The International Air Transport Association (IATA) has called on the European Union to review its Emissions Trading System (ETS) to support air connectivity, economic resilience, and the competitiveness of the aviation sector as decarbonization accelerates. The request reflects mounting industry concern that current policies are increasing costs without aligning with market realities or global frameworks.

The association outlined four priorities: full implementation of the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA), the introduction of a sustainable aviation fuel (SAF) book-and-claim system, the reinvestment of ETS revenues into decarbonization, and closer alignment between climate policy and industry competitiveness. The call comes amid broader skepticism among EU policymakers regarding regulatory complexity, cost burdens, and underinvestment, as highlighted in the Draghi Report.

“European aviation policy must bolster competitiveness as it advances decarbonization,” said Willie Walsh, IATA’s director general. “Reviewing the EU ETS offers a critical opportunity to refocus efforts on cost-effective emission reductions.” He added that overlapping measures risk undermining both environmental goals and the sector’s financial stability.

Push for Global Alignment and Market Mechanisms

IATA said the EU should ensure full implementation of CORSIA for all international flights, including those within the European Economic Area. The group warned that layering regional measures on top of a global framework creates “redundant costs and administrative complexity without delivering additional environmental gain,” while also weakening internationally agreed mechanisms.

“A full, harmonized implementation that is free from unique EU-specific eligibility criteria is essential,” IATA said. According to the association, alignment with global standards would provide predictability for airlines and ensure consistent, verifiable emissions reductions across jurisdictions.

The organization also called for the introduction of a book-and-claim system for sustainable aviation fuel under the EU ETS. This mechanism would allow airlines to claim emissions reductions based on SAF purchases rather than physical fuel uplift.

“This flexibility is critical for compliance under the EU ETS, demonstrating voluntary uptake, and ensuring accurate reporting,” IATA said. It added that expanding the EU’s Union Database to track both physical fuel supply and environmental attributes would improve transparency and reduce the risk of double counting.

Cost Pressures Intensify Amid SAF Constraints

IATA emphasized that revenues generated under the EU ETS should be redirected toward aviation decarbonization. Following the phaseout of free allowances in 2024, airlines face rising compliance costs while existing support mechanisms remain limited in scope and scale.

The SAF Allowance scheme is expected to cover only 4% to 5% of industry requirements between 2026 and 2030. At the same time, investment needs remain substantial, with estimates ranging from €57 billion (US$62 billion) to €67 billion (US$73 billion) by 2035, and up to €376 billion (US$410 billion) by 2050.

Airlines are projected to surrender nearly 330 million allowances between 2026 and 2030, generating significant revenues for EU member states. IATA said a greater share of these funds should be reinvested into scaling SAF production, supporting emerging technologies, and improving cost competitiveness across the sector.

“Future funding should prioritize emerging technologies, cost parity, and industrial resilience,” the association said. It added that reinstating free allowances could help prevent capital from being diverted away from decarbonization investments amid increasing financial pressure.

Parallel to these concerns, European airlines are preparing to challenge the EU’s SAF mandate, as rising fuel costs linked to geopolitical tensions strain operating economics. Airlines for Europe, whose members include major network and low-cost carriers, is expected to call for a delay and is assessing whether to seek broader policy changes.

Under current rules, airlines must use 2% SAF at EU airports in 2025, rising to 6% by 2030, including a 1.2% requirement for synthetic fuel. Industry representatives argue that production capacity—particularly for eSAF—remains insufficient to meet these targets within the proposed timeline.

According to industry estimates, eSAF supply could reach only about 0.7% of demand by 2030, creating a gap between regulatory requirements and available volumes. Executives warn that this mismatch could result in significant compliance costs and potential penalties, which may ultimately be passed along the value chain.

The pressure is compounded by a sharp increase in conventional jet fuel prices. Prices have risen from approximately US$85–90 per barrel before the Iran conflict to between US$150 and US$200, prompting airlines to adjust fares, introduce surcharges, and revise capacity plans.

Industry Calls for Policy Recalibration

Concerns about cost escalation are not new. In October 2025, IATA warned that fuel suppliers were using SAF mandates to impose compliance surcharges on airlines, effectively increasing prices beyond market levels. The policy structure requires suppliers to provide blended fuel while obligating airlines to purchase it, limiting flexibility for carriers.

Walsh said suppliers were able to “extract additional profit from airlines by charging these compliance surcharges,” and argued that regulators had “facilitated price gouging by fuel suppliers in the name of the environment.” He called for policy adjustments to address these distortions.

SAF remains significantly more expensive than conventional jet fuel, typically costing three to five times more on average. While industry group FuelsEurope has pointed to declining average SAF prices based on third-party data, energy companies have indicated that limited demand and uncertain returns have constrained investment in production capacity.

Several producers have scaled back refinery projects, citing insufficient market signals to justify large-scale expansion. This dynamic has contributed to a slower-than-expected supply ramp-up, reinforcing airline concerns about the feasibility of current mandates.

Walsh linked these challenges to broader cost pressures across the aviation sector, including supply chain constraints expected to generate billions in additional expenses. He said policy frameworks must better reflect operational realities to avoid undermining both competitiveness and decarbonization goals.

“The priority must be the full implementation of CORSIA, the reinvestment of EU ETS revenues into SAF and other credible decarbonization solutions, and the elimination of overlapping measures that add cost and complexity without environmental gain,” Walsh said.

He added that the EU ETS review must deliver “a harmonized climate policy framework that balances the sector’s competitiveness with its climate ambitions,” warning that misalignment could weaken connectivity and limit the industry’s ability to invest in long-term emissions reduction.