EU Emissions Trading System Extension

Policy Engagement Overview

The evidence collected on corporate and industry lobbying on the extension of the EU ETS shows intense oppositional engagement from the maritime and aviation sectors. However, The utilities and automotive sector were mostly supportive of the extension of carbon pricing to the buildings and road transportation sector.

Long-term Lobbying Trends

The maritime sector engaged in strategic oppositional lobbying on the extension of the EU ETS. Actors including International Chamber of Shipping (ICS) and the European Community Shipowners' Associations (ECSA), vocally opposed the inclusion of the sector in the EU ETS in 2020-21, stressing preference for a global approach to mitigating GHG emissions from shipping.

Energy intensive industry opposed the inclusion of the buildings and road transportation sectors in the EU ETS in 2020-21, advocating instead for a separate EU ETS to be created. This included associations such as FuelsEurope, and cross-sector associations, such as the Federation of German Industries (BDI). Cefic argued that it would “entail a higher CO2 price risk” to industry.

The airline sector and cross sector associations actively opposed increased ambition for the EU ETS for aviation in 2020-22, the International Air Transport Association (IATA) consistently opposing any inclusion of aviation in the EU ETS, supporting its replacement with CORSIA. The BDI, Lufthansa and Airlines for Europe (A4E) opposed extending the EU ETS to cover all international (EU to/from non-EU flights), and A4E supported a hybrid EU ETS and CORSIA scheme to apply to intra-EU flights. Some legacy airlines, including Lufthansa, opposed a reduction in free allowances for the sector, pushed for exemptions for feeder flights from the EU ETS and did not support expanding the EU ETS scope to include international flights in 2020.

The majority of the automotive sector supported the extension of the EU ETS to the road transportation sector, the European Automobile Manufacturers Association (ACEA) and the German Automotive Association (VDA) supporting the move to incentivize the use of low- and zero-carbon fuels in 2020-21. However, progressive actors were unsupportive of the move, in November 2020 Tesla stating that it would cause “policy competition” between the EU ETS and the existing CO2 regulations for light- and heavy-duty vehicles, and advocating for a tightening of these policies instead.

Lobbying on the EU Commission’s proposal since July 2021

Actors across the European economy maintained support for a standalone ETS for the road transportation and building sectors, including the European Association of Automotive Suppliers (CLEPA), the BDI, Eurometaux and RWE. ACEA stated support for revenues from the EU ETS in the road freight transport sector to be invested in low- and zero-emissions vehicles and technologies. BusinessEurope supported an earlier extension to road transport.

Several entities adopted more positive stances on the ETS aviation reforms since July 2021, Ryanair, WizzAir and EasyJet stating support for the extension of the ETS to all international flights (EU to/from non-EU) and highlighting the need to regulate emissions from long-haul flights. WizzAir supported the inclusion of private jets in the ETS, and supported ending free allowances for the aviation sector.

However, cross-sector associations and the aviation sector continued oppositional lobbying, as Airlines for Europe (A4E) and Ryanair supported retaining free allowances for aviation after 2027, and A4E advocated against the EU Parliament Environment Committee’s proposal to phase out free allowances before 2025 in May 2022. The BDI, Lufthansa and Airline Coordination Platform (ACP) advocated for an exemption from the ETS for feeder flights, the ACP proposing to financially compensate companies affected. The European Regions Airline Association (ERA) supported suspending the ETS for aviation ahead of CORSIA coming into force. Before the EU Parliament Environment Committee vote on the EU ETS, the aviation industry, with particularly intense engagement from Airlines for Europe, advocated that free allowances for the aviation industry should be allocated based on sustainable aviation fuel (SAF) usage.

The maritime sector reaffirmed its opposition to the inclusion of international shipping in the EU ETS. ICS and ECSA advocated for a global approach instead of the EU ETS, but ECSA conditionally supported the EU ETS with the caveat that it should only expand to cover intra-EU voyages and exclude certain emissions during a phase-in period. The World Shipping Coucil (WSC) recommended that only intra-EU voyages should be included in the EU ETS and advocated for the consideration of the life cycle of emissions.

Some maritime sector actors took more mixed positions. For example, ECSA supported the implementation of the ‘polluter pays’ principle and the implementation of ETS costs on vessel operators, but was in favor of a 3 year phase-in period. Moller Maersk supported the EU Parliament proposal to include non-CO2 emissions in the EU ETS, such as methane and NOX, although it opposed the proposed abolishment of the phase in period and the slated start date of 2024 for ETS Maritime.

Impacts on Policy Ambition

By considering the potential scenarios in the EU Commission's original Impact Assessment Report for the EU ETS Extension, and comparing this to the final proposal, a gauge of the impact of industry lobbying can be taken. In this case, intense engagement from the aviation sector and heavy industry appears to have led to the adoption of weaker positions by the EU Commission, Council and Parliament. Oppositional lobbying from the maritime sector did not appear to impact the ambition of the proposal.

EU Commission Proposal

• The EU ETS aviation sector reform: The Commission proposed that the scheme would not be expanded to apply to international flights instead of CORSIA. The proposal saw the free allocation of emissions allowances for the sector phased out by 2027 and reduced the number of allowances auctioned as of 2023 by applying an increased Linear Reduction Factor (LRF) of 4.2% (instead of 2.2%).

• The extension to the maritime sector: The EU ETS proposal included the maritime sector from 2026 and applied to all intra-EU and 50% of inter-EU journeys. However, the operational carbon intensity standard which was tabled in the impact assessment to accompany the extension, did not materialize.

• ETS extension to buildings and road transportation sectors: A separate EU ETS, dubbed ETS2, was proposed for these sectors from 2026 applying to fuels used commercially and privately.

EU Parliament Proposal

The EU Parliament’s proposal for the EU ETS extension weakened several elements of the EU Commission’s proposal, but strengthened the extension to the maritime sector.

• The extension to the maritime sector: EU Parliament proposed to include intra-EU shipping without free allowances from 2024. This extends to international (extra-EU) shipping in 2027 with possible exemptions based on bilateral agreements or third country carbon pricing, a significant increase in ambition compared to the Commission proposal.

• The extension to road transport and heating: A separate EU ETS for commercial road transport and heating is proposed to be introduced from 2025, not applying to private transport and heating until 2029, alongside a price ceiling. This is a significant weakening of the EU Commission’s proposal.

• The EU ETS aviation sector reform: The Parliament proposed an enlarged scope to all flights departing from European Economic Area airports from a year after new rules are enforced, with a phase out of free allowances by 2025. However, free emissions permits would be allocated based on industry use of sustainable aviation fuels after 2025.

EU Council Proposal

The EU Council’s proposal slightly weakened the EU Commission’s proposal for the extension of the EU ETS.

• Extension to road transport and buildings: The EU Council maintained the scope of the extension to road transport and buildings, and implemented exemptions for Member States with national carbon tax systems until 2030 where prices are higher than average ETS2 prices. It also delayed the implementation of ETS2 until 2027.

• Extension to maritime: The proposal maintained the EU Commission’s proposed scope of 100% intra-EU and 50% international voyages, and did not grant the maritime sector any free allocation of emissions allowances. It staggered the phase in over four years after the new Directive enters into force, and increased the exemptions proposed by the EU Parliament to include islands.

• ETS for aviation: The EU Council’s proposal maintained the EU Commission’s phase out of free emissions allowances by 2027. The scope includes only intra-EU flights in line with the EU Commission’s proposal. However, the Council proposed compensating for the additional costs due to SAFs with 20 million phased out free allowances.

Policy Progress

EU policymakers adopted the file in April 2023 and it became law in May 2023.

• Shipping: the EU ETS includes the 100% of intra-EU shipping emissions and 50% of extra-EU shipping emissions from 2024, with non-CO2 emissions covered from 2026.
• Road transport and buildings: The new EU ETS for road transport and buildings will start in 2027, covering all fossil fuel combustion without a split between private and commercial emissions. It includes a price cap of 45 euros per ton of CO2 until 2030.
• Aviation: The bid to expand the scope of the EU ETS for aviation was unsuccessful, and the current intra-EU scope is maintained until 2027. However, if CORSIA isn’t strengthened by 2025, the Commission has the remit to propose to extend the scope. Free allowances will be phased-out by 2026 , but 20 million SAF-allowances would be allocated to cover the difference of sustainable aviation fuels.