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The European Green Deal and the Fit For 55 Package

By  Brussels, — Last updated on 11 December 2023

Abstract

This paper sets out A4E’s views on the European Green Deal and the legislative proposals made under the ‘Fit For 55’ package proposals in July 2021. It sets initial guidance on how European airlines plan to approach the decarbonization of aviation in Europe.

Many of the Fit for 55 proposals will significantly impact airlines’ operations, economic decision-making, and cost basis. Ranked by priority, the most relevant proposals for A4E airlines include the reform of the Emissions Trading Scheme (EU ETS) for Aviation Directive, the proposals for the implementation of ICAO’s Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA), the Proposal for a Regulation on ensuring a level playing field for sustainable air transport (ReFuelEU Aviation), the review of the Energy Taxation Directive, and to a lesser extent, the proposal for an Alternative Fuels Infrastructure Regulation (AFIR), the Review of the Renewable Energy Directive (RED II) and the proposal establishing a carbon border adjustment mechanism (CBAM).

The Fit for 55 package proposals

Europe’s airlines are fully committed to decarbonizing air transport and are accelerating their efforts to make Europe the world’s first carbon-neutral continent by 2050 through the reduction of CO2 emissions in absolute terms, and through mitigation. Acknowledging its responsibilities despite the COVID-19 crisis, the EU aviation sector recently published its “Destination 2050 – A Route to Net Zero European Aviation” roadmap showing a pathway to reaching net zero CO2 emissions by 2050 Destination 2050 – A Route to Net Zero European aviation, A4E, ACI Europe, ASD, ERA, CANSO, February 2021. www.destination2050.eu/ . In October 2021, the International Air Transport Association (IATA) committed to achieving a similar target globally by 2050, and the Air Transport Action Group (ATAG) provides corresponding technology projections up to 2050 Waypoint 2050, ATAG, October 2021, Waypoint2050. With this, the entire sector contributes to the Paris Agreement, recognising the urgency of pursuing the goal of limiting global warming to 1.5°C. In doing so, the sector is also effectively contributing to the European Green Deal and the EU’s climate neutrality objectives.

A balanced approach is crucial to promote sustainability and encourage and enable the future decarbonisation of the industry, whilst preserving economic competitiveness and social benefits to citizens throughout. The challenge of decarbonisation is not to reduce emissions at all costs but to do so whilst at the same time increasing welfare and leaving no one behind social groups, and regions.

Based on price forecasts and assumptions of future policy scenarios, the annual cost of compliance to the measures presented under Fit for 55 could increase by 5-6 times by 2025 compared with costs in 2019. By 2030, the annual costs associated with these measures would be 13-14 times higher than in 2019 and would particularly impact intra-European journeys. It is therefore essential that the package does not overly impact intra-European travel by ensuring the costs of the package remain reasonable. Air travel is essential to keeping Europeans connected.

An enabling regulatory and financial environment facilitating a path towards sustainable growth of air transport, with no social or societal compromises, is needed. The sector asks for regulatory and financial support — not punitive regulations, e.g. taking action to reduce the price of decarbonisation technologies like SAFs.

A4E is committed to the ultimate objective of reaching a net-zero emissions aviation ecosystem in Europe by 2050, as well as strongly contributing to the EU’s 2030 ambition. Current and future technologies can bring significant emissions reductions and contribute towards the European Green Deal’s ambition and Covid-19 recovery, whilst at the same being a major driver in economic growth and employment.

These objectives can be achieved through a combination of four key measures: 1) improvements in aircraft and engine technologies (including hybrid, electric and hydrogen propulsion), 2) using sustainable aviation fuels (SAFs) both for fixed- and rotary-wing platforms, 3) implementing economic measures and 4) improvements in air traffic management (ATM) and aircraft operations which can reduce emissions by up to 10% immediately, without negative effects on the economy or further effects on a sector so strongly hit by the COVID crisis.

To achieve the ambitious objectives for 2030 and 2050, rapid, decisive joint actions by governments and industry are needed, including a Pact for Environmentally Sustainable Aviation, using the foundation of the Aviation Roundtable Report Aviation Round Table Report on the Recovery of European Aviation, November 2020 See here and Destination 2050.

The reform of the Emissions Trading Scheme (EU ETS) for Aviation

Market-based measures, such as the Emissions Trading Scheme (ETS) are key to reducing CO2 emissions, especially in the next 10-15 years. The ETS is the most appropriate economic measure to limit and reduce CO2 emissions and price CO2. Reliance on economic measures is reduced over time as breakthrough technologies become more widely available – leaving residual emissions to be addressed through carbon removals. Governments need to re-invest all revenues from ETS allowances into the deployment of decarbonisation solutions. We need to ensure that there is sufficient investment already today in the technologies that will help airlines decarbonize tomorrow. The extension of the ETS Innovation Fund should include support for Contracts-for-Difference (CfD), notably to increase the attractiveness of SAFs.

To ensure cost-effectiveness, EU and national economic measures must be market-based. Climate policy regulation in the form of taxes is ecologically and economically counterproductive. It reduces the industry’s capacity to invest and innovate whilst potentially shifting emissions to other regions (carbon leakage) The A4E Input on Public Consultation Updating the EU Emissions Trading System (ETS) provides additional details on the role of the EU ETS in aviation, A4E, March 2021 See here.

  • Any future legislation should ensure that the same conditions apply to all carriers competing in the same market. There should be no favouritism or discrimination based on the nationality, destination, or origin of the carriers.
  • The planned reforms coupled with the unprecedented rally of CO2 for compliance in the past months have seen allowance (EUAs) prices topping EUR 60 in September 2021 — up from EUR 25 prior to the COVID crisis. This will result in a dramatic increase in EU ETS costs. We expect that aircraft operators’ costs of compliance with the scheme will increase from approximately EUR 900 mln in 2019 to EUR 5-6 bn in 2025. This five-fold increase will take place just as the sector is still grappling with the impact of the COVID crisis, whose damages will be felt until 2024-2025.
  • The share of revenues resulting from the auctioning of ETS allowances used in supporting SAFs, fleet renewal, or zero-emissions hydrogen and electric technologies is marginal. To ensure optimal use of the merits of a market-based measure, all revenues from the auctioning of allowances need to be reinvested in the industry’s decarbonization to ultimately support our sectoral efforts towards the EU’s 2030 and 2050 goals. Similarly, the ETS Innovation Fund should foresee the earmarking of revenues for the aircraft operators’ projects.
  • Allowances should be allocated to reflect the timeframe expected to see a significant uptake of decarbonization technologies in the sector – according to the EC’s own assessments, this is not until 2030 for a significant uptake of SAFs or 2035 for the deployment of transformative propulsion technologies.
  • Modifying the share of allowances auctioned will have no impact on CO2 emissions. Under a cap-and-trade mechanism, the climate benefit is defined by the cap, not by the level of auctioning. If the auctioning of allowances generates revenues for EU and EFTA member states, it does not lead to an additional mitigation in CO2 emissions from aviation unless the revenue from such auctioning is reinvested into the development or deployment of aviation decarbonization technologies. Free allocation is an established means to prevent competitive distortion and carbon leakage.
  • The proposed reform will result in a loss of competitiveness, stemming from consumer, airline, and investor responses, including switching of carriers, switching of routes, or shifts in demand. These competitive distortions because of the significant increase in ETS compliance costs may in turn lead to carbon leakage.
  • The proposed reform will negatively impact less-connected European regions which have fewer transport alternatives and rely on air transport for education, training, goods and services. It would also lead to a distortion of the market and impact the EU economy, as intra-European travellers are drawn towards destinations outside of the EU, negatively affecting tourism, a major source of economic activity across Europe.
  • Higher prices for intra-EEA travel will make EU destinations relatively less attractive to visitors from within the EU. EU travellers may opt to travel to non-EU destinations to avoid some of the policy costs, for example, holiday destinations outside the EU. This applies both for direct flights from the EEA to non-EEA destinations as well as for flights from the EEA to non-EEA, where one leg of the journey is intra-EEA. By ensuring that the cost of travelling within Europe does not rise too quickly we can limit the risk of carbon leakage and distortion of competition between EU carriers. Retaining free credits past the foreseen date of 2027 would help in this regard, by maintaining a fairer regulatory cost gap between European and non-European destinations and by reducing the risk of carbon leakage.

Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) Implementation Proposals

The EU needs to respect its multilateral engagement and implement CORSIA in a way that does not penalise European carriers. EU participation in CORSIA is pivotal for the success of the scheme and its credibility. Pending the agreement on ambitious ICAO Long-Term Aspirational Goals (LTAG) in 2022 and in the absence of a better system, it is the only way to tackle global CO2 emissions from aviation today.

  • An ‘as smooth as possible’ harmonization of the ICAO CORSIA scheme with the EU ETS for aviation is of utmost importance, together with a focus on minimising the burden to European operators.
  • On extra-EU flights, all offset credits under CORSIA need to be available to all. Otherwise, it creates a competition distortion. Limiting the eligibility of CORSIA offset credits authorised for EU/EEA/UK carriers would distort the competition vis-à-vis non-European carriers. CORSIA would be made more expensive for European carriers than for their global competitors if eligible credits were restricted unilaterally. Doing so may open a race to the bottom as it could invite non-European countries, in their own CORSIA implementation, to allow local carriers to use cheaper offset credits which European carriers would not be eligible for.
  • On intra-EU flights, implementing a hybrid system that would combine CORSIA/ETS instead would allow the EC to achieve two goals 1/ respect multilateral obligations under ICAO by fully implementing CORSIA, whilst at the same time 2/ ensure the sector contributes to the global decarbonization effort in a cost-effective manner See detailed A4E proposal on ETS/CORSIA hybrid system, March 2021, here.
  • The insertion of an automatic clause that, in case the CORSIA baseline is different than the 2019/2020 average, the EU would consider CORSIA void and no State would participate in pre-empting future ICAO decisions on the scheme’s baseline. This proposal is stepping over an internationally signed agreement and could jeopardize the credibility of the EU as a negotiating partner. In addition, the year 2020 was an exceptional year in the history of aviation – using it in the calculation of a baseline will always be distortive even after airlines have recovered from the COVID-19 crisis.

Proposal for a Regulation on ensuring a level playing field for sustainable air transport (ReFuelEU Aviation)

A4E welcomes the ReFuel EU Aviation initiative and will work with the EU to make it a success. It is important to get this initiative right when it comes to fundamental elements such as high sustainability criteria (as laid down in the proposal for the revised Renewable Energy Directive), scope, reporting and obligations, but also regarding the crucial details related to technical standards, certification and the quality and origin of the feedstock. We fully support the goal to boost SAF production and uptake to ensure their large-scale availability at reduced costs in the medium and long term more at A4E position paper on Production and Deployment of SAFs in Europe – ReFuel EU Aviation, July 2021, link. We see the suggested targets and ambitions as appropriate and support the sub-mandate on Renewable Fuels of Non-Biological Origins (RFNBOs) to take full advantage of the emerging Power-to-Liquid technologies, and the longer-term synergies with the ramp-up of green hydrogen.

Whilst many of the elements of the proposal are supported, some adjustments would be welcome:

  • To address the price differential with fossil fuel throughout the value chain, financial measures are required, such as subsidies, offtake agreements, auctioning mechanisms and capital grants. We expect the EU and Member States to financially support research & innovation, and the scale-up of production in Europe to reduce costs and ensure sufficient supply. This can be done through the revenues of the EU ETS (Innovation Fund), at least until 2035 when the market is expected to be more mature.
  • Coupled with loan guarantees, grants and tax support for carbon capture and storage (CCS) and green bond investments, the USA is clearly becoming the most advanced region of the world to produce and use SAF Sustainable Skies Act bill, introducing tax credits for SAF production, May 2021, link. We are disappointed by the interest/support for SAFs granted in national COVID-19 Recovery Plans. This does not bode well for the EU’s SAF ambitions. Regulatory measures should be considered to ensure prioritisation of feedstock vis-à-vis other transport modes which have more alternative decarbonisation solutions.
  • To achieve the lowest cost and highest efficiency, a SAF accounting framework inspired by the renewable electricity framework is needed: airlines/fuel suppliers should be able to issue and trade SAF certificates (similar to Guarantees of Origin for renewable power) and only airlines that have purchased such SAF certificates can claim the associated emission reductions. These attributes should be issued for uplifted SAF, but any airline, regardless of whether it effectively tanks SAF or not, should be able to buy them.
  • Airlines should be given the possibility to decide on which flights to account for the SAF. This prevents them from carrying extra fuel on board if SAF is not available at a certain airport. Airlines that aim for higher CO2 emission reductions can decide to buy a larger amount of SAF and distribute the SAF in the most economically efficient way across the fleet.
  • The calculation of “yearly fuel required” as per art. 3 and art. 7, as well as “aviation fuel uplifted”, should exclude mandatory fuel amounts as per EASA regulations, in particular Contingency fuel, Destination alternate fuel and Final Reserve fuel, as these obligatory amounts can add up to a significant portion of the total fuel required for a flight, especially in the case of short intra-EU sectors operated following intercontinental sectors into the EU. An exception to the restriction on tankering should also be foreseen in case fuel quality issues at the destination would prevent re-fuelling.
  • A4E supports Art. 5 of the proposal that limits tankering which would be detrimental to European airlines’ competitiveness and result in carbon leakage. It is important that the article is strongly enforced for all carriers, European and non-European. The Art. 5 rule, however, could impact safety. The rule should reflect the challenges pilots experience (operational restrictions, airspace closure, weather conditions). External pressures should not be asserted on pilots when it comes to the quantity of fuels boarded. Moreover, boarding more fuel than needed to comply with the tankering rule would result in unnecessary emissions.
  • A4E questions the relevance of an obligation on airports to provide the infrastructure as foreseen in Art 6. Airports have no contractual obligations in the supply of fuel and the clause could have unintended consequences, e.g. recuperation of costs for infrastructure or responsibility between fuel suppliers and airports. The provision should be deleted.
  • A close monitoring of the SAF market will be necessary (art. 14) and is welcomed. However, considering the rapid pace of developments and the need to assess compliance with future norms and airlines’ investment — the frequency of such a report should be reassessed.
  • A4E questions the validity of defining an “aircraft operator” as an entity operating at least 729 flights per annum (art. 3). If a smaller number of flights is operated by e.g. non-EU airlines using large wide-body aircraft, this exclusion can constitute considerable competition for EU airlines, as well as market distortions, as these airlines would not be bound to the tankering obligations imposed in the legislation (e.g. several smaller airlines, each operating Boeing 747 freighters). As there is no link between this Regulation and the ETS reporting system, A4E proposes to remove this de minimis clause.
  • A4E welcomes references to ICAO activities and the EC’s proposal to maintain strong links with ICAO on this important issue. International standards and regulations will be needed to ensure global implementation and maximum environmental benefits, whilst ensuring a level playing field for all stakeholders. European momentum around the adoption of a SAF mandate should be used to advocate for a similar approach at the international / ICAO level. The proposed legislation however fails to provide clarification with regard to the eligibility of non-EU SAF attributes for claims under CORSIA.
  • The reference to the establishment of a Renewable and Low-Carbon Fuels Value Chain Alliance is welcomed. Creating a European industrial alliance on sustainable aviation fuels will help coordinate public and private partners to accelerate the adoption of the adequate regulatory framework and investments for SAF supply in Europe.

Review of the Energy Taxation Directive (ETD)

  • CO2 reductions in aviation can be better achieved through market-based measures, which are already applied to aviation through the EU Emissions Trading System (ETS), and globally through CORSIA. An increase in the sectors’ tax burden would substantially reduce the investment capacity of these hard-to-abate sectors in new decarbonisation technologies, including cleaner fleets and alternative sustainable fuels.
  • This tax proposal will sit on top of all other existing taxes on aviation. This will lead to an intolerable increase in the cost of flying intra-EU while having a limited impact on emissions, as only 40% of them will be covered. Any move to put an EU fuel tax into place must first look at other taxes, such as national taxes, that are already imposed and look to replace them rather than add to them.
  • If the goal of kerosene taxation is to ensure that the sector contributes to States’ budgets, the review needs to consider the overarching cost burden of aircraft operators: ticket taxes, solidarity taxes, infrastructure costs, ETS/CORSIA compliance costs, security costs, etc. which are not carried by other modes of transport. Airlines already pay for their infrastructure, i.e. airport charges, unlike other sectors. The industry also pays for security at airports, which is the state’s responsibility in other sectors. Airlines also pay ANSP charges, or noise charges at some airports, and we are not subsidised in the same way as other transport sectors (e.g. rail).
  • The proposal will disproportionately impact intra-EU travel in a sector that is intrinsically European and global. A tax only applicable to intra-EU flights, as suggested, will lead to more CO2 emissions due to detours and avoidance of the scope. It will add to the carbon leakage problem and lead to competitive distortion throughout Europe.
  • From all of the proposed measures in Fit for 55, a kerosene tax is the least efficient way to reduce CO2 emissions. The flight from A to B does not become more sustainable, especially if the revenues are not ring-fenced to decarbonise future flights for more on the impact of the proposed review of the ETD for aviation, see here, A4E, August 2021, Link here.

Review of the Renewable Energy Directive (RED II)

  • A4E supports the review and the principles underlying EU legislation. On top of the detailed position development ahead of the proposal See notably: Feedback on EU Renewable Energy Rules, A4E, October 2020, Link here, and notably:
    • Strict sustainability criteria for raw materials used for SAFs, to avoid any direct or indirect impact on deforestation for example, are necessary.
    • The use of advanced biofuels, without competition with food production and with a low environmental footprint.

Alternative Fuels Infrastructure Regulation (AFIR)

  • A4E generally supports measures to decarbonise airside ground operations and equipment at airports, where electrification can play a key role.
  • In the context of aviation’s major transition towards climate neutrality, increasing the supply of electricity to stationary aircraft at airports is a relatively low-hanging fruit that can be implemented in the short to medium term.
  • Some European airports have already taken steps in this direction and A4E agrees that others should be encouraged to do so. However, for many airports, the proposed targets will require additional investment in the coming years. Coupled with an ambitious timeline, those costs could be substantial in some cases, especially for smaller or regional airports, where the benefits may be less apparent than at larger airports.
  • Given that the targets are also likely to have a financial impact on airlines through airport charges, it is important to ensure that such investments are costed and scoped efficiently, and are subject to review by the national Independent Supervisory Authority established under Directive 2009/12/EC.
  • A4E may recommend that the co-legislators consider a revised timeline, shifting the targets from 2025 and 2030 to 2030 and 2035 respectively, which would allow investments to be spread out over a longer period.
  • A4E welcomes provisions in the proposed Regulation that national framework plans should include a deployment plan for alternative fuel infrastructure in airports.
  • Whilst drop-in SAFs will require limited adaptations to the fuel distribution and supply systems, aviation will also be an end user of non-drop-in SAFs, such as hydrogen and other energy sources based on electricity. These new propulsion technologies represent decarbonisation options for short and medium-haul, whilst long-haul will depend on the deployment of SAFs. Future infrastructure investments will need to consider both the deployment of infrastructure adapted to aviation’s transition to non-drop-in SAF (e.g. hydrogen storage facilities) as well as ensuring continued investments in liquid fuels facilities.
  • Additionally, EU-wide and national strategies should be devised in such a way as to ensure that there is access to sustainable fuels for all modes of transport rather than competition between modes for them.

Energy Efficiency Directive (EED)

  • In air transport, energy efficiency plays a key role in delivering a higher climate ambition. However, the policy measures to achieve this should be adapted to the specificities of the sector and the other pieces of the regulatory and policy framework that apply to the sector.
  • Monitoring of energy use and efficiency, as well as the introduction of measures to improve it, are already “business as usual” for European air carriers. Many airlines have already implemented internal measures to identify means to improve their efficiency (for cost savings notably) and their fuel use is already subject to mandatory and voluntary reporting requirements. Until now, the EED has not provided additional energy efficiency improvement incentives for airlines but has led to additional external auditing costs and additional human resources having to be dedicated to administrative requirements (with little added value).
  • The EED can contribute to improving the efficiency of sectors/companies not subject to EU ETS, but it is superfluous for companies that are already subject to more stringent and effective measures such as carbon and energy pricing. Companies subject to EU ETS already have to monitor, verify and report their energy use and are already subject to a strong cost signal to improve their efficiency. If the EED is to continue to apply to all sectors, it would be important to make its implementation more pragmatic and streamlined through industry-specific rules.
  • As companies are active in several jurisdictions EU/non-EU, it is important to streamline requirements to avoid companies having to comply with the EED for the same activities in different jurisdictions. There are precedents that confirm that a single point of accountability for airlines is the most reasonable option: EU ETS Directive 2003/87, Regulation 1008/2008 and Regulation No 859/2008, Annex 6 to the Chicago Convention and ICAO Assembly Resolution A29-13:
  • The possibility to submit a single audit for energy use in different EU Member States would give companies the possibility to reduce the costs associated with the auditing processes, without affecting the objective of the Directive. This is particularly true in the case of aviation, where audits will predominantly cover fuel consumption from flight activities.
  • The scheme does not adequately distinguish between the very different characteristics of building facility operations and international aircraft operations. Qualified building facility energy auditors would not necessarily be trained to offer opinions and assessments on fuel efficiency and fuel savings opportunities in international aviation, which is itself a specialised area. As a result, audits of international aviation fuel use under the scheme may be of limited value to both airlines and Member States. Identification and implementation of international aviation fuel-saving opportunities are better managed through existing forums and processes, both within Europe and internationally.

Regulation establishing a carbon border adjustment mechanism (CBAM)

  • EU should primarily focus on avoiding distortion of competition in other elements of the Fit for 55 package.
  • Energy and capital-intensive sectors are at a significant risk of carbon leakage. Europe needs to ensure that European airlines remain competitive. Several studies confirm the aviation sector’s exposure to carbon leakage and place European air transport among other sectors with the highest exposure to leakage, alongside chemicals, metals and cement.
  • The ambition of climate policies across countries varies. Differences include the coverage and levels of carbon pricing, which leads to carbon leakage. We support the principle of the CBAM to prevent and avoid leakage but we caution against some unwanted consequences and wish to make some suggestions.
  • To ensure a level playing field and prevent carbon leakage, decisions related to the allocation of allowances must be handled in conjunction with the establishment of mechanisms seeking to address the displacement of traffic flows or the competitive distortion such as a Carbon Border Adjustment Mechanism. Free allocation and a possible CBAM must be considered to alleviate these risks.
  • Allocated in a targeted way, ETS allowances should be considered — taking into account international competitiveness and the unprecedented crisis the aviation sector finds itself in as a result of the COVID-19 pandemic. In the absence of a CBAM, such allowances appear to be the only way to account for risks of carbon leakage.
  • The Commission proposes a transition period until 2025 to allow for a smooth roll-out of the CBAM. During this time, we recommend intensifying international discussions to prevent undesirable effects and countermeasures for European industry. The introduction of such a mechanism within ICAO rules or in bilateral agreements with key third countries would be preferable but must not come in the way of EU action. The EU has a key role to play in the establishment of such a set of new international rules and to ensure that rules set within the EU market are also applied outside.

Conclusion

In order to achieve the Green Deal’s ambitions, it will be essential to focus on demand-driven solutions, placing the passenger at the center and not foregoing the social impact of climate policies. This shift is within reach if done in close coordination between industry and policymakers, in a way that improves the efficiency of Europe’s air transport network as a whole, enhancing EU competitiveness and increasing growth.

A4E members want to be part of the Green Deal solution. It is a challenge we face head-on, and one we will only achieve through integrated, cross-sector efforts across policy fields: transport, climate, energy and research. Airlines’ efforts to minimise fuel and energy consumption will increase in the next decade, in order to limit greenhouse gas emissions and pollutants affecting air quality.

It is clear that the drive towards decarbonization of Europe’s aviation sector will only accelerate, with the objective of making the continent’s skies the most efficient and environmentally friendly in the world. As an industry, we have a special responsibility to contribute to this transition, whilst also better communicating our ambitions and our efforts to both passengers and policymakers alike. The solution is not to fly less, but to fly more efficiently and more sustainably. A4E airlines looks forward to this future.