The International Air Transport Association (IATA) has called for urgent reform of the European Union’s Emissions Trading System (EU ETS). The organisation represents over 360 airlines accounting for approximately 85% of global air traffic. Their message is clear: current policy risks undermining European aviation competitiveness without delivering proportionate environmental gains.
This call comes as the aviation sector faces a perfect storm of rising costs, regulatory complexity, and geopolitical uncertainty. Airlines operating within the European Economic Area (EEA) will surrender nearly 330 million allowances between 2026 and 2030. Each allowance covers one tonne of CO2 emissions. The financial burden intensifies as free allowances were completely phased out in 2024.
The Policy Problem
European aviation now operates under multiple overlapping climate frameworks. The EU ETS sits alongside the global Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA), creating what industry leaders describe as redundant costs and administrative complexity without additional environmental benefit.
“European aviation policy must bolster competitiveness as it advances decarbonisation. Amid global economic strain and geopolitical volatility, the EU ETS review must deliver a harmonised climate policy framework that balances the sector’s competitiveness with its climate ambitions.”
– Willie Walsh, IATA Director General
The concerns align with findings in the Draghi Report, which identified high costs, regulatory complexity, and underinvestment as critical barriers to EU economic resilience. Aviation policy, IATA argues, must address these systemic issues while maintaining climate ambitions.
Three Core Recommendations
Full CORSIA Implementation
IATA advocates for full implementation of CORSIA for all international flights, including intra-EEA routes. The global framework already covers 115 participating states. A harmonised approach would prevent market fragmentation and eliminate overlapping compliance requirements that add cost without environmental gain.
The organisation stresses that full implementation must be free from unique EU-specific eligibility criteria. Consistency across international frameworks reduces complexity and protects European air connectivity.
Enable SAF Book-and-Claim Systems
Sustainable Aviation Fuel (SAF) represents the industry’s primary decarbonisation pathway. Yet current policy creates barriers to deployment. IATA calls for enabling a book-and-claim system under the EU ETS. This high-integrity chain-of-custody model allows trading of environmental attributes independently of physical fuel supply.
The gap between regulatory requirements and support mechanisms is stark. Airlines must use 2% SAF at EU airports in 2025, rising to 6% by 2030, including a 1.2% requirement for synthetic fuel. Yet the SAF Allowance scheme covers only 4-5% of total industry allowance needs through this period.
Investment requirements compound the challenge. Meeting SAF requirements demands between €57 billion and €67 billion by 2035, scaling to €268 billion to €376 billion by 2050. Production capacity lags regulatory timelines significantly. Industry projections suggest eSAF supply could reach only 0.7% of demand by 2030, creating a substantial gap between mandates and available volumes.
Reinvest ETS Revenues into Decarbonisation
EU ETS revenues from aviation should flow back into sector decarbonisation. IATA emphasises priority investment in scaling SAF production and supporting zero-emission technologies. Current funding mechanisms remain disproportionately small compared to the sector’s total ETS contribution.
European Commission President Ursula von der Leyen proposed an ‘ETS Investment Booster’ worth €30 billion, financed by 400 million ETS allowances. The Commission has reserved 20 million ETS allowances (€1.6 billion at an allowance price of €80) to cover the price gap between conventional fossil fuels and eligible alternative aviation fuels.
IATA argues these measures must accelerate. The organisation also calls for consideration of reinstating free ETS allowances to protect European competitiveness and prevent diversion of capital away from green investments.
The Timing Factor
External pressures intensify the urgency. War in Iran and the surrounding Gulf region has caused fuel prices to surge from approximately $85-90 per barrel to between $150 and $200. SAF typically costs three to five times more than conventional jet fuel. Airlines face compounding cost pressures from both geopolitical instability and regulatory compliance.
“The pace and scale of cost exposure matter. A sudden increase in compliance costs, especially in a fragile geopolitical and economic context, risks weakening connectivity, reducing consumer choice and diverting resources away from decarbonisation investments.”
– IATA Statement
Industry leaders warn that fuel suppliers are using SAF mandates to impose compliance surcharges. Willie Walsh described this as regulatory facilitation of price gouging in the name of the environment. The lack of purchase-based claiming flexibility limits airline options and undermines cost control.
The Climate Context
Aviation’s environmental impact demands action. The sector contributed 2% to global carbon dioxide emissions in 2022. In Europe, direct aviation emissions accounted for 3.8% to 4% of total EU greenhouse gas emissions in the same year. Aviation generates 13.9% of transport emissions, making it the second biggest source after road transport.
Non-CO2 effects add complexity. Contrail cirrus clouds, nitrogen oxides, and water vapour accounted for 66% of aviation’s net climate forcing in 2018. The EU has introduced new monitoring and reporting requirements to address these impacts.
Without intervention, ICAO forecasts that international aviation emissions could triple by 2050 compared to 2015 levels. The international community adopted a collective long-term aspirational goal of net-zero carbon emissions by 2050 in October 2022. Policy frameworks must accelerate progress toward this target.
The Path Forward
The European Commission has committed to review the EU ETS. Von der Leyen promised to ‘modernise’ the system by March 19, 2026. Free carbon allowances for aviation will be completely removed by 2026, moving to full auctioning. The EU will also assess CORSIA by 2026 to determine if additional action is needed for flights to and from Europe.
Industry associations beyond IATA echo similar concerns. The European Regions Airline Association and Airlines for Europe released a joint report supporting comparable policy changes. The consensus is clear: climate ambition must align with economic reality.
The review offers an opportunity to refocus efforts on cost-effective emission reductions. Full CORSIA implementation, SAF book-and-claim systems, and targeted reinvestment of ETS revenues could deliver environmental progress while protecting European air connectivity. The balance between decarbonisation and competitiveness will determine whether European aviation can lead the global transition or lose ground to international competitors operating under different frameworks.
For freight forwarders and cargo solutions providers, these policy discussions shape future operating costs and network reliability. European air connectivity supports global trade flows. Policy that weakens this connectivity creates ripple effects across supply chains. The coming review will determine whether Europe can maintain its position as a global logistics hub while advancing climate goals.
