Our guide provides a concise overview of the “Fit for 55” legislative package introduced by the European Commission in July 2021 as part of the European Green Deal.
This legislation has wide-reaching implications for various sectors, including aviation, and encompasses key regulations such as the EU Greenhouse Gas Emissions Trading System (EU ETS), the Carbon Border Adjustment Mechanism (CBAM), the ReFuel EU initiative, and the Energy Taxation Directive.
“Fit for 55” affects numerous aviation stakeholders, with the potential for increased use of sustainable aviation fuels, innovation, and alignment with global climate goals.
Our Fit for 55 guide covers:
- What is Fit for 55?
- Fit for 55 and the Aviation sector
- Who does Fit for 55 apply to?
- Benefits from Fit for 55 on the Aviation sector
- Non-compliance and Fit for 55
- How to prepare for Fit for 55?
- Fit for 55 Timeline
What is Fit for 55?
Fit for 55 is a legislative package proposed by the European Commission in July 2021 as part of the European Green Deal.
The package aims to reduce the European Union’s greenhouse gas emissions by at least 55% by 2030 and achieve climate neutrality by 2050.
The proposals cover all sectors of the EU’s economy and will affect various sectors along the entire value chain, covering a wide range of goods and services – domestic and imported – sold in the EU.
Fit for 55 and the aviation sector
Within the Fit for 55, there are several measures targeting the aviation sector.
Fit for 55 package comprises a comprehensive set of policies, including measures specific to the aviation sector, which, when combined with market mechanisms, targets, regulations, and support measures, work together to significantly reduce greenhouse gas emissions in the aviation industry.
Proposals under Fit for 55 related to aviation include:
- Revision of the EU Greenhouse Gas Emissions Trading System (EU ETS)
- Carbon Border Adjustment Mechanism (CBAM)
- ReFuel EU initiative
- Revision of the Energy Taxation Directive (ETD)
Revision of the EU Greenhouse Gas Emissions Trading System (EU ETS)
The EU Greenhouse Gas Emissions Trading System (EU ETS) is set for a significant overhaul under the “Fit for 55” package, with the following key changes:
- Phase-out Free Allowances: The revised EU ETS plan outlines a phased reduction in the allocation of free allowances to aircraft operators, spanning from 2024 to 2026. The reduction rates will be 25%, 50%, and 75%, culminating in a complete cessation of free allowances from 2027 onward.
- Stringent Emission Cap Reduction: To align with the more demanding 2030 emission reduction targets, the European Commission is proposing an annual decrease of 4.2% in the emissions cap, a substantial increase from the existing 2.2%. Furthermore, Member States are being encouraged to allocate the proceeds from auctioning towards more robust climate change mitigation efforts.
- Expanded Scope: The EU ETS will retain its application to intra-European Economic Area (EEA) flights, as well as flights to the United Kingdom and Switzerland, with these flights exempt from the offsetting requirements of the CORSIA agreement. However, for other international flights, European Union airlines will be mandated to adhere to CORSIA regulations.
Carbon Border Adjustment Mechanism (CBAM)
CBAM is a tax on high-carbon imports that prevent carbon leakage and ensure a level playing field for EU industries.
CBAM imposes a levy on imports of carbon-intensive products, including certain precursors to aviation fuels, from countries with lower climate ambition than the EU. The CBAM will be phased in from 2026 and will apply to aviation fuels.
ReFuel EU initiative
The ReFuelEU is a mandate to accelerate the uptake of sustainable aviation fuels (SAF) and reduce CO2 emissions from aviation. That will impact airlines, airports, and fuel suppliers with financial consequences for non-compliance
Revision of the Energy Taxation Directive
The revision of the Energy Taxation Directive introduces tax on fuel for business and leisure flights. The Energy Taxation Directive sets guidelines for the taxation of energy products and electricity within the EU. The taxation intends to promote energy efficiency and the use of renewable energy sources.
- Taxation of Aviation Fuels: The revised directive ushers in a new tax system applicable to all commercial air transport flights, except for business and leisure flights. This system incorporates an annual tax increment. The taxation approach involves categorizing fuels and electricity based on their energy content and environmental performance. Member states are then encouraged to tax these energy sources accordingly, thereby ensuring that the most environmentally harmful products carry the heaviest tax burden.
- Broadened Tax Base: The directive’s expansion of the tax base is poised to encompass previously exempted fuels like kerosene (commonly used in the aviation industry) and heavy oil used in the maritime sector for intra-EU journeys. Over a ten-year period, minimum tax rates for kerosene and heavy oil are set to rise gradually, allowing the respective industries time to adapt.
- Impact on Low-Cost Air Travel: The increased taxation resulting from the Energy Taxation Directive may significantly impact the landscape of low-cost air travel in Europe, potentially marking the end of its current form and potentially reversing the democratization of air travel that has occurred over the past decades.
Who does the Fit for 55 apply to?
The Fit for 55 package applies to the European Union and its Member States. It is a comprehensive legislative program with rules on climate, energy, and transport, designed to enable EU Member States to reduce emissions.
For the aviation sector the Fit for 55 package includes key regulation around EU ETS, the ReFuel EU regulation, CBAM, and the Energy Taxation directive.
This means that Fit for 55 applies a to various aviation stakeholders:
- Aircraft operators: The revision of the EU Emissions Trading System foresees a progressive phase-out of the free allowances distributed to aircraft operators from 2024 to 2026 and a complete phase-out from 2027 onwards. The revision of the Energy Taxation Directive introduces tax on fuel for business and leisure flights.
- Airports: The ReFuel EU sets mandatory deployment targets for electric recharging and hydrogen refueling infrastructure in airports.
- Fuel suppliers: Fuel Suppliers under Fit for 55 will be mandated to increase the proportion of SAF in aviation fuel as part of ReFuel EU. Fuel supplier will also be impacted by Carbon Border Adjustment Mechanism (CBAM) will impose a levy on imports of carbon-intensive products, including certain precursors to aviation fuels, from countries with lower climate ambition than the EU.
- Airlines: The ReFuelEU Aviation proposal mandates a gradual increase in the share of sustainable aviation fuels in the EU, starting with a 2% blending obligation in 2025 and increasing to 5% in 2030, 32% in 2040, and 63% in 2050. The proposal also includes a review clause to assess the feasibility of the targets and adjust them if necessary. The EU ETS would continue to apply to intra-EEA flights as well as flights to the UK and Switzerland, exempting those flights from CORSIA offsetting requirements. For other international flights, EU airlines would be obliged to apply CORSIA.
Benefits from Fit for 55 on the Aviation Sector
The “Fit for 55” package proposed by the European Union includes several measures that can benefit the aviation industry in terms of sustainability and competitiveness.
Here are some potential benefits of the “Fit for 55” package for the aviation industry:
- Boost in the uptake of SAF through the ReFuel mandate. SAF has a significant potential to reduce lifecycle CO2 emissions by up to 80% compared to conventional jet fuel.
- Opportunity for innovation as it will drive investment in research and development of new technologies, such as electric and hydrogen-powered aircraft, which can lead to long-term sustainability and competitiveness for the industry.
- Alignment with global climate goals
- Improved public perception and customer demand
However, some stakeholders in the aviation industry have expressed concerns that the “Fit for 55” package could raise economic barriers and make flying significantly less affordable, potentially damaging the competitiveness of the EU’s own airlines.
Overall, the “Fit for 55” package presents both opportunities and challenges for the aviation industry, and its implementation will require careful consideration of its potential impacts on the industry and the environment.
Non-compliance and Fit for 55
The “Fit for 55” package proposed by the European Union includes several measures that aim to reduce greenhouse gas emissions and promote sustainability in the aviation sector. Non-compliance with these measures could result in several consequences for the aviation sector, including:
- Penalties and fines
- Loss of competitiveness
- Legal Action
Penalties and Fines
Non-compliance with the EU Emissions Trading System (EU ETS) and the Energy Taxation Directive could result in penalties and fines for airlines. The EU ETS imposes a cap on emissions from aviation and requires airlines to surrender allowances for their emissions. Failure to comply with the EU ETS could result in fines of up to €100 per tonne of CO2 emitted.
The Energy Taxation Directive sets guidelines for the taxation of energy products and electricity within the EU, including aviation and maritime fuels. Failure to comply with the Energy Taxation Directive could result in penalties and fines for airlines
Loss of competitiveness
Non-compliance with the “Fit for 55” package could result in a loss of competitiveness for airlines. The package includes proposals such as a mandate for the use of sustainable aviation fuels (SAF), a reform of the EU ETS, and a proposed fuel tax, which could increase the cost of air travel. Failure to comply with these proposals could result in a loss of competitiveness for airlines, particularly low-cost carriers.
Non-compliance with the “Fit for 55” package could result in legal action against airlines. The package includes several legislative reforms, such as the EU ETS reform and the new EU Carbon Border Adjustment Mechanism (CBAM), which could be subject to legal challenges.
Overall, non-compliance with the “Fit for 55” package could result in several consequences for the aviation sector, including penalties and fines, loss of competitiveness, and legal action. To avoid these consequences, airlines will need to comply with the package’s proposals, including the use of SAF, the reform of the EU ETS, and the Energy Taxation Directive.
How to prepare for Fit for 55?
Preparing for Fit for 55 in the aviation sector involves several key steps, including:
- Invest in Sustainable Aviation Fuels: Airlines, airports, and fuel suppliers should allocate resources to advance the research and development of sustainable aviation fuels. This investment will not only enhance the availability but also improve the cost-effectiveness of these eco-friendly fuels, contributing to emissions reduction.
- Compliance with Regulations: To ensure compliance with the new regulations, the aviation sector should be well-versed in the requirements of the EU ETS, Energy Taxation Directive, and Carbon Border Adjustment Mechanism (CBAM). This knowledge will be critical in navigating the changing regulatory landscape.
- Embrace Technological Innovation: Exploring and adopting new technologies is crucial. The aviation industry should invest in innovative solutions that have the potential to decrease emissions, enhance efficiency, and reduce environmental impact. This might include the development of electric or hydrogen-powered aircraft, among other advancements.
- Stakeholder Collaboration: The aviation sector should engage in collaborative efforts with governments, regulatory bodies, and other stakeholders. This collaboration can facilitate a smooth transition to the updated regulatory framework, enabling the industry to address and overcome any challenges that may arise.
- Enhance Operational Efficiency: Airlines can further their commitment to operational efficiency. By optimizing flight routes, reducing aircraft weight, and implementing more efficient ground handling processes, they can minimize their environmental footprint while maintaining economic viability.
These proactive measures will help the aviation sector prepare for and navigate the changes brought about by Fit for 55, contributing to the industry’s sustainability and compliance with evolving environmental standards.
Fit for 55 Timeline
Key milestones for Fit for 55 in the Aviation sector include:
- December 2019: The European Commission adopted a Communication on The European Green Deal, which highlights the need to reduce transport emissions by 90% by 2050.
- July 2021: The European Union (EU) released the “Fit for 55” package, a set of proposals to update EU law to meet the EU’s aims of reducing net greenhouse gas emissions by at least 55% by 2030.
- April 2023: The European Parliament approved key legislative elements of the “Fit for 55” legislative package, including the European Union Emission Trading System (EU ETS) reform and the new EU Carbon Border Adjustment Mechanism (CBAM)
- September 13, 2023: The Parliament approved the ReFuel agreement.
- October 2023: A transitional period for CBAM begins, extending through 2025, during which time quarterly emissions reporting will be required
The Fit for 55 package includes several key legislative elements, such as the EU ETS reform, CBAM, ReFuel, and the Energy Taxation Directive, which will be implemented over the next few years.
In summary, the “Fit for 55” package, introduced as part of the European Green Deal, impacts the aviation sector with both opportunities and challenges. It promotes sustainable aviation fuels and innovation while requiring compliance with new regulations. Non-compliance can lead to penalties and legal action. The aviation sector’s adaptation to these changes is crucial for reducing greenhouse gas emissions and advancing sustainability.