The goal of the EU Emissions Trading System (EU ETS) for aviation is to reduce carbon dioxide emissions cost-effectively. It gives airlines an opportunity to trade emission allowances and decide how they reduce their emissions. The Finnish Transport and Communications Agency Traficom is responsible for implementing aviation emissions trading in Finland
Emissions trading in aviation started on 1 January 2012. It applies to all flights departing from and arriving at airports in the European Economic Area, unless they have been excluded from the scope of emissions trading on special grounds. In 2013–2026, however, emissions trading will only apply to flights between airports in the European Economic Area.
During the first emissions trading period that started in 2012, the total number of aviation emission allowances was 97% of the average of emissions in 2004–2006. The total number of allowances was reduced during the second emissions trading period that started in 2013 to 95% of the average of emissions in 2004–2006 for each emissions trading year. In emissions trading, one emission allowance is equivalent to one tonne of carbon dioxide. During the third emissions trading period for aviation that started in 2021, the total number of emission allowances was initially reduced annually with a linear reduction factor of 2.2%. From 2024, the linear reduction factor tightened to 4.3 percent and in 2028 it will tighten to 4.4 percent.
Emission allowances are auctioned and allocated for free
In the beginning of aviation emissions trading, during the years 2012-2023, 82% of the total number of aviation emission allowances was granted for free to aircraft operators with the help of a comparison conducted on the EU level, based on the verified tonne-kilometres reported by the aircraft operators. Three per cent of emission allowances were allocated for free out of a special reserve for new aircraft operators and aircraft operators with fast-growing traffic. The remaining 15% of the aviation emission allowances were auctioned.
There will be a gradual phase-out of aviation emission allowances allocated for free during the years 2024-2026. In 2024, 25 percent of the aviation emission allowances that would have been before distributed free of charge will be auctioned, and in 2025 the portion to be auctioned will be 50 percent. In 2026, general free allocation of emission allowances will no longer exist in aviation. Emission allowances distributed free of charge will be allocated to aircraft operators in 2024–2025 in proportion to the verified emissions of their aviation operations under the emissions trading system in 2023.
However, during the years 2024–2030, aircraft operators have the opportunity to receive a limited number of emission allowances free of charge (a total of 20 million allowances) if the aircraft operator uses sustainable aviation fuels (SAF). The purpose of the mechanism is to increase the use of sustainable aviation fuels and promote the reduction of emissions by covering at least half of the price difference between fossil and sustainable aviation fuel.
Aircraft operators whose emissions are higher than the number of free emission allowances granted to them can purchase emission allowances through auctions and from other aircraft operators or institutions within the scope of emissions trading. By purchasing emission allowances, the aircraft operator ensures that it can surrender enough emission allowances to cover its emissions. If the emissions of the aircraft operator are lower than the amount covered by its emission allowances, it can sell its extra allowances to other parties.
Obligations of aircraft operators
Aircraft operators must monitor their emissions and surrender a number of emission allowances that corresponds to their emissions during the previous calendar year annually by the end of September. More details on the obligations of aircraft operators can be found on the page on monitoring, reporting and verifying emissions (External link). These obligations also apply to aircraft operators within the scope of the international aviation emissions reduction system CORSIA (External link).
The role of the Energy Authority
The Finnish Energy Authority (External link) implements the official measures related to organising the auctions of emission allowances and entering the revenue from the auctions into the state budget. In addition, the Energy Authority is responsible for recording the free emission allowances in aviation annually on the aircraft operator’s emission allowance account, cancelling the surrendered aviation emission allowances as well as emissions reduction units and certified emissions reductions, and transferring the units to the state’s depreciation account.