Key Takeaways:
Europe's biggest airlines warn the EU that expanding carbon pricing to international flights will raise fares and undermine global climate efforts, as fuel costs jump $100 billion.
The European Commission's plan to extend carbon pricing to outbound international flights faces united opposition from Europe's biggest airlines, which warn the move would raise ticket prices and undercut the UN's global offset scheme.
"Expanding EU carbon pricing to extra-EEA flights will further penalise European passengers and businesses by increasing the cost of airfare and cargo," the CEOs of Air France-KLM, IAG, Lufthansa and Ryanair wrote in a letter to Commission President Ursula von der Leyen, seen by Reuters.
The letter, also signed by the heads of 15 other carriers including easyJet and AirBaltic, comes as airline leaders gather in Rio de Janeiro for the annual IATA meeting, where the group forecast industry profits would halve this year as fuel costs jump by $100 billion.
At stake is whether the EU will expand its Emissions Trading System — currently covering only intra-European flights — to include all departures, a review due next month. Brussels is skeptical the UN's CORSIA offset scheme can deliver real emissions cuts, citing a 2021 Commission study warning it was unlikely to reduce pollution.
The current ETS requires airlines flying within Europe to buy permits for greenhouse gas emissions under a cap that tightens over time. Expanding it to outbound flights would subject carriers to carbon costs on routes where they already participate in CORSIA, the UN-backed scheme that requires airlines to purchase offsets for emissions growth but does not mandate absolute reductions.
"Any extension of EU ETS will hamper the legitimacy of CORSIA," the airline CEOs wrote, urging Brussels to reduce ETS costs to CORSIA levels.
The Commission argues that extending the ETS would ensure equal treatment across airlines and avoid disadvantaging short-haul carriers relative to those operating longer international routes. The 2021 study commissioned by the EU found CORSIA was unlikely to cut emissions and could undermine Europe's climate goals.
Fuel Costs Squeeze Margins
The regulatory battle comes as airlines face mounting financial pressure. IATA, the industry's global trade body, forecast at its Rio de Janeiro meeting that industry profits would halve in 2026, with fuel costs surging by $100 billion as elevated crude prices and Middle East conflict drive up operating expenses. European carriers are particularly exposed: the region's airlines already face some of the world's highest carbon costs under the existing ETS, and an expansion would compound the burden.
What Comes Next
The European Commission is expected to publish its ETS review next month, with the airline letter representing a last-ditch lobbying effort to shape the outcome. If Brussels proceeds with expansion, European carriers would face a dual carbon cost — paying both EU ETS permits and CORSIA offsets on the same routes — potentially making them less competitive against Gulf and Asian rivals not subject to the same regime.
This article is for informational purposes only and does not constitute investment advice.
