Aviation and the EU ETS: key questions answered

1. The state of the aviation industry

How much pollution is the aviation industry responsible for?

Aviation is one of the fastest-growing sources of greenhouse gas emissions globally. It accounts for around 2–2.5% of global CO₂ emissions, with its total climate impact estimated to be up to about twice as high when non-CO₂ effects, such as contrails and nitrogen oxides, are included.

In the EU, aviation accounts for roughly 3.8–4% of total emissions, and this share is expected to grow as emissions from other sectors decline more quickly.

How much is the aviation industry paying for its pollution?

Currently, very little. Aviation benefits from major tax exemptions, including no VAT or fuel taxes.

Under the current EU Emissions Trading System (ETS), airlines must pay for emissions from flights within Europe, but international flights are not priced.

How does aviation’s tax treatment compare to other sectors in the EU?

Aviation is by far the least taxed transport mode. Long-distance flights largely avoid paying for their climate impact. This creates an uneven system where aviation does not follow the polluter-pays principle, unlike other transport modes such as road transport.

Sources: European Commission – Taxation and Customs Union (Excise Duties on Energy); EU Parliament Indirect Taxation Fact Sheets; UK VAT Notice 744A on passenger transport.

* International flights are generally exempt from VAT under EU rules, while domestic flights may be subject to VAT depending on the Member State.
** Around 80% of passenger trains run on electricity, which is generally subject to lower taxes; diesel trains, used on some routes, may face higher fuel taxation similar to road vehicles.
*** Some EU Member States already apply national carbon taxes to road fuels. EU ETS2 will also introduce EU-level carbon pricing for road-transport fuels from 2028, applied upstream to fuel suppliers.

Note: While this table focuses on aviation, it’s worth noting that shipping faces similar tax gaps – read our Shipping page to learn more.

2. ETS basics

What is the EU Emissions Trading System (ETS)?

The EU ETS is a carbon pricing system that sets a cap on emissions from key sectors and allows companies to trade emission allowances. It’s the EU’s main tool for reducing greenhouse gas emissions.

How does the ETS work in practice?

The EU ETS is a “cap-and-trade” carbon market.

A limit (cap) is set on total emissions, and companies must monitor and report their emissions each year and surrender allowances to cover them. These allowances can be bought and sold.

The cap is reduced over time, which impacts the carbon price. It generates revenue through auctions and encourages companies to cut emissions and invest in cleaner technologies.

Which sectors are currently covered by the ETS?

The ETS covers major sectors including:

• Power generation
• Heavy industry
• Maritime shipping (including international journeys)
• Aviation (but only for flights within Europe)

Has the ETS been effective so far?

Yes. Emissions from sectors covered by the ETS have fallen by around 50% since 2005.

How much revenue has ETS created and what is it used for?

The EU ETS has raised over €270bn across sectors since 2013.

These revenues are used to fund:

• Renewable energy and energy efficiency
• Low-carbon innovation (via funds like the Innovation Fund)
• Climate action at national and EU level

3. Aviation and the ETS: what is the issue?

Which flights are covered by the ETS today?

The ETS currently covers flights that both depart from and arrive within the European Economic Area (EEA), Switzerland and the UK..

However, international flights beyond these areas, including long-haul routes, are excluded, so the majority of aviation emissions are effectively not priced.

Why are international flights currently excluded?

International flights were excluded in 2012 to support the development of a global aviation climate scheme through the International Civil Aviation Organization (ICAO), called CORSIA.

What is CORSIA?

CORSIA (Carbon Offsetting and Reduction Scheme for International Aviation) is a global scheme developed in 2016 by the International Civil Aviation Organization to address emissions from international flights.

Under CORSIA:

• Airlines monitor and report emissions from international flights.
• Only emissions above a very high baseline must be addressed.
• Airlines can comply by:
  • Buying carbon offsets, or
  • Using sustainable aviation fuels to reduce their obligations.

CORSIA is designed as a global approach to aviation emissions. However, it mainly relies on offsetting rather than directly reducing emissions, which has raised concerns about its effectiveness.

Does CORSIA actually reduce aviation emissions?

Not significantly. CORSIA focuses on offsetting emissions rather than reducing them directly. Offsetting allows airlines to compensate for their emissions by financing emissions reductions elsewhere, rather than cutting pollution within the aviation sector itself. The relatively low cost of offsets also provides a weaker incentive to invest in cleaner technologies.

CORSIA also leaves most existing aviation emissions outside its scope: only emissions exceeding 85% of 2019 levels require to be offset. In other words, CORSIA does not provide a pathway towards the level of emissions reductions required under the Paris Agreement.

• Read SASHA’s policy briefing for a more in-depth analysis of CORSIA’s shortcomings.

ETS vs. CORSIA – what’s the difference?

The EU ETS and CORSIA take fundamentally different approaches:

• ETS:
  • Caps emissions and puts a real carbon price on pollution.
  • Covers 100% of emissions for included flights.
  • Has strong enforcement and penalties.
    
    
• CORSIA:
  • Relies on offsetting emissions growth, not reducing emissions.
  • Covers only a small share of emissions.
  • Has weak enforcement and is not fully mandatory until 2027.

In practice, the ETS drives real emissions reductions, while CORSIA has so far delivered little to no tangible impact.

How much pollution has gone unpriced since 2012?

As a result of exempting international flights from the ETS, 1.1bn tonnes of CO₂ have been unregulated between 2012 and 2023.

What revenue has the EU missed out on due to this exemption?

By not pricing international aviation emissions, the EU has missed out on approximately €26bn in revenue that could have been used to fund climate action.

4. The opportunity ahead: could the EU ETS revision bring international emissions into the system?

What is the EU ETS revision?

On 17 July 2026, the European Commission published its long-awaited proposal to revise the EU ETS Directive.

The proposal responds to the Commission’s finding that CORSIA is not delivering enough. It also recognises the growing importance of aviation’s emissions and the need for the EU ETS to cover more of aviation’s climate impact. As the Commission puts it:

“Aviation’s share of EU transport emissions today is 14%, or around 4% of the EU’s total CO₂ emissions. By 2050, aviation’s share is expected to grow to around 90%. Long-haul flights fuel this growth, and they should be covered by a meaningful carbon price.”

How does the Commission’s proposal address international aviation?

Despite recognising the growing contribution of long-haul aviation, the proposal takes a limited approach. It would extend the EU ETS only to flights departing the EEA for destinations within 5,000 km of Frankfurt.

The proposal is an important step forward, but it falls short of delivering the ambitious, just and equitable aviation decarbonisation Europe needs.

Is including international aviation in the ETS legal?

Yes. The European Court of Justice has already confirmed that the EU can regulate emission from international flights arriving at or departing from EU airports. It also found that applying the EU ETS to international aviation is compatible with international law, including the Chicago Convention and the EU-US Open Skies Agreement and customary international law.

The EU can therefore legally include international aviation in the ETS.

Read more on the EU’s legal powers to regulate international aviation under the ETS.

What else does the proposal say about aviation?

The 2026 proposal would make several important changes to the aviation ETS:

• Business jets: Business jets would be brought into the EU ETS, closing a longstanding loophole and ensuring some of the highest-emitting flights per passenger are subject to the same rules as commercial aviation.
• Contrails: For the first time, the proposal would address aviation’s non-CO₂ climate impacts through the ETS. However, the proposed approach is voluntary and rewards airlines for adopting contrail forecasting tools, rather than requiring them to reduce their contrail impacts.
• Cleaner technologies: The proposal provides support through ETS allowances for battery-electric aviation and phases out support for fuels made from waste oils and fats. However, it also continues to support biofuels alongside e-fuels, weakening the incentive for the highest-integrity, lowest-emission alternative fuels.

How could the proposal be strengthened?

The 2026 Commission’s proposal is a strong foundation, but it should go further.

• Extend the ETS to all EEA departing flights. The proposal would still leave many of the world’s most polluting long-haul routes outside the ETS, including flights to major aviation markets such as the US and China. The EU should extend the ETS to all flights departing from EEA airports, starting in 2027.
• Make airlines accountable for their full climate impact. The proposal acknowledges the importance of aviation’s non-CO₂ impacts, but its voluntary approach to contrails is not strong enough. Airlines should pay for their contrail impacts unless they take effective action to reduce them, with requirements becoming progressively stronger over time.
• Prioritise genuinely low-carbon technologies. ETS support should focus on the highest-integrity solutions, including e-fuels, hydrogen and battery-electric propulsion. Airlines should also only benefit from allowances if they contribute to the ETS.
• Ensure ETS revenues support climate action. Revenue rules should prevent ETS funds from supporting fossil fuel projects or other activities that lock in high-carbon solutions.
• Deliver on EU’s climate finance commitments. A defined share of aviation ETS revenues should also be directed towards international climate finance, including support for climate vulnerable countries.

Read more on how the EU ETS could be improved.

What happens next?

The European Commission has published its proposal, which will be considered by the European Parliament and the Council of the EU as co-legislators under the ordinary legislative procedure.

Both institutions will now develop their positions on the proposal. In the Parliament, the proposal will eventually go to a vote in plenary, while the Council will agree its position through the EU Member States. This is an important opportunity for MEPs, Member States and civil society to push for a stronger ETS.

The current timetable is ambitious, with Parliament and the Council expected to agree their positions by the end of 2026. They will then enter trilogue negotiations with the Commission to agree the final text, with a final agreement currently targeted for the first quarter of 2027.

There is therefore a short window to strengthen the proposal – including by extending the ETS to all departing flights, ensuring airlines are accountable for their full climate impact, and directing revenues towards genuine aviation decarbonisation and international climate finance.

5. Impacts on EU competitiveness, innovation, climate finance and leadership

How can extending the ETS strengthen EU airlines’ competitiveness and innovation?

Some airlines argue that extending the ETS would harm competitiveness, but the impact is expected to be minimal, with ticket prices rising by just 2–6%.

For example, a typical round-trip economy ticket from Paris to New York costs around €480–€500 on average, meaning the estimated 2–6% ETS-related increase would translate to roughly €10–€30 per ticket – a relatively small change compared with overall fare costs.  By comparison, geopolitical shocks, such as the war in Iran and disruptions to global fuel supplies, can drive much larger increases in kerosene prices and airline costs.

In practice, it can strengthen competitiveness in two ways:

• Level the playing field: All airlines flying from Europe would face the same carbon cost, removing the current advantage for non-EU carriers on international routes.
• First-mover advantage: By pricing emissions earlier, EU airlines are pushed to become more efficient and invest in cleaner technologies ahead of global competitors. And some of the revenues from that pricing can be used to support EU frontrunner technologies.

As global aviation moves toward stricter climate rules, airlines that adapt first will be better positioned to compete. Extending the ETS also helps drive investment and innovation in low-carbon aviation, ensuring EU airlines and industry remain competitive in a rapidly evolving global market.

Do airlines need free allowances to remain competitive?

Airlines have long argued that free EU ETS allowances are needed to protect their competitiveness. But evidence challenges this argument.

Our analysis with CE Delft found that between 2013 and 2025, six major European airline groups – Lufthansa Group, Ryanair, easyJet, IAG, Air France-KLM and Wizz Air – received around €6bn in free allowances, while making around €21bn in profits. We estimate that only around €1bn was spent on genuinely sustainable activities.

The evidence suggests that free allowances have contributed to airline profits and shareholder payouts rather than driving the lower ticket prices and sustainable investments the policy was intended to deliver.

As the EU considers extending the ETS, this experience should inform any proposals to provide further support to airlines.

Is carbon leakage a real risk?

Carbon leakage – where airlines or passengers reroute via non-EU hubs to avoid costs – is often raised by industry as an argument against including international flights in the ETS. Yet, evidence shows it is limited.

Estimates suggest only around 3% of emissions savings would be lost overall, mainly to specific long-haul routes to Asia.

The potential savings from detouring via hubs like Istanbul or Dubai are only 1–4%. In practice, most travellers are unlikely to take longer, less convenient journeys to save a relatively small cost. In addition, the Iran war could have a lasting impact on flights transiting through the Gulf.

Airlines themselves are also unlikely to reroute flights on a large scale, as the operational and commercial disadvantages – longer routes, higher fuel and crew costs and lost connectivity – generally outweigh the relatively small carbon cost savings.

As a result, only a small number of passengers on certain long-haul routes are likely to reroute. Any remaining risks can be addressed through simple, targeted policies, meaning leakage is small compared to emissions reductions achieved from extending the ETS.

How can extending the ETS strengthen the EU’s leadership and its energy security?

Europe already has a strong industrial base – from aircraft manufacturers to sustainable aviation fuel (SAF) producers and research institutes. Extending the ETS can:

• Drive early demand for low-carbon aviation solutions.
• Position European companies as global leaders and exporters in clean aviation technologies.
• Reduce airlines’ exposure to volatile fossil fuel prices, improving cost stability and resilience to oil markets.

By accelerating the shift to domestically produced clean fuels, the EU can make its aviation sector less vulnerable to global oil shocks, while strengthening both energy security and global leadership.

How would this help fund the EU’s climate commitments?

Extending the ETS to international flights could generate billions of euros in additional revenue each year.

This is new, predictable funding that does not need to come from taxes or existing budgets – it comes directly from pricing pollution.

These revenues can be used to:

• Fund clean aviation technologies and fuels.
• Support climate action within the EU.
• Contribute to international climate finance, including support for climate vulnerable countries.

At a time of rising climate impacts and pressure on public finances, this offers a way to close funding gaps while upholding the polluter-pays principle.

Why is this decision a test of EU leadership?

In 2012, the EU yielded to external political pressure. Today, it knows the ETS works both in reducing emissions and raising revenues.

Failing to extend the ETS would send an even stronger message than acting: it would undermine the EU’s credibility and encourage others to delay climate action. However, acting would reinforce Europe’s role as a climate leader.

At a time of geopolitical instability, the EU must demonstrate it can stand up to external pressure – including from the US – and enforce its own rules. This is a test of whether Europe leads or yields when its interests are challenged.

6. Fairness and social impact

Is the current system socially fair?

No. The current system is uneven and regressive.

Today, shorter flights within the EEA – more commonly taken by lower- and middle-income travellers – are covered by the EU ETS, while long-haul international flights are not.

This means that the average family flying within Europe pays for their emissions, but a more affluent traveller flying long-haul to New York or Dubai does not. Nor do passengers taking frequent intercontinental business trips.

The 2026 proposal not only does not fully address this unfairness, but it also creates another. It would extend the EU ETS to flights from the EEA to destinations within 5,000 km of Frankfurt, but some of the world’s largest and wealthiest aviation markets, including the US and China, would remain outside the scheme. This means some of the flights generating the most emissions would still face no meaningful incentive to decarbonise.

At the same time, flights to a number of closer destinations would be brought into the system, despite generating far less aviation traffic and emissions to and from Europe. In other words, flights with a much smaller contribution to climate change would be covered, while some of the biggest sources of international aviation emissions would remain outside the scheme. This risks making an already uneven system even less fair.

How would extending the ETS improve fairness?

Including international flights would ensure that all aviation emissions are treated consistently, so those who pollute more pay more.

This would better align with the polluter-pays principle.

Moreover, pricing these emissions creates a source of predictable revenue that can fund climate mitigation and adaptation, both in Europe and globally. Funds raised could help the aviation sector transition to low-carbon fuels, support climate action in Europe, and finance adaptation and resilience projects in Small Island Developing States (SIDS) and Least Developed Countries (LDCs). This would allow the EU to uphold climate justice while addressing the aviation industry’s climate responsibility.

Read more on how the EU ETS could fund climate finance.

Want to learn more?

Here are some useful resources:

• Improving the EU aviation ETS
• Closing the gap: how the EU ETS could fund climate finance
• Contrails in the EU ETS: a proposal with good intentions but no teeth
• Policy guide: the EU ETS & international aviation emissions
• How is CORSIA delaying aviation decarbonisation
• How airlines can be competitive and reach climate goals
• Legal powers to regulate international aviation under the EU ETS
• How EU free allowances drove airline profits, not progress