Airlines should begin evaluating their route exposure and potential carbon costs
The European Commission has proposed a significant expansion of the EU Emissions Trading System for aviation. From 2029, the EU ETS would extend beyond its current geographical scope to cover certain flights departing from European Economic Area airports for destinations in nearby third countries.
The proposal was published on 17 July 2026 as part of a wider review of the EU carbon market. It is not yet law and will need to be negotiated and adopted by the European Parliament and the Council.
For airlines serving Europe, particularly those operating routes between the EEA and Türkiye, the Middle East, North Africa and other neighbouring regions, the proposal could create a substantial new compliance and financial exposure.
What is being proposed?
The Commission proposes extending EU ETS surrender obligations to flights departing from an EEA airport and landing at an airport in a third country located no more than 5,000 kilometres from Frankfurt, which is used as the geographical reference point.
The expanded scope would apply from 1 January 2029 and, under the current proposal, remain in place until at least the end of 2032, when the Commission would conduct a further review.
This means routes such as Frankfurt–Istanbul and Frankfurt–Dubai could enter the EU ETS, while more distant routes such as Frankfurt–Tokyo would remain outside the proposed extension.
Importantly, the proposal concerns departing flights from the EEA. Some early reporting described the measure as applying to flights arriving in Europe, but the Commission’s legislative text specifically refers to flights departing from EEA airports and landing in nearby third countries.
Flights to airports located beyond the 5,000-kilometre threshold would generally remain exempt from EU ETS surrender obligations under this part of the proposal. This is why many routes to destinations such as the United States, China and East Asia would remain outside the expanded geographical scope. These countries are not expressly named as blanket exemptions in the legislative text.
The proposal also contains exemptions for certain lower-volume routes and operators, including:
- Aircraft operators with total annual emissions below the applicable 10,000-tonne threshold; and
- Airports within the 5,000-kilometre area receiving less than 15,000 tonnes of annual emissions from flights departing the EEA.
The detailed application of these thresholds will need to be assessed once the final legislation and implementing rules are adopted.
Why is the Commission expanding the scope?
The EU ETS was originally designed to cover flights departing from and arriving in the EEA. Its international application was subsequently restricted through the “stop-the-clock” arrangement while ICAO developed the Carbon Offsetting and Reduction Scheme for International Aviation, or CORSIA.
The current EU ETS aviation scope is therefore largely limited to flights within the EEA, together with certain departing flights to the United Kingdom and Switzerland. The Commission was required to review whether CORSIA was delivering sufficient coverage and environmental ambition before deciding whether additional EU action was necessary.
In its latest assessment, the Commission concluded that the international aviation emissions covered through the relevant CORSIA arrangements remain below the threshold established in the EU ETS Directive. It has therefore proposed supplementing CORSIA by extending EU ETS carbon pricing to flights departing for the EU’s immediate neighbourhood.
The Commission also considers the change necessary to address competitive differences between European airlines and carriers using hubs immediately outside the EEA.
What would airlines be required to pay?
For each tonne of reportable CO₂ emitted on a covered flight, the aircraft operator would be required to surrender an EU allowance, after accounting for any adjustment permitted under the final rules for emissions costs already incurred through CORSIA.
The cost will therefore depend on:
- The number of newly covered flights;
- Fuel consumption and emissions for each route;
- The prevailing price of EU allowances;
- The treatment of CORSIA offsetting costs;
- Eligible sustainable aviation fuel claims; and
- Any route-level or operator-level exemptions.
The EU ETS allowance price is market-based, meaning the eventual cost cannot be predicted using a single fixed rate. Airlines should assess their exposure using a range of allowance-price scenarios rather than one forecast.
Free aviation allowances have also been fully phased out from 2026. Operators are therefore expected to procure allowances for their reportable emissions unless a specific support or deduction mechanism applies.
How will the proposal interact with CORSIA?
The proposal does not simply replace CORSIA.
The Commission intends to continue implementing CORSIA through EU law until 2035. However, where a flight is also brought into the EU ETS, the proposal provides for a reduction in the ETS surrender obligation to take account of eligible costs associated with cancelling CORSIA units.
The intention is to avoid charging an operator twice for the same emissions while maintaining a stronger carbon-price signal under the EU ETS. The exact calculation and evidence requirements will be important for airlines operating routes subject to both frameworks.
Operators may therefore need to manage, for the same international network:
- EU ETS monitoring and allowance surrender;
- CORSIA monitoring and offsetting;
- Evidence of eligible CORSIA costs;
- Separate scheme-level scope classifications;
- SAF claims under EU ETS and CORSIA; and
- Controls to prevent duplicate emissions reductions or fuel claims.
Existing CORSIA reporting processes should not be assumed to satisfy all EU ETS requirements automatically.
Which airlines are likely to be most affected?
The proposal could be particularly relevant to European and non-European airlines operating frequent services from EEA airports to destinations in:
- Türkiye;
- The Gulf and parts of the Middle East;
- North Africa;
- The Caucasus;
- Central Asia; and
- Other countries within the proposed geographical threshold.
The impact will vary considerably by operator.
An airline with a small number of seasonal flights may qualify for an exemption or have limited financial exposure. A carrier operating several daily departures from multiple EEA airports could face a considerably larger allowance requirement.
The first question is therefore not simply whether an airline serves Europe. It is:
Which routes are likely to enter the expanded EU ETS, how much CO₂ do those routes generate, and what could the corresponding allowance cost be?
Airlines should assess exposure before the rules are finalised
The proposed start date of 2029 may appear distant, but it leaves a limited period for airlines to incorporate a new carbon liability into budgets, network planning, pricing and compliance systems.
A practical assessment should include:
Route-level scope mapping
Airlines should identify departures from EEA airports to non-EEA destinations and classify them against the proposed distance, traffic and operator thresholds.
Historical emissions analysis
Recent fuel and flight data should be used to calculate the annual emissions associated with potentially covered routes.
Carbon-cost scenarios
The estimated emissions should be modelled against a range of EU allowance prices. This will provide a reasonable cost range rather than relying on a single market-price assumption.
CORSIA interaction
Operators should determine which routes may also carry CORSIA offsetting obligations and how the proposed cost deduction could affect their net EU ETS liability.
Data and monitoring readiness
Existing monitoring plans, fuel data sources, wet-lease arrangements and reporting controls should be reviewed to determine whether they can support the expanded scope.
Commercial planning
Potential allowance costs should be considered in route profitability, pricing, budgeting, fleet planning and contractual arrangements.
VURDHAAN’s view
The final scope may change during the legislative process. However, airlines do not need to wait for the legislation to be adopted before understanding the possible effect on their operations.
A preliminary exposure assessment can already identify:
- Routes likely to become subject to the EU ETS;
- Annual emissions associated with those routes;
- Potential allowance costs under different price scenarios;
- Possible exemptions;
- Interaction with CORSIA obligations; and
- Gaps in monitoring and reporting systems.
This will allow operators to quantify the risk, plan their budgets and respond to the legislation from an informed position.
VURDHAAN can support airlines in evaluating their proposed EU ETS exposure and estimating the potential carbon cost across their European network. Our assessment can cover route-level scope, historical emissions, allowance-price scenarios, CORSIA interaction and data-readiness requirements.
Airlines operating from EEA airports to nearby international destinations should begin evaluating their exposure now, while there is still time to incorporate the potential cost into commercial and compliance planning.
This article is based on the European Commission proposal published on 17 July 2026. The proposal remains subject to negotiation and adoption by the European Parliament and the Council, and its final scope, exemptions and implementation dates may change.