The EU Emissions Trading System (EU ETS), established by the European Commission, guides economy-wide emission reductions by setting a limit on the quantity of greenhouse gas (GHG) emissions that can be produced by the industries it covers each year. Amendments that took effect early this year are designed to better align the program with the European Union’s net-zero emission target for 2050. Regarding aviation, these changes set a useful example for other regions looking to deploy sustainable aviation fuels (SAFs).

Utilities and heavy industry (“stationary installations”) were the first sectors regulated under the EU ETS, and aircraft operators were added in 2012. Aircraft operators were granted additional flexibilities in complying with the annual targets that weren’t available to others. For example, between 2013 and 2020, allowances covering 82% of aviation emissions were allocated for free. Aviation allowances are also tracked and auctioned separately because of overlapping regulations that govern aircraft emissions; they are known as European Aviation Allowances, and they’re kept in a separate pool.

The recent revisions expand EU ETS emissions coverage to the maritime sector and establish a new system known as the ETS2 to cover the building sector, the road sector, and small industries not regulated under the original EU ETS. Revisions also accelerate the annual rate—known as the linear reduction factor (LRF)—at which both the stationary installation and aviation GHG emission limits shrink. The treatment of allowances for aviation emissions was also changed: The free allowances will be fully phased out by 2026, after declining to 64% and 43% of sectoral emissions in 2024 and 2025, respectively. This means that by 2026, aircraft operators will need to purchase all their allowances at auction like those in other sectors. It’s also possible that the scope of aviation emissions covered may be broadened beyond intra-European Economic Area (EEA) flights; that will be determined following an evaluation of the program in 2026. The measures adopted early this year are more ambitious than a previous EU ETS proposal, which we analyzed in this paper.

Critically, the EU ETS revisions create a re-investment mechanism that sets aside 20 million allowances for aircraft operators to offset the higher cost of SAF production; these are available from 2024 to 2030 and must be drawn from the aforementioned pool of European Aviation Allowances. Aircraft operators can use the allowances to cover between 50% and 100% of the cost difference between fossil kerosene (colloquially referred to as “fossil jet”) and SAF, depending upon the fuel pathway used. Additionally, the Commission can later choose to extend this funding mechanism by a set amount through 2034.

The SAF re-investment mechanism will help to narrow the cost gap between second-generation advanced fuel pathways that provide some of the largest climate benefits and fossil fuels. The mechanism rewards fuels in tiers, and the lowest-GHG aviation fuels receive the most funding. Aircraft operators will receive 95% of the cost differential between renewable fuels of non-biological origin (including liquid e-fuels and hydrogen derived from renewable electricity) and fossil jet, after adding on taxes on fossil fuel. Advanced biofuels as defined in the Renewable Energy Directive will receive 70% of the cost differential, and all other SAF covered under the ReFuelEU mandate qualifies for 50% of the cost differential. With this, the European Union is prioritizing support for fuels made using nascent technologies over ones made via mature technologies that are already widely commercialized.

Let’s explore how much this support could narrow the cost gap between fossil jet and synthetic kerosene between now and 2030. First, we assume the cost of fossil jet will remain around €0.75/liter, based on Energy Information Administration petroleum price data. Fossil jet has an implicit carbon price of €0.25/liter, assuming an emissions trading price of €100/tonne of carbon dioxide equivalent. We expect that synthetic kerosene, or “e-fuels,” will cost approximately €2.30/liter, based on the average cost of producing e-kerosene in the European Union between 2025 and 2030, and that’s an approximately €1.25/liter cost premium.

To convert this cost premium into a total cost gap, we consider the cumulative volume of e-fuel that aircraft operators must purchase under the ReFuelEU aviation sub-mandate for synthetic fuel. We assume that e-fuel production scales up exponentially from zero to meet interim ReFuelEU blending targets and that by 2030, aircraft operators are required to blend e-fuels into their fuel mix at an average of 1.2% by volume. As a result, aircraft operators would have to blend approximately 3.2 billion liters of e-fuels into their fuel mix between now and 2030, and that comes out to a cumulative cost gap of approximately €3.6 billion.

Figure 1 illustrates how the annual cost gap between fossil jet and e-kerosene could play out. In the hatched bars, we see the annual cost gap grows from nearly €400 million in 2025 to €830 million in 2030; this is due to the increasing entry of e-fuels under the ReFuelEU synthetic fuel sub-mandate. However, the blue portion of the hatched bars represents proposed revisions to the Energy Taxation Directive (ETD) that would tax fossil jet at a rate of €0.369/liter, and this would close this gap by the amount shown if adopted. Under the proposed EU ETD, e-kerosene would also be taxed at a nominal rate of €0.005 per liter, but it’s unclear when or if either of these tax revisions will take effect.

Figure 1. Annual cost gap between fossil jet and e-kerosene under the revised EU ETS and the impact of the proposed ETD tax

We estimate that the cumulative cost gap between fossil jet and e-kerosene in the European Union through 2030 is €3.6 billion without the ETD and €2.5 billion if the proposed ETD comes into force. The funding allocated under the EU ETS allowance reserve is about €2.0 billion, which is theoretically enough to cover up to 80% of the cumulative cost gap between fossil jet and e-kerosene, assuming the ETD is implemented. It’s unlikely that it’ll cover that much, though, because we expect that a considerable portion—potentially well more than half—of this funding could be directed toward offsetting the costs of other fuel pathways such as advanced biofuels.

Nonetheless, in combination with the volume mandate from ReFuelEU, the EU ETS revisions create a durable mechanism to reinvest some funding into the lowest-GHG SAF pathways such as e-fuels while also effectively raising the cost of GHGs from fossil jet fuel. This mechanism offers insights for others that seek to use such levers to reduce the cost gaps in their own regions.

In 2022, the International Civil Aviation Organization (ICAO), the UN agency governing civil aviation worldwide, agreed to a goal to achieve net-zero carbon dioxide (CO₂) emissions from international aviation by 2050. This ambitious goal will likely require up to US $5 trillion in investments in clean aircraft and fuels. Governments and industry have begun implementing the agreement. Since that work has started, how’s it going?

The ICCT’s Aviation Vision 2050 report analyzed the technologies and policies needed to achieve net-zero aviation by 2050. The study projected airline CO₂ emissions through 2050 under four scenarios:

1. Business As Usual (BAU): A continuation of the status quo.
2. Action: Coordinated efforts by governments and industry to cap aviation CO₂ below 2019 levels by 2050.
3. Transformation: Concerted efforts by governments and industry to shift from fossil fuel use starting in 2035 and nearly halve 2050 aviation CO₂ compared to 2019 levels.
4. Breakthrough: Early, aggressive, sustained government intervention that triggers widespread investments in zero-carbon aircraft and fuels, peaking fossil fuel use in 2025 and zeroing it out by 2050.

The figure below shows our projections through 2050 of annual CO₂ emitted by airlines (top) and cumulative CO₂ over time (bottom). The far-right scale on the lower chart shows how cumulative emissions relate to global temperature targets. Under the most ambitious Breakthrough scenario, airlines emit near-zero CO₂ by 2050 and hew to an emissions pathway consistent with 1.75 °C, assuming that airlines maintain their 2019 share of CO₂ (2.9% on a well-to-wake basis). In contrast, both the BAU and Action cases consume a 2 °C warming carbon budget by 2050, and emissions continue on an upwards trajectory. The Transformation case is largely consistent with a 2 °C budget.

Figure. Well-to-wake global aviation CO₂ emissions by scenario and traffic forecast, annual (top) and cumulative (bottom), 2020–2050. The solid lines depict the central traffic forecast, while the shaded areas depict the range between the low and high forecasts.

To understand how the sector is progressing two years later and what additional steps are needed, we need more background on how aviation emissions are calculated. Broadly, we project aviation emissions over time as a product of fuel carbon intensity (g CO₂/MJ of fuel), aircraft energy intensity (MJ/revenue passenger kilometer, or RPK), and traffic (RPKs):

Our report identified key measures that can influence these three factors. Broadly, these include sustainable aviation fuels (SAF), zero emission planes (ZEPs) powered by hydrogen or electricity, efficiency measures, traffic, and economic incentives like carbon pricing. SAFs and ZEPs work to cut fuel carbon intensity, while new efficiency measures like purchasing aircraft and improving load factors reduce aircraft energy intensity over time. Traffic is influenced by numerous factors, including economic growth, airline pricing strategies, and public policies like carbon pricing, which can modulate traffic growth by increasing ticket prices.

With these levers in mind, how are things going for aviation? In short, we’re starting to see some Action, especially in the European Union (EU), but there is no Breakthrough yet in sight.

Legally binding SAF requirements in Europe, Indonesia, and Brazil, along with mandates under development in the United Kingdom and Japan, are consistent with 2% global SAF uptake by 2030. Non-binding goals (including ICAO’s aspirational goal of 6% SAF in 2030, select carrier commitments, and the Inflation Reduction Act tax incentives in the United States) could potentially bring 2030 volumes up to the assumed Action level of 3% SAF by 2030.

Electric aircraft, which we project will potentially cover a small (up to 0.2%) share of aviation RPKs by 2050, have hit turbulence; many startups are pivoting to hybrid electric designs instead. Airbus has rolled back plans to develop a narrowbody hydrogen aircraft and is now focusing on putting a smaller regional aircraft into service by 2035. Generally, these developments are consistent with the expectations of our BAU and Action scenarios, which assume no ZEP penetration.

The International Air Transport Association projects no reduction in the energy intensity of airlines between 2019 and 2024 due to the lingering impacts of COVID-19. Longer-term, Airbus and Boeing are working to develop next-generation narrowbody planes that reduce fuel burn by 20%–25% relative to current (A320neo and 737MAX) aircraft types. This aligns with our Action case, assuming similar technologies would be applied to widebody aircraft soon thereafter.

Post-COVID traffic has rebounded faster than expected; it’s forecasted to have exceeded 2019 levels in the first quarter of 2024, almost a year earlier than anticipated.

Finally, on carbon pricing, the EU Emissions Trading System is the only game in town. It covers about 17% of global passenger aviation CO₂ and includes some recycling of revenue to support SAF deployment. Considering the system’s projected 2030 credit price of €147/tonne CO₂, a global average carbon price of $25 is dead on our Action case ($17 in 2030, rising to $33 in 2031). So, there is a mix of BAU and Action here.

The table below summarizes how these levers relate to our Vision 2050 scenarios. Overall, airlines seem to be hewing to our Action case, which implies they are cutting CO₂ below the BAU scenario but are still on a trajectory to consume a 2 °C warming emissions budget by 2050, with more warming afterwards. In other words, they are not yet on a net-zero pathway.

Table. Decarbonization lever versus Vision 2050 scenario

Clearly, governments and airlines need to do more to make the aviation sector compliant with the Paris Agreement. But what specifically could they do?

Options include broader moves to obligate SAF use outside of Europe via mandates or low-carbon fuel standards, with robust safeguards for feedstock integrity. Additional efforts would be needed to accelerate the development of short- and medium-haul hydrogen combustion aircraft, which could cover about one-third of global RPKs (a much larger share than regional aircraft). To address energy intensity, ICAO is already working to develop a stronger aircraft CO₂ standard by 2025: a proposal that is both ambitious and flexible could guide manufacturer investments toward developing more fuel-efficient aircraft. Finally, governments should consider expanding carbon pricing to cover more airlines, with revenue recycling to support technology development, if they hope to achieve net-zero aviation.

Without progress on these fronts, policymakers may need to think more broadly about how to shift airlines toward a Paris-compliant future. Additional tools that may need consideration include: 1) demand management to reduce traffic growth, 2) carbon capture to take CO₂ out of the atmosphere and permanently store it, or 3) work to reduce short-lived climate pollutants, notably contrails (we’ll share more on this soon).

So how’s the race toward net-zero aviation going? It’s off to a decent start in Europe, with the rest of the world mostly still limbering up at the start line. It’s time now for other governments to learn from the European Union’s experience, and for all of us to consider what supplemental measures will be needed.

The world’s most climate-vulnerable countries scored a victory at COP28 when delegates agreed to implement a Loss and Damage Fund. The fund aims to collect money from wealthier countries and provide it to developing nations contending with the worst impacts of global warming.

But to have a real impact, the fund needs diverse and long-lasting revenue streams, in addition to pledges already made by some national governments. That’s why various taxes have been proposed over the years, including levies on aviation, maritime shipping, and financial transactions.

In light of the COP developments, we analyzed how much revenue a tax on airplane tickets could raise for the Loss and Damage Fund. Such a tax would provide a more stable and scalable funding source than voluntary, typically one-off financial assistance from wealthier countries.

Table 1 shows that $164 billion could be raised in a year if economy-class tickets were taxed at $30 each and premium-class tickets at $120 each. We selected $30 for economy seats based on the air passenger levy proposed by the United Nations Special Rapporteur on Human Rights and the Environment. In a 2021 policy brief, the special rapporteur (an independent expert appointed by the United Nations) outlined a tax of $10 to $75 for economy and business tickets to help pay for climate-related losses, damages, and adaptation. We put the levy at $120 for premium-class seats because our research shows that premium seating is 2.6 to 4.3 times more carbon-intensive per person than economy seating. Exempting economy tickets to and from lower-income countries would help ensure that the tourism industry and nascent aviation market in those countries are not unduly burdened. Such an exemption would reduce the total tax revenue collected by $19 billion. Taxing just international flights still results in a sizeable chunk of revenue: $68 billion a year or, with the exemption, $58 billion a year.

Table 1. Example ticket tax revenues raised by flight type, seating class, and country income levels.

a Flights are attributed to “lower-income” countries if they depart from or arrive in a country that is classified as low income or lower middle income by the World Bank; the remaining flights are attributed to “higher-income” countries for the purpose of this analysis.

b These are example tax rates for modeling purposes, not ICCT policy proposals.

c Number of tickets and potential revenue exempted if economy-class tickets for flights to and from lower-income countries are not taxed.

There are already examples of such taxes. The French “solidarity tax on airplane tickets” charges €2.63-63.07 per ticket to finance efforts by the global health initiative Unitaid to combat infectious diseases in the Global South. The tax raised over €1 billion in its first decade. Though this tax is only one example, it suggests that aviation taxes can be used to raise significant funds for international causes.

Moreover, the ICCT’s previous research found that certain aviation tax policies can be a more equitable way to raise revenue from those most responsible for the sector’s emissions. A tax on frequent flyers would raise 90% of its revenue from the richest 10% of the global population.

There are, however, competing needs for the revenues from a potential aviation ticket tax. Decarbonizing international aviation will require up to $5 trillion in technology investments by 2050. We recently published an analysis showing that these investments—in order to have the greatest and quickest impact on reducing greenhouse gas emissions—should be prioritized early in any taxation scenario and focused on emerging technologies.

Policymakers could, therefore, consider frontloading aviation tax revenues for mitigation in the near term and then gradually shift toward financial assistance related to loss and damage and to helping developing nations adapt to climate change. In addition, revenue from a domestic ticket tax could be earmarked for subsidizing sustainable aviation fuels within the country, while an international ticket tax can fund mitigation, adaptation, and loss and damage. Figure 1 illustrates how revenue could be apportioned over 30 years, using the same per-ticket taxes as outlined above.

Figure 1. Example allocation structure of aviation ticket tax revenue, assuming 50% of the revenue from international flights initially and an increasing share of all revenues (up to 80% domestic and 100% international) can potentially be used to help vulnerable countries with adaptation efforts and loss and damage.

Even if new aviation taxes went solely to the Loss and Damage Fund, the revenues will likely fall short of the need. Some studies project loss and damage needs of at least $400 billion each year. But even limited funding could have a huge impact for some countries. Small island developing states (SIDS) are typically extremely climate vulnerable but need less funding per disaster because of their small populations and geographic areas. Damage mitigation for the 2022 floods in Pakistan was estimated at $16.3 billion, 92 times higher than the $177 million requested by the island nation of Vanuatu for the entire country’s loss and damage that year.

In the best-case scenario, aviation can contribute to the funding mix for loss and damage, as long as such taxes are equitably designed with the goals of both decarbonizing the industry and helping those nations most injured by climate change.