EU carbon flight plan faces airline revolt over $297B ETS overlap

A European plan to tax emissions from international flights risks creating a dual carbon cost for carriers already complying with a global offset scheme.

The European Commission's proposal to impose carbon costs on international flights departing Europe would force carriers to pay twice for emissions, Emirates President Tim Clark said Tuesday, as airlines rallied behind a single global deal.

"This is a double whammy because we have CORSIA which is already in place," Clark told reporters at the Farnborough Air Show. "It is supported by the aviation community, and they see it as the way to deal with this particular issue."

The proposal, published July 17, would apply from 2029 to flights departing Europe for destinations up to 5,000 kilometers from the continent's geographic center, capturing routes to the Middle East, Turkey and North Africa while excluding direct transatlantic flights to the U.S. The EU's Emissions Trading System, which covers 40% of all EU emissions, has generated €260 billion ($297 billion) in revenue since 2013, with benchmark carbon permits trading at €79.58 per metric ton.

The conflict pits the EU's push to accelerate decarbonization against the 2016 CORSIA deal brokered by the International Civil Aviation Organization, which requires most airlines to offset rising emissions from international flights. If approved, the proposal would mark the first time the EU extends its carbon market beyond its borders for aviation, risking a transatlantic trade dispute and undermining the global framework that airlines have already invested in.

ETS Overhaul Softens Cap but Expands Scope

The aviation proposal is part of a broader ETS revision that would cut the annual rate at which the emissions cap falls to about 3.7 percent from 2031 and 1.7 percent from 2036, down from 4.3 percent currently. The overhaul would also extend free permits for industries including steel and cement manufacturing until 2038, delaying the full phase-in of the EU's carbon border levy by four years. Emissions from ETS-covered sectors have already halved since 2005, according to the Commission.

The EU previously attempted to include aviation in its carbon market in 2012, triggering opposition from the U.S., China and other nations before suspending the measure for non-European flights to allow CORSIA to take effect. The current proposal revives that approach with a narrower geographic scope, targeting flights up to 5,000 kilometers from central Europe rather than all flights arriving or departing the bloc.

Airlines for America, a trade group representing U.S. carriers, said it does not support a "fragmented approach" to taxing emissions from international aviation, arguing that extending the scope to flights outside the European region violates international agreements. The U.S. has also expressed deep concern over the proposal, while the UN's aviation agency warned it would undermine the global CORSIA framework.

Emirates, which has already purchased credits supporting rainforests in Guyana to help offset its carbon obligations under CORSIA, faces direct exposure as one of the world's largest long-haul carriers. The Dubai-based airline's opposition reflects broader industry concern that overlapping carbon costs could reach hundreds of millions of dollars annually for major international carriers operating into Europe.

EU lawmakers and member states will now negotiate the final rules, with some governments including Italy and Poland already indicating they will push to weaken the ETS further. The European Commission declined to comment on the airline backlash, citing a public holiday in Belgium.

This article is for informational purposes only and does not constitute investment advice.