EU weighs adding carbon costs to outbound flights

The EU is considering imposing carbon costs on flights departing the bloc, in a move that risks prompting pushback from the US and other partners as airlines grapple with high fuel prices. Climate officials at the European Commission will lay out the proposal at a meeting with industry and non-governmental organisations on Tuesday, three officials said, when they will also present the contours of a broader review of the EU's emissions trading system (ETS). The ETS is a cap-and-trade system that seeks to drive green investment by placing a declining limit on greenhouse gas emissions. Companies must buy or hold allowances to cover their CO₂ emissions, creating a financial incentive to decarbonise. But as energy prices have soared amid the war in the Middle East, the system has increasingly been blamed by some countries for adding to pressures on industry while others argue it is needed to accelerate the clean energy transition. Currently the ETS covers only intra-EU flights, meaning that while airlines have to pay for the carbon emitted on flights from Dublin to Paris, services from Paris to New York are exempt. EU officials argue it is time to extend the scheme to flights departing the bloc, as alternative efforts to cut airline emissions have not borne fruit. "We'll try to make the case for what we want to do and hear back how [industry] sees it," said one official. Short-haul airlines such as Ryanair and easyJet have criticised the ETS scheme, warning that it incentivises consumers to holiday just outside of the bloc rather than in Europe. Rules around ETS and sustainable fuels can make an equivalent holiday in Turkey significantly cheaper than one in Greece, they argue. However, increased pricing on long-haul services would probably be opposed by operators such as British Airways and Air France that make most of their profit on global routes. The measure and its timing are highly contentious given the soaring jet fuel prices and the likely pushback from trading partners such as the US, which has previously opposed the ETS extension. "We're simply doing what the EU is entitled to do but we're fully aware of the geopolitical sensitivities around that. We don't expect it'll be easy," another official said. The Commission is also assessing other controversial proposals as part of the ETS review, the officials said, including asking businesses to report in more detail how they are using free CO₂ allowances to invest in decarbonisation and the role of international carbon credits in the future design of the scheme. Environmental organisations have long called for the ETS to extend to departing flights, pointing to the considerable revenue it would raise and the high emissions of the sector. While aviation accounts for just 3 per cent of energy-related global emissions, its carbon output in Europe has risen by 30 per cent since the ETS began in 2005, while emissions from other sectors have all declined, according to climate think-tank Transport & Environment. ETS currently adds €7 to the cost of an intra-EU plane ticket, T&E estimates. If it were extended to all departing flights, the average additional cost would be €45 per ticket, with revenues to the EU and member states amounting to €17bn by 2030. Airlines would also object to any measure that makes their flights more expensive, as they face jet fuel prices that have doubled since the conflict began. Carriers have lobbied, so far with some success, for regulators to roll back some of the regulations facing the sector. The EU passed a law to bring departing flights under the scope of the ETS more than a decade ago but its implementation has been repeatedly delayed in the face of strong opposition by the US and others. The debate has been revived as the latest extension expires at year-end, several officials said. Outside the EU, an international scheme to offset carbon emissions -- the Carbon Offsetting and Reduction Scheme for International Aviation (Corsia) -- lacks the formal backing of countries including the US, India and China. The scheme is based on voluntary participation by governments, whose airlines must then comply. It relies heavily on international carbon offsets, which all three officials said would not provide enough of an incentive to significantly slash emissions. Although airlines are expected to spend billions of dollars on credits, these are still much cheaper than the cost of ETS permits, in part because of market uncertainty about the accounting that underpins credits outside of regulatory schemes. "If the US and others aren't applying Corsia, we can't do it for them, then there's a sensible political case to say airlines should not just contribute for flights within Europe," said another official.