Industry pushes against EU ETS expansion to extra-EEA flights, calls for strengthening CORSIA

Stakeholders in the European carbon market held diverging views on plans to expand the aviation scope of the EU's Emission Trading System, market feedback submitted to the European Commission showed.

Aviation industry stakeholders have expressed concerns that expanding the EU ETS to flights outside of the European Economic Area will conflict with the Carbon Offsetting and Reduction Scheme for International Aviation.

Responding to a Commission consultation, which closed July 8, other stakeholders said that CORSIA is not an effective option for offsetting aviation emissions and vouched for ETS scope expansion.

A total of 377 responses were submitted on varying topics, including aviation emissions, ahead of a system review planned by 2026. The review will assess whether additional policies are needed to reach EU climate targets.

CORSIA is a global market-based measure developed by the International Civil Aviation Organization to address carbon emissions from international flights. The scheme is currently in its first phase, running between 2024 and 2026. Phase 1 is voluntary, with 129 participant countries covering 80% of annual emissions. Phase 2 will run between 2027 and 2035, and participation will be mandatory for most ICAO member states.

Unlike CORSIA, the EU ETS only applies to flights within the bloc, but the Commission is seeking to expand this to flights from, to and within the EEA with plans for a review by July 2026.

Industry concerns

Airlines and industry bodies opposed extra-EEA expansion and highlighted the risk of competitive distortion with non-European hubs and potential retaliation by third countries should the EU ETS expand beyond the EEA.

Respondents have asked the EU to expand and strengthen the CORSIA scheme. The International Air Transport Association has called for the EU "to apply CORSIA on all international flights under its scope, including those that currently fall within the geographical scope of EU ETS," which CORSIA doesn't currently cover.

Several other respondents -- Cargolux Airlines, Airlines for America, Airlines for Europe, the European Business Aviation Association, the European Regions Airline Association and the Vienna International Airport -- expressed a similar view, stressing the risk of overlapping compliance mechanisms and expressing a preference for alignment with CORSIA.

The EU previously decided to limit the scope of the ETS to flights within the European Economic Area until 2027, pending review.

Trade group European Regions Airline Association said that expanding the scope "would not only risk overstepping the EU's jurisdiction but also invite retaliatory measures against EU airlines," while non-profit European Business Aviation Association said that "the EU should refrain from unilaterally extending the ETS to extra-EEA flights while ICAO's CORSIA scheme is still being developed and globally aligned."

Diverging views

Stakeholders who support expanding the EU ETS have highlighted several points of contention, including the scope, offsetting requirements, and future direction of CORSIA. Some have called for strengthening the scheme.

European airline Easyjet has said that CORSIA only covers 3%-4% of total aviation emissions, unlike the EU ETS, which applies to 100% of emissions.

The company called for the EC to push for reinforcing the scheme at an upcoming ICAO Assembly in October, where member states will discuss plans for international civil aviation for the next three years.

Research organization Carbon Market Watch has criticized the scheme's scope and its reliance on out-of-sector carbon credits, highlighting integrity concerns behind these offsets.

Other stakeholders have called for the expansion of CORSIA beyond 2035 and requested the postponement of the EU's evaluation deadline to allow a better understanding of CORSIA as it evolves into its compliance phase.

Aviation fuel supplier SkyNRG echoed some of these concerns, adding that CORSIA only seeks to stabilize emissions at 2019 levels and lacks international uptake. If these issues are not successfully addressed, the company said the EU should extend the ETS coverage.

Price gap

Concerns have been voiced about the price gap between the EU ETS Allowances and CORSIA-eligible units.

Platts, part of S&P Global Commodity Insights, assessed the price of EU Allowances at Eur71.81/mt of CO2 equivalent ($83.95/mtCO2e) on Aug. 12, while Platts CEC prices, which reflect CORSIA Phase 1-eligible credits, were assessed at $22/mtCO2e (Eur18.82/mtCO2e).

Some in the industry said that it was too early to assess the first phase of the aviation scheme, with compliance obligations not due until Jan. 2028.

Industry association Airlines for Europe said that "it is [...] not appropriate to judge the current prices of CORSIA eligible emissions units, since these only represent initial values"

It highlighted that the EU ETS allowance prices had undergone similar dynamics, rising from Eur6-25/mtCO2e to Eur60-80/mtCO2e currently.

The American Chamber of Commerce in Europe made a similar observation, saying that "it would be premature to evaluate CORSIA at this point as it is not fully underway."

Analysts at Commodity Insights expect demand for CORSIA credits to exceed 225 million mtCO2e during Phase I and reach 1.4 billion mtCO2e by 2035, but the supply of credits remains scarce.

This is because few countries have issued a letter of authorization, a key requirement for CORSIA compliance to ensure credits can be correspondingly adjusted.

If all eligible projects in countries that have issued LoAs are authorized, only 46 million mt of credits could be available, meeting just 20% of expected Phase I demand, Commodity Insights analysts said.

Further supply is expected after registries Verra and GS clarified the insurance guarantee process, another requirement for CORSIA compliance. Project developers of cookstoves credits have been among the ones pushing for CORSIA status, with progress made over recent months.

Platts has previously heard of cookstove credits with the potential of becoming CORSIA Phase 1 eligible traded at $16/mtCO2e.