As part of a sweeping package of regulatory reforms under the Green Deal, the EU is in the process of revamping its cap-and-trade scheme or emissions trading scheme (ETS)—including gradually phasing out the so-called free allowances currently granted to the aviation sector. This means aircraft operators on flights covered by the ETS will have to purchase allowances covering their total emissions—or risk substantial fines. In parallel, the EU is also proposing new sustainable aviation fuel (SAF) requirements for aircraft leaving an EU airport. The UK—which has its own ETS—has tabled similar proposals.
At the same time, substantive obligations under the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) are also coming into effect. CORSIA requires aircraft operators on certain international flights to offset any increase in their emissions above a baseline level by purchasing carbon credits. CORSIA also allows operators to reduce their CORSIA offsetting requirements by using eligible SAF.
These are important developments that seek to internalize the environmental costs of aircraft emissions. A cap-and-trade scheme, on the one hand, and a mandatory offsetting scheme, on the other, are two quite different ways of imposing a carbon price and, in this case, they will apply simultaneously to the same industry (and even to the same individual operators and the same emissions). Each is complex on its own and the interaction between the two even more so.
The importance of these developments is unlikely to be limited to the aviation sector. The ETS/CORSIA combination may provide a blueprint for how the emissions of other industries—such as maritime—may be regulated in the future.
This article unpacks the details of both schemes, explaining how they will operate in tandem and setting out key takeaways
*Reprinted with permission of The Oxford Institute for Energy Studies.