The European Commission adopted a Delegated Regulation on February 6 aimed at accelerating the use of sustainable aviation fuels (SAFs) and establishing and financing the relevant support systems for this purpose. The regulation was introduced to implement the economy-wide target set out in the European Climate Act to reduce net greenhouse gas (GHG) emissions by at least 55% by 2030 (compared to 1990 levels).
In addition to carbon pricing, the EU Emissions Trading System (ETS) has established an “Innovation Fund” aimed at supporting innovation in clean technology projects, such as in the aviation sector, to reduce their climate impact. Through this fund, the EU provides specific support to bridge the cost gap in the use of alternative fuels.
Under the revised 2023 EU ETS Directive, the EU provides a support mechanism for the use of eligible aviation fuels. In order to incentivize the early adoption of alternative fuels with high emission reduction potential, the EU has decided to set aside 20 million EU ETS quotas on January 1, 2024, which are expected to be worth approximately €1.6 billion. These quotas are used to cover the remaining price difference between fossil kerosene and eligible aviation fuels used by airlines on their flights. This ensures a level playing field and all airlines operating the relevant routes will be treated equally.
To facilitate the implementation of the support mechanism, the Commission has formulated annual calculation rules to clarify the method of accounting for the price difference between eligible aviation fuel and fossil kerosene. The calculation will take into account the price of carbon, the Harmonized Minimum Tax Incentive (HMTI) and the corresponding quota allocation rules.
The next steps are that airlines will be required to report their use of these fuels by March 31, 2025, and the Commission will issue a public notice of fuel price differences by May 31st. Ultimately, the Commission would have until August 31 to determine the quota allocations for each airline applying for the support mechanism.
The authorization bill is currently before the European Parliament and the Council of the European Union for consideration, and if neither raises objections within two months, the bill will be published in the Official Journal and enter into force.