The overall volume of greenhouse gases that can be emitted by power plants, factories and other fixed installations covered by the EU emissions trading system (EU ETS) is limited by a 'cap' on the number of emission allowances. The EU ETS cap for the aviation sector has been separately calculated. Within the overall EU-wide cap, companies receive or buy emission allowances, which they can trade as needed.
Each allowance gives the holder the right to emit:
Allowances are allocated and auctioned specifically to aircraft operators. Airlines can use either aviation or general EU emissions allowances for compliance; however fixed installations can only surrender aviation allowances for their emissions from 2021 onwards.
Since the beginning of phase 3 of the EU ETS (2013-2020), an EU-wide cap on emissions is set centrally.
The cap for 2013 from fixed installations was set at 2,084,301,856 allowances. During phase 3, this cap decreases each year by a linear reduction factor of 1.74% of the average total quantity of allowances issued annually in 2008-2012. This amounts to a reduction of 38,264,246 allowances each year.
The linear reduction factor was set in line with the EU-wide climate action targets for 2020 - the overall 20% emissions reduction target and the EU ETS sector-specific 21% emissions reduction target relative to 2005.
In phase 4 (2021-2030), the cap on emissions will be subject to an annual linear reduction factor of 2.2%.
Around 38 million allowances have been issued to the aviation sector annually since 2013, following a reduction in scope to apply to flights within the European Economic Area. This is considerably below the actual verified CO 2 emissions from such flights, which have increased from 53.5 million tonnes CO 2 in 2013 to 67 million tonnes in 2018.
From 2021 onwards, the same linear reduction factor that applies to stationary installations, -2.2% annually, will also apply to aviation allowances.