excess emissions penalty of EUR 100 (adjusted for inflation) per tonne of CO₂ equivalent for which no allowance has been surrendered on time. This penalty is in addition to the obligation to surrender the outstanding allowances. The compliance rate in the aviation sector has historically been high, with over 99.5% of emissions covered by surrendered allowances.
Member States are required to adopt effective, proportionate and dissuasive penalties for breaches of EU ETS legislation. For persistent non-compliance, an operating ban may be imposed. Specifically, where an aircraft operator fails to comply with the requirements of the EU ETS and other enforcement measures have failed to ensure compliance, the administering Member State may request the Commission to adopt a decision imposing an operating ban on the aircraft operator concerned. This represents the most severe sanction available under the EU ETS and underscores the importance of timely compliance.
Who does it impact?
All aircraft operators, both commercial and non-commercial, operating flights within the EEA, as well as flights from the EEA to Switzerland and the United Kingdom, are subject to the EU ETS, subject to the exemptions noted above. This includes EU and non-EU airlines alike, as well as operators of business aviation.
Status: In force
The EU ETS is in force in all EU countries as well as Iceland, Liechtenstein and Norway.
Being in operation since 2005, the EU ETS is the world's first international emissions trading system. It has applied to the aviation sector since 1 January 2012, and the regulatory framework continues to evolve with significant revisions entering into force from 2024 onwards.
Relation to other initiatives and regulations
The most recent revisions of the EU ETS form a part of the EU Fit for 55 package. The aviation provisions of the EU ETS interact closely with several other key regulatory instruments, including CORSIA for extra-European flights, the ReFuelEU Aviation Regulation mandating the uptake of sustainable aviation fuels, and the EU ETS Innovation Fund, which supports the electrification of aviation and decarbonisation technologies. An additional 5 million ETS allowances have been added to the Innovation Fund, which airlines and airports are eligible to access for support.
Participants
The EU ETS applies in the EU Member States as well as the three members of the European Economic Area: Norway, Iceland and Liechtenstein. The system is also linked with Switzerland's emissions trading system, with the principles governing aviation activities in the Swiss ETS aligned with those of the EU ETS.
Thommessen's comments
The inclusion of the aviation sector in the EU ETS has brought about a number of important considerations for stakeholders in the industry. The EU ETS applies to all airlines operating in Europe, whether European or non-European, requiring them to monitor, report and verify their emissions and to surrender allowances against those emissions. As part of the "Fit for 55" package, the EU ETS rules for aviation were significantly revised in 2023 to ensure that the sector contributes to the EU's climate objectives, including a phase-out of free allowances and the strengthening of the linear reduction factor for aviation. From 2026, full auctioning applies to the aviation sector, meaning that aircraft operators will no longer receive free allowances and must purchase all allowances on the market or at auction.
Airlines and other aircraft operators should be mindful of the evolving regulatory landscape, including the interaction between the EU ETS and CORSIA for extra-European flights, the new monitoring requirements for non-CO₂ effects, and the forthcoming Commission assessment in 2026 that may lead to an expansion of the EU ETS scope to departing flights from the EEA. The next major revision of the EU ETS Directive is underway and is expected to be completed by the end of 2026, potentially bringing further significant changes.