Aviation: Implementation of the EU ETS 1 and CORSIA
The inclusion of aviation in 2012 was the first inclusion of a new sector in the EU ETS 1.
Further expansion took place in 2016 when the Contracting States of the International Civil Aviation Organisation (ICAO) agreed on a global mechanism, the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) to offset emissions from international aviation. An offsetting obligation of 85 percent above a 2019 baseline was stipulated for international flights.
CORSIA will be implemented swiftly and uniformly for all Member States through European regulations. An amendment to the EU ETS 1 Monitoring & Reporting Regulation (EU) 2018/2066 harmonised the monitoring methods for EU ETS 1 and CORSIA enabling aircraft operators to create a single standardised monitoring plan for both systems. As part of ‘Fit for 55’ initiative, the scope of the Directive 2003/87/EC has been adapted so that the CORSIA offsetting obligation now includes flights to third countries and flights between third countries. In short, EU ETS 1 now applies to intra-European flights and CORSIA to all remaining international flights.
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Scope of application in aviation
EU Commission proposes comprehensive reform of emissions trading
UBA Factsheet (2023): Luftverkehr im EU-ETS und CORSIA im "Fit for 55"-Paket
Maritime Transport
As part of the ‘Fit for 55’ programme, starting in 2024, the EU has decided to include the maritime transport sector in the existing EU ETS 1. Allocations will be made entirely through regular auctions. A transitional phase is planned for 2024 and 2025, during which emission allowances need only to be surrendered for a portion of the verified emissions (2024: 40 per cent, 2025: 70 per cent). From 2026 onwards, allowances must be surrendered for all verified emissions. For 2024 and 2025, the corresponding number must be cancelled from the auction volume for emissions not covered by allowances.
In 2024, and for the first time, carbon dioxide (CO2) emissions will be recorded for maritime transport in EU ETS 1. This will be followed by methane (CH4) and nitrous oxide (N2O) emissions starting in 2026. The obligations under the EU Maritime Transport Regulation, which was also amended alongside Directive 2003/87/EC, continue to apply. At the same time, they form the basis for the monitoring, reporting and surrender obligations for the maritime scope of EU ETS 1.
At a global level, the International Maritime Organisation (IMO) of the United Nations has adopted a revised GHG strategy to achieve net-zero GHG emissions by around 2050, including interim targets for 2030 and 2040. To achieve these targets, a package of measures is to come into force in 2027, consisting of both a technical element and a market-based element.
In the future, there will be a need to discuss the interaction of both instruments, i.e. the EU ETS 1 and the forthcoming global market-based approach still to be introduced by the IMO.
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EU emissions trading in maritime transport
International Maritime Organization (IMO)
New Emissions Trading for Transport and Buildings (EU ETS 2)
The ‘Fit for 55’ initiative also introduces a new independent emissions trading scheme within the EU designated as EU ETS 2. This extends coverage to the building, road transport and other sectors, encompassing a large part of the scope of the European Effort Sharing Regulation (ESR). The EU ETS 2 is due to be fully launched in 2027 following a three-year preparatory phase. This phase includes reporting obligations for participating companies from 2024 onwards.
Analogous to the German National Emissions Trading Scheme (nEHS), the EU ETS 2 is an upstream system. This means that it is not fossil fuel users, i.e. cars or heating systems, who are obliged to participate but the companies that place fuels on the market within the scope of the EU ETS 2 (e.g. natural gas suppliers). As in the nETS, EU ETS 2 covers fuels placed on the market that are subject to energy tax. However, a key difference is that the scope of EU ETS 2 is limited to certain users of the fuels, i.e. fuel consumption in the aforementioned ESR sectors.
The total availability of certificates (the cap) is derived from the obligations arising from the ESR for the sectors concerned. The aim is to reduce emissions in the building and road transport sectors by 43 percent by 2030 compared to 2005 and by 42 percent in the additional sectors. In order to prevent price jumps, especially in the initial period, various approaches are planned, e.g. frontloading (early auctioning of emission allowances) and a Market Stability Reserve (MSR), similar to that in EU ETS 1. The quantity of allowances should annually decrease linearly by 5.10 per cent of the reference quantity in 2027 and by 5.38 percent from 2028 onwards.
In EU ETS 2, all certificates will be auctioned so that their price will be created in the market. Free allocation as in EU ETS 1 is not envisaged. The proceeds will be channelled proportionally into the newly created ‘Climate Social Fund’. The remaining revenue will go to the Member States and should be used for climate or socially relevant spending, particularly in the areas of buildings and/or road transport.
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Prospective Involvement of Other Sectors
In a few years' time, only the agricultural and land use (Land Use, Land Use Change and Forestry – LULUCF) sectors will remain as major sectors outside the European Emissions Trading System. Currently, agriculture, whose reduction target is covered by the ESR, is responsible for more than 10 percent of emissions in the EU. In contrast, the land use sector, whose emissions are regulated by the LULUCF Regulation, currently absorbs more greenhouse gases than it emits, making it a net carbon sink. These two sectors are closely linked. For example, agricultural land covers around 30 percent of the EU's land area. The contribution of these two sectors is crucial to achieving the goals of climate neutrality by 2050 and net negative emissions in the second half of the century.
Discussions are underway at the EU level on whether and how these sectors should be integrated into the European Emissions Trading System. Such inclusion would not only enable the achievement of reduction targets along the politically specified reduction pathway and enhancing connectivity with other sectors and climate change policies, but also improve incentives to reduce emissions along the value chain and promote emissions avoidance. However, the implementation of an ETS in these sectors faces a number of difficulties and challenges including adequate monitoring of emissions, the sheer number of farms in the EU, and potential trade-offs and risks related to permanence and additivity of negative emissions.