EU-ETS: the main modifications suggested by the European Commission

The European Commission has recently issued a new legislative proposal, COM (2026) 616, which would reshape the EU ETS framework for aviation by extending its scope, revising the rules applicable to business flights and redesigning the reserved-allowance mechanism supporting sustainable aviation fuels.

The proposal is a legislative proposal. It might be amended by the European Parliament and the Council while being subject to ordinary legislative procedure. Once adopted, it will need to be transposed into national law by Member States. Article 3 of the proposal states that the Directive shall be transposed into national law by December 31st, 2028, so Member States shall apply those provisions from January 1st, 2029. The Directive itself would enter into force on the twentieth day following its publication in the Official Journal of the European Union.

TOWARDS AN AMENDMENT TO THE SCOPE OF THE EU-ETS

The proposal does not include, at this stage, a brand-new version of the EU-ETS to all extra-EEA flight from 2027. It retains the original restricted geographical scope and then provides, from 2029 to 2032, a targeted extension to certain flights departing from the EEA to nearby third countries. 

From 2027 to 2028, the actual mechanism remains unchanged: the ETS carbon price applies to intra-EEA flights as well as flights departing from the EEA to Switzerland and the United Kingdom (recital 11 and article 28 a). However, from 2029 to 2032, the proposal would partially extend the EU-ETS to flights departing from the EEA and arriving at certain third-country airports located no more than 5,000 km from Frankfurt Airport.

More precisely, the ETS system should cover flights situated “no further than 5,000 km” from the largest aerodrome in the geographical center of the Union, which is situated in Frankfurt (article 28 a). Therefore, long haul flights beyond 5,000 km remain outside of the ETS, while the extension applies to destinations at or below 5,000 km. The proposal does not mention the measurement technology, nor does it mention the exact coordinates or reference point at Frankfurt Airport. It is likely that the relevant distance would be calculated as a great circle distance from Frankfurt Airport, as the EU uses this technique in Regulation (EC) 261/2004. On that basis, airports such as Dubai, Istanbul and Riyadh would fall within the scope, whereas airports in the United States would remain outside it.

The proposal mentions few exclusions to this mechanism. Even within the 5,000 km radius, flights departing from the EEA to a third-country airport generating less than 15,000 tons of CO2 per year remain within the derogation and therefore outside the proposed ETS extension. The proposal also provides an exemption for aircraft operators operating flights between two States whose total annual emissions are below 10,000 tons of CO2, whether their flights are below or beyond the 5,000 km range (article 28 a).

In the same way, this extension would not apply to flights departing from an outermost region, dependency or territory of a Member State to a non-EEA State, except Switzerland and the United Kingdom. The proposal keeps outside the expanded scope flights involving least developed countries and small island developing States included on the relevant list.

The Commission justifies that new extension by stating that the CORSIA system has not been strengthened and remains insufficient (recital 82). 

Moreover, it justifies the 5,000 km radius on the basis that these routes are considered the most vulnerable to traffic diversion through non-EEA hubs. The Commission wants to reinforce the carbon signal without creating disproportionate incentives for connecting-route substitution.

A MODIFICATION OF THE LEGAL FRAMEWORK GOVERNING BUSINESS FLIGHTS

Under the legal framework currently in force, business aviation is not an autonomous category excluded from the EU-ETS. A business aviation flight may fall within the EU-ETS where it is operated by a covered aircraft operator, on a route within the applicable geographical scope, and if no derogation applies, it does not depend on whether the flight is commercially or privately operated.

Although, the European Commission states that business aircraft operators have often remained exempted in practice because they generally perform a limited number of flights or remain under the thresholds (recital 87). Therefore, the Commission suggests removing the flight number criteria and revising the emissions threshold. An exclusion will still be applicable for very small emitters, even though the threshold is not yet defined, to ensure that the additional administrative burden on competent authorities remains reasonable. Certain business flights currently outside the scope because of their low flight frequency could be covered by the EU-ETS (recital 87).

The proposal does not give a strict definition of what a “business flight” is, it only states that a business flight is a flight that is performed with a business aircraft included on a list that will later be adopted by the Commission (article 3 ao). It is therefore the Commission’s duty to determine a list of aircraft that are considered business aircraft. It also provides that reserved allowances amount would be available only where the aircraft uses electricity of hydrogen for propulsion. A business flight that is subject to the EU-ETS would remain required to surrender allowances for its verified emissions. 

For business flights, the operative wording of the proposed Article 3c(6) would make the reserved amount available only for the use of electricity. Recital 16 refers more broadly to electricity or hydrogen propulsion, but the operative provision should prevail unless the co-legislators clarify this discrepancy.

TOWARDS A REDESIGN OF THE RESERVED ALLOWANCES FOR SUSTAINABLE AVIATION FUELS

Under the current EU-ETS framework, revenues from the auctioning of aviation allowances are principally received by the Member States. They then have discretion over the use, within the climate and energy-related purposes.

The principal aviation-specific support mechanism is stated in article 3c of the Directive 2003/87/EC modified by the directive (EU) 2023/958. It reserves up to 20 million allowances for allocation to eligible aircraft operators to offset part of the additional cost of sustainable aviation fuels. The support is provided in allowances. The aim is to reduce the residual price differential between fossil kerosene and an eligible alternative fuel that is more expensive (article 3c §6).

The proposal would extend this support mechanism until 2040 and broaden its purpose. In addition to SAF and other non-fossil aviation fuels, it would support electric and hydrogen propulsion and cost-effective measures to reduce the climate impact of contrails.

The proposal requires Member States to use at least 50 % of ETS auction revenues to support the decarbonization of ETS sectors, including aviation, but it would not require that 50% of those revenues be allocated specifically to the aviation sector (article 10 §3).

The proposal would also introduce differentiated levels of support according to the type of fuel used, with particular emphasis on advanced biofuels, renewable hydrogen and renewable fuels of non-biological origin.

As previously stated, the proposal would nevertheless impose a specific restriction on business flights: they would no longer be eligible for reserved allowances, unless for aircraft using electricity or hydrogen propulsion.

For more information, see the link: EU Emissions Trading System (EU ETS) - Climate Action - European Commission.