European airlines received billions of euros in free carbon allowances under the EU Emissions Trading System (EU ETS), but most of the benefit appears to have supported airline profits rather than new green investment. That is the key finding of a new CE Delft report examining free aviation allowances between 2013 and 2025.
The study estimates airlines received €10.9 billion worth of free EU allowances during the period. By comparison, six major airline groups spent about €1.1 billion on sustainable activities, mainly sustainable aviation fuel (SAF). The findings come as the EU completes its phase-out of free aviation allowances in 2026.
Airlines Received €10.9 Billion in Free Allowances
The EU originally provided free allowances to airlines to limit competitiveness concerns and reduce the risk of carbon leakage. Between 2013 and 2025, airlines received about 350 million free allowances, covering roughly half of the 700 million tonnes of verified aviation emissions reported under the EU ETS during the period.
The value of those allowances increased sharply as carbon prices rose.
CE Delft estimates the average EU allowance price increased from about €4.56 per tonne in 2013 to €73.43 in 2025, measured in 2025 prices. The annual average reached about €87.90 per tonne in 2022.
That made free allowances increasingly valuable to airlines, particularly during the years when carbon prices were high. The largest benefits came in 2022 and 2023, when airlines continued receiving free allowances while EU carbon prices remained elevated.
The author noted:
“We find no strong reason to expect that these expenditures would have been substantially lower without free allocation. EU ETS auction revenues, on the other hand, are largely used for climate and energy transition purposes. Full auctioning of aviation allowances would therefore most likely have made significantly more funding available for the decarbonisation of the European economy.”
Free Allocation Became a Major Profit Booster
CE Delft compared airline profitability with a scenario in which airlines had to purchase all their EU allowances. The six airline groups studied were Ryanair, Lufthansa, Air France-KLM, easyJet, Wizz Air and IAG.
For five major European airline groups that were profitable over the period, the report estimates that free allocation accounted for about 17% of profitability. For Air France-KLM, which recorded cumulative losses, free allowances reduced those losses by about 10%.
The report also finds little evidence that ending free allocation has seriously damaged airline profitability. European airline margins during 2023–2025 were broadly comparable with pre-pandemic levels, even as free allocation declined sharply.
That does not mean airlines would face no costs from buying all their allowances. But it weakens the argument that free allocation was essential to protect the sector’s financial performance.
Green Spending Fell Far Behind the Carbon Windfall
The biggest concern raised by the report is the gap between the value of free allowances and spending on sustainable activities. The six airline groups spent approximately €80 million on sustainable capital investments during the period studied.
They also spent an estimated €1 billion on SAF purchases. Combined, that is roughly €1.1 billion, compared with the €10.9 billion estimated value of free carbon allowances.
CE Delft also examined 2025 EU Taxonomy reporting from eight airlines. The airlines reported a combined €18.1 billion in capital expenditure. About €9.57 billion, or 52.8%, was classified as taxonomy-aligned.
However, almost all of that spending — €9.55 billion — was classified as transitional activity, mainly conventional aircraft purchases and maintenance.
Only €24 million, or 0.13% of total reported capital expenditure, was classified as genuinely sustainable investment. This consisted of electric ground-handling equipment reported by Air France-KLM.
The distinction matters because newer aircraft can use less fuel than older models but still rely mainly on fossil-based jet fuel.
Could Auction Revenue Have Delivered More?
The report argues that governments could have used auction revenue to support technologies that can cut aviation emissions. CE Delft models several hypothetical uses for the €10.9 billion in free allowances.
If the money had instead been used to purchase HEFA-based SAF, the report estimates it could have supported about 18 million tonnes of COâ‚‚ reductions. Using synthetic SAF could have produced about 4.7 million tonnes of reductions.
The report also estimates that putting the money into the EU Innovation Fund could theoretically have generated up to 815 million tonnes of reductions across sectors. These are not actual historical savings. They are illustrative scenarios based on different technology and investment assumptions.
Still, they highlight the potential opportunity cost of giving carbon allowances to airlines rather than auctioning them.
The wider EU ETS has already become a major source of climate funding. EU ETS auctions generated more than €258 billion between 2013 and 2025, with revenues exceeding €43 billion in 2025, according to the European Commission.
Aviation’s Carbon Costs Remain Partly Unpriced
The report also examines aviation’s wider climate impact. For the six airline groups, CE Delft estimates their external climate costs reached almost €30 billion in 2025.
That included about €14.7 billion from direct aircraft COâ‚‚ emissions, €4.6 billion from fuel-production emissions and €10.3 billion from non-COâ‚‚ climate effects. These figures show why aviation’s climate impact extends beyond the COâ‚‚ covered by the EU ETS.
CE Delft estimates that carbon pricing has internalized around 40% of the external cost of direct COâ‚‚ emissions within the EU ETS scope in recent years. But the picture changes when international aviation and non-COâ‚‚ effects are included.
For 2025, the report estimates only 16% of COâ‚‚-related external costs were internalized when intercontinental aviation was included. Non-COâ‚‚ effects, including climate impacts linked to aircraft emissions at altitude, remain much less covered by carbon pricing.
Europe Finally Ends Free Airline Allowances
The EU has now entered a new phase for aviation carbon pricing. Under the 2023 EU ETS reforms, free aviation allowances were reduced by 25% in 2024 and 50% in 2025. From 2026, regular free allocation has ended, and aviation allowances are auctioned.
The change means airlines now face a clearer market-based carbon cost for their EU ETS emissions. At the same time, the EU is directing carbon market resources toward aviation decarbonization.
- Between 2024 and 2030, up to 20 million EU ETS allowances will be used to help narrow the cost gap between eligible SAF and conventional jet fuel.
EASA expects aviation emissions covered by the EU ETS to reach about 59.5 million tonnes in 2026. It estimates airlines could need to purchase about 34.5 million allowances this year. That makes the price of carbon increasingly important to airline costs.
The Next Test for Aviation Carbon Policy
The CE Delft report does not show that free allowances had no value to airlines. Instead, it raises a broader question about whether the policy delivered enough climate benefits for its cost.
The report was commissioned by Opportunity Green, so its policy recommendations should be considered in that context. Its analysis, however, uses EU ETS data, airline financial reports, EU Taxonomy disclosures and other published datasets.
With free allocation now ending, the focus shifts to what happens next. A stronger carbon price can increase the cost of flying while creating revenue for climate investment.
The challenge for Europe is to ensure that those revenues help scale technologies such as SAF, synthetic fuels, and eventually hydrogen and electric aviation.
For the EU’s carbon market, the goal is no longer simply putting a price on aviation emissions. It is turning that price into measurable progress toward cleaner flight.