European Airlines Demand EU Action on ETS and SAF Costs

Leading European airline group Airlines for Europe (A4E) has issued an urgent call for the European Union to overhaul its environmental regulations, warning that escalating carbon pricing and aggressive Sustainable Aviation Fuel mandates are undermining the competitiveness of the region's carriers. The trade body, which represents major airlines including Lufthansa, Air France-KLM, and Ryanair, argues that the cumulative financial burden from policies like the EU Emissions Trading System (EU ETS) and ReFuelEU Aviation is creating a significant economic disadvantage against international rivals.

At the heart of the issue is a dual financial pressure. Firstly, the full phase-out of free carbon allowances under the EU ETS by 2026 will expose airlines to volatile market prices for their emissions. Secondly, the ReFuelEU mandate requires a progressively increasing use of expensive Sustainable Aviation Fuel (SAF), including a sub-mandate for synthetic fuels that are in critically short supply. A4E argues this combination risks pricing European hubs out of the long-haul market, a phenomenon known as "carbon leakage," where traffic shifts to non-EU airports to avoid the added costs.

The Rising Cost Burden

According to an A4E and Steer study, total regulatory costs for its member airlines are projected to surge from €15.5 billion in 2024 to €27.6 billion annually by 2030. A significant portion of this increase comes from the EU ETS. The European Commission's revised directive for aviation mandates that airlines must purchase 100% of their emissions allowances for intra-European Economic Area flights by 2026. A4E estimates that compliance costs from the EU ETS alone will reach approximately €5 billion by 2030, double the cost incurred in 2024.

This direct cost is already impacting consumers. A4E highlighted that a family of four flying from Belgium to Greece now pays an additional €80 in ETS costs compared to a similar flight to Turkey, which is outside the system's scope. Ourania Georgoutsakou, Managing Director of A4E, stated that to protect competitiveness, the EU must "bring down ETS costs in line with the international CORSIA mechanism," arguing that European passengers and airlines should not be uniquely penalized.

The SAF Mandate Challenge

The ReFuelEU Aviation regulation compounds the financial pressure by mandating that airlines uplift a minimum blend of SAF at EU airports. This requirement starts at 2% in 2025 and rises to 6% by 2030. While SAF can reduce lifecycle carbon emissions by up to 80%, its cost remains a major barrier, currently priced at two to four times more than conventional jet fuel.

A more acute problem lies with the sub-mandate for synthetic Sustainable Aviation Fuel (eSAF), also known as power-to-liquid fuels. ReFuelEU requires a 1.2% eSAF blend by 2030, but production is lagging far behind. A4E summit statements revealed that current projects are estimated to meet only 0.71% of the required volume by the deadline. With eSAF costing up to 13 times more than conventional fuel, this supply-demand imbalance threatens to create a compliance crisis and further inflate operational costs for airlines.

Competitive Risks and Carbon Leakage

The cumulative effect of these EU-specific costs is a growing risk of carbon leakage. A study by Deloitte estimates a 15% widening cost gap on EU-Asia routes by 2030. This financial disparity incentivizes long-haul passengers to connect through non-EU hubs like Istanbul (IST) and Dubai (DXB) to avoid surcharges related to the EU ETS and SAF. This shift not only harms the economic viability of European network carriers and their hub airports but also fails to reduce global emissions, as the flights are simply rerouted.

Willie Walsh, Director General of the International Air Transport Association (IATA), echoed these concerns, warning that a sudden spike in compliance costs threatens European connectivity. He argued that the EU ETS must be reviewed to balance climate ambition with economic affordability, preventing a situation where European aviation is competitively disadvantaged on the global stage.

A Call for Regulatory Alignment

A4E's central proposal is to better align the EU ETS with the global Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA), developed by the International Civil Aviation Organization (ICAO). The industry argues that a single global mechanism for carbon pricing is preferable to a patchwork of regional policies that create market distortions. This call for harmonization has historical precedent. In 2012, the EU's initial attempt to apply the ETS to all flights entering or leaving its airspace faced intense international opposition, forcing it to 'stop the clock' and limit the system's scope to intra-EEA flights only. The current debate reflects a continuation of this tension between regional climate ambition and global aviation economics.

What Comes Next

The industry is facing two confirmed regulatory milestones. In 2026, the phase-out of free EU ETS allowances will be complete, fully exposing airlines to carbon market prices. Looking further ahead, the 6% SAF blending mandate, including the challenging 1.2% eSAF sub-mandate, is set to take effect in 2030 under the ReFuelEU regulation.

Why This Matters

This conflict between European regulators and airlines represents a critical test for global aviation decarbonization. The EU's policies are designed to accelerate the transition to cleaner fuels and price carbon emissions accurately, but they also risk undermining the region's own aviation industry if not balanced with global competitive realities. The outcome will set a precedent for how governments worldwide manage the immense cost and complexity of weaning aviation off fossil fuels.

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