Commission's "Fit for 55" proposal on the revision of the EU ETS Directive [updated]

On 14^th July, the European Commission published the much-awaited “Fit for 55” legislative package which includes a series of legislative proposals to make its policies fit for delivering the updated 2030 greenhouse gas emissions net reduction target of 55% below 1990 levels, as set out in the 2030 Climate Target Plan and written into the European Climate Law.

The "Fit for 55" legislative proposals cover a wide range of policy areas including climate, energy, transport and taxation, setting out the ways in which the Commission will reach its updated 2030 target in real terms. In particular, the package includes a Revision of the EU Emission Trading System Directive concerning aviation.

Below is our summary of the Commission's proposal:

Regarding EU ETS

1. From 2024, it is proposed that EU ETS apply to the following intra-European flights (for both EU-based and non-EU-based operators):
   1. All intra-European flights between EEA airports
   2. All departing flights from EEA airports to Switzerland
   3. All departing flights from EEA airports to the United Kingdom
   4. All flights within the same outermost region (e.g. Punta Delgada to Horta) where routes are not covered by Public Service Obligations (PSOs)
   5. All flights between different outermost regions (e.g. Punta Delgada to Madeira) where routes are not covered by PSOs
   6. All flights between an outermost region, and other EEA Member States than the Member State in which the outermost region is located (e.g. Punta Delgada to Paris) where routes are not covered by PSOs
   7. Note: the current derogation from EU ETS obligations of the routes mentioned in e. and f. above is temporary and will expire on 31 December 2023. From 2024, only flights between an outermost region and the EEA Member State in which the outermost region is located (e.g. Punta Delgada to Lisbon) will remain exempted from EU ETS obligations.

Regarding CORSIA

1. It is proposed to adopt domestic law to implement CORSIA to the following flights (for EU-based operators only):
   1. All international flights worldwide with the exception of i. intra-European flights, including ii. departing flights from EEA airports to Switzerland, and iii. departing flights from EEA airports to the United Kingdom.
   2. Until 2026, to ensure equal treatment on routes, flights to and from countries that are not implementing CORSIA are exempt from CORSIA obligations.
   3. From 2027, other countries are meant to have adopted domestic laws to implement CORSIA in respect of airlines based in their countries. If, despite CORSIA being ‘mandatory’, they are not implementing CORSIA, the Commission is not proposing to exempt routes to and from such countries, to avoid that these routes would not be covered by any scheme. 
   4. Flights to and from Least Developed Countries (LDC) and Small Island Developing States (SIDS) not implementing CORSIA, other than those states whose GDP per capita equals or exceeds the EU average, will always be exempt from CORSIA obligations.
   5. Note: this means that the Commission has not proposed to exempt all airlines based in Landlocked Developing Countries if such countries do not implement CORSIA nationally, and countries with a limited share of international aviation activities in the year 2018 as per the SARPs if such countries do not implement CORSIA nationally, and proposes applying a concept of GDP per capita when permanently exempting routes to/from least developed countries.

Regarding EU ETS allowances

1. Regarding EU ETS allowances, it is proposed that:
   1. The total quantity of aviation allowances available in 2024 is based on the total allocation to active aircraft operators in 2023, reduced by the linear reduction factor as specified in the EU ETS Directive, and increased adequately to take into consideration the new EU ETS applicable scope due to the change of the rules governing outermost regions.
   2. In 2024, 2025 and 2026, 25%, 50% and 75% respectively of the aviation allowances originally set to be allocated for free shall be auctioned
   3. From 2027, 100% of the aviation allowances originally set to be allocated for free shall be auctioned
   4. The EU ETS Innovation Fund be used to reduce emissions from aviation, including potentially for the price difference for using low and zero-emission fuels, and that ETS revenues shall be used to tackle climate change.
   5. Allowances which are allocated for free shall be allocated to aircraft operators proportionally to their share of verified emissions in 2023.

Regarding CORSIA credits

1. Regarding CORSIA credits, it is proposed that:
   1. To calculate offsetting requirements, for the 2021-2023 period the 2019 emissions are used for the baseline; and for subsequent periods, the average of the 2019 and 2020 emissions are used for the baseline, in line with the ICAO Resolution and ICAO Council Decision.
   2. EU-based airlines may use international credits to comply with CORSIA offsetting requirements; however the Commission proposes to add two eligibility criteria: these credits should originate from states that are parties to the Paris agreement, and that participate in CORSIA, in order to incentivise third countries to apply CORSIA, and to take part in the wider UN climate framework (and remain part of this). Double counting is also required to be avoided.
   3. The Commission will adopt a list of the credits which are acceptable by ICAO and that fulfil the two new eligibility criteria above. The second condition shall not apply for emissions before 2027, and shall not apply for flights to and from LDC, and to and from SIDS other that those states whose GDP per capita equals or exceeds the EU average. Clarity is given to EU-based airlines that they can use Paris Agreement Article 6 credits, credits from domestic projects under the existing EU ETS Directive’s provisions or from third country agreements.
   4. EEA Member State shall calculate the offsetting requirements each year for the preceding calendar year, and shall inform EU-based aircraft operators by 30 November each year.
   5. The cancelation of units shall take place by 31 January 2025 for the emissions during the period 2021-2023, by 31 January 2028 for the emissions during the period 2024-2026, by 31 January 2031 for the emissions during the period 2027-2029, by 31 January 2034 for the emissions during the period 2030-2032, and by 31 January 2037 for the emissions during the period 2033-2035.
   6. Where a significant distortion of competition to the detriment of EU-based airlines occurs due to a less stringent implementation or enforcement of CORSIA in the third country, the Commission may exempt EU-based operators from offsetting requirements for emissions from flights or may allow operator to use unit types additional to the adopted list (c.). This is in order to maintain equal treatment on routes, if third countries do not legislate to have similar standards for airlines based in those countries.

In addition, once it is clear than there will be no offsetting to be done by airlines under the ICAO scheme in respect of 2021, the European Commission proposed in a Decision that for the year 2021, EU-based aircraft operators shall have no CORSIA offsetting requirements. 

The Directive must now be adopted by the Council and the European Parliament before becoming law, which should occur over the coming 12-18 months.

> Read Commission’s ‘Fit for 55’ climate package proposes removing European aviation’s fuel tax exemption, by GreenAir Online
> Read EU ETS Summary by ICAP
> Read Fit for 55 summary by Transport & Environment

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