The option ‘Yes’ under ‘limit aviation access to EUAs’ models the impact of restricting the aviation sector’s access  to EU emissions Allowances (EUAs), by resuming the issuance of EU Aviation Allowances (EUAAs) for aviation and allowing airlines to meet their compliance using EUAAs plus a limited percentage of EUAs. Such a limitation would make EUAAs more valuable and allow Member States to raise more funds, for example to develop rail transport infrastructure. We created a design option where this extra demand from airlines for stationary allowances linearly reduces to zero in 2040.

Sandbag believes that the aviation sector’s access to stationary allowances should be restricted. An important feature of the EU ETS is its imbalance between the aviation sector (which has consistently emitted more than its cap) and the stationary sectors (which have emitted less than their cap) while sharing the same emission allowances. This situation procures aviation with a relatively cheap compliance instrument, as buying surplus stationary allowances is much cheaper than curbing aviation emissions. In contrast, for the other sectors, this creates more demand and pushes up prices. The sector’s current unlimited access acts like an abatement deterrent, making decarbonisation the least economical option. By purchasing emission allowances from stationary installations, airlines effectively shift the decarbonisation burden onto other industry sectors. 

No, because any extension would increase both the emissions coverage and the cap. The overall impact on the market balance remains uncertain, and any calculation at this stage would rely too heavily on assumptions to be meaningful.

The emissions scenarios are derived from the European Commission’s impact assessment (IA) published in February 2024. The forecasts used for the EU ETS scope are the IA’s figures for “industry”, “energy supply”, “intra-EU aviation”, “intra-EU navigation” and “50% extra-EU maritime MRV”.

• S1: 75% reduction in EU-wide emissions by 2040 (ETS sectors: -83%) 
• S2: 85% reduction in EU-wide emissions by 2040 (ETS sectors: -89%) 
• S3: 95% reduction in EU-wide emissions by 2040 (ETS sectors: -93%)

This covers organic chemicals, polymers, and refinery products.

Currently, the allowances that are not allocated for free because of the CBAM are auctioned to finance the Innovation Fund. With this option, they would instead be allocated to non-CBAM sectors first, to keep the CSCF at 1 if possible. In addition, the remaining ones would be auctioned off, to finance the Innovation Fund.

With the low benchmark option, all benchmarks decrease at the maximum rate possible of 2.5% per year.

With the high benchmarks option, benchmarks decline at their historical rate, except for a few (hot metal, grey clinker, …) which were extended and will include low-emission plants in future updates.

Historical emissions, free allocation, and auction data come from the EU Transaction Log and auctioning platforms.

Short-term production outlooks come from established sector associations (Eurocontrol, Eurofer, Cement Europe etc.).

Long-term projections are derived from the scenarios in the Commission’s 2024 Impact Assessment for EU Climate Law.

Emissions data have been updated to the latest available data; and new parameters have been implemented to reflect policy options currently under discussion, as well as Sandbag’s proposed design changes.