IATA Urges EU ETS Rethink as 2026 Aviation Rules Tighten

With Europe’s Emissions Trading System entering a new, tougher phase for aviation in 2026, the International Air Transport Association is stepping up calls for a review of the rules, arguing that the current design risks undermining both airline competitiveness and the sector’s own net zero targets.

Aviation Braces for Full EU ETS Exposure From 2026

The European Union’s Emissions Trading System is moving into a decisive stage for airlines. Under reforms adopted as part of the Fit for 55 climate package, free allowances for aviation are being phased out and are due to end by 2026, leaving carriers fully exposed to carbon costs on covered routes. Legal and policy analyses indicate that, from that year, aviation allowances will be allocated entirely by auction, while the overall cap tightens faster than before.

Publicly available information from the European Commission and recent legal briefings show that the aviation cap is being reduced more steeply through a higher linear reduction factor, meaning fewer allowances in circulation over time. At the same time, a dedicated reserve of allowances is being used to promote the uptake of sustainable aviation fuel, increasing competition for a shrinking pool of permits.

For airlines operating within Europe, these changes coincide with a broader expansion of carbon pricing across sectors, from power and industry to maritime transport. Analysts note that this pushes up the reference carbon price facing all participants, with aviation increasingly competing with other sectors to secure allowances in a tighter market.

IATA has repeatedly argued that, without careful calibration, the combined effect of a faster‑tightening cap and full auctioning could place European carriers at a structural cost disadvantage compared with competitors in regions where climate policies for aviation remain less stringent or are implemented differently.

Overlaps with CORSIA Raise Fears of Double Regulation

A core concern in IATA’s recent statements is the interaction between the EU ETS and the UN‑backed Carbon Offsetting and Reduction Scheme for International Aviation, known as CORSIA. While the EU framework currently applies ETS obligations primarily to flights within the European Economic Area and certain connected routes, CORSIA is intended to govern emissions from most international flights through a single global market‑based measure.

Earlier IATA commentary warned that recent EU ETS reforms could “destabilize” the international consensus on aviation climate policy by signalling a possible extension of the EU system to extra‑EEA flights after a review of CORSIA’s performance. According to published coverage of the Fit for 55 deal, the European Commission must assess CORSIA by mid‑2026 and, depending on the outcome, may propose to broaden the ETS to flights departing from EEA airports to third countries.

Industry groups argue that such an expansion would increase the risk of double regulation, with some routes falling simultaneously under CORSIA’s offsetting rules and the EU’s cap‑and‑trade system. Airlines for Europe and other associations have previously warned that overlapping schemes could raise legal and administrative complexity and lead to higher compliance costs without a commensurate gain in global emissions reductions.

IATA maintains that CORSIA, applied consistently at global level, can deliver larger overall climate benefits for international aviation, while regional schemes such as the EU ETS should avoid undermining that framework. The association is therefore using the upcoming 2026 review milestone to press for clearer boundaries between EU and global measures.

Competitiveness Pressures on European Hubs and Carriers

Beyond regulatory overlap, IATA and European airline groups are increasingly focused on how the revised EU ETS affects the competitive position of EU carriers and hubs. Analyses published by IATA argue that cumulative climate‑related costs in Europe, including ETS compliance and parallel measures such as sustainable fuel mandates, risk diverting long‑haul traffic to non‑EU hubs where carbon constraints are looser.

Industry commentary highlights so‑called carbon leakage risks in aviation: passengers on intercontinental itineraries can often choose to connect via non‑EEA airports. If carbon costs on EU‑linked segments rise significantly, price‑sensitive demand may shift to itineraries routed through hubs in regions with lower or less comprehensive carbon pricing. This can erode traffic volumes at European hubs without delivering proportional global emissions cuts.

Recent IATA opinion pieces on European competitiveness have also drawn attention to how ETS auction revenues are used. Studies quoted in that debate point out that current rules allow member states broad discretion over the spending of carbon proceeds, with only a portion earmarked explicitly for climate and transport decarbonisation projects. IATA has urged that a larger share of aviation‑related ETS revenues be reinvested in measures that directly support the sector’s transition, such as sustainable fuel production, new aircraft technologies and air traffic management upgrades.

Travel industry observers note that, for passengers, higher carbon costs are likely to appear gradually in ticket prices, particularly on intra‑European routes. The scale of any fare impact will depend on future carbon prices and how airlines manage their exposure through fuel efficiency improvements, fleet renewal and route optimisation.

Aligning EU ETS with Net Zero and SAF Scale‑Up

The aviation industry has adopted a collective goal of net zero carbon emissions by 2050, and IATA consistently frames its critique of the EU ETS within that long‑term pledge. In a 2025 statement on European climate legislation, the association described a new EU framework, the Sustainable Transport Investment Platform, as a “significant step” but argued that stronger policy alignment is still required to match the scale of the decarbonisation challenge.

A particular focus is sustainable aviation fuel, which IATA and other groups identify as the single largest contributor to decarbonising air transport through 2050. EU policies such as the ReFuelEU Aviation regulation introduce binding SAF blending mandates through mid‑century, but IATA warns that current designs risk driving up costs without delivering enough supply, especially when combined with ETS obligations that reward SAF use through lower effective emissions.

Technical briefings cited by IATA emphasise a misalignment between the flexibility mechanisms under ReFuelEU and the way SAF usage can be credited under the EU ETS. The association is urging policymakers to fix this during the upcoming ETS review, for example by allowing EU‑wide purchase‑based claiming of SAF so that airlines can source low‑carbon fuels where they are available and most cost‑effective, while still receiving appropriate carbon accounting benefits.

According to climate policy reports, the European Commission has already convened expert groups to help implement aviation‑related ETS amendments and ensure coherence with global measures. IATA and other stakeholders see the 2026 review window as a critical opportunity to harmonise SAF incentives, remove technical barriers and ensure that carbon pricing effectively channels investment into the fuels and technologies needed for net zero, rather than primarily functioning as a fiscal instrument.

What IATA Wants from the 2026 EU ETS Review

As the 2026 deadline approaches, policy papers and public statements from IATA outline a set of priorities for the EU ETS review. First, the association is calling for clearer guardrails on the geographic scope of the system to avoid duplication with CORSIA on international routes, while preserving the EU’s ability to pursue higher climate ambition on intra‑EEA flights.

Second, IATA wants reforms to ensure that the overall cost burden on European airlines remains competitive with that faced by non‑EU carriers. Proposals discussed in industry forums include assessing the cumulative impact of ETS, SAF mandates and other climate regulations on ticket prices and network decisions, and considering targeted adjustments or transitional measures where there is evidence of traffic diversion to non‑EU hubs.

Third, the association is pressing for a more explicit link between aviation‑related ETS revenues and decarbonisation spending. Drawing on recommendations from a high‑profile competitiveness report for the EU, IATA has argued that dedicating a larger share of revenues to fund alternative fuel production, airport infrastructure for new energy carriers and research into low‑ and zero‑emission aircraft would strengthen both climate outcomes and Europe’s industrial base.

Policy analysts suggest that the forthcoming review will need to balance these industry concerns with the EU’s broader objective of maintaining a strong, predictable carbon price signal across the economy. For travel stakeholders, the outcome will shape not only the cost structure of European air transport in the second half of the decade, but also the attractiveness of EU hubs as gateways for global tourism and business travel in an era of tightening climate constraints.