The ETS investment engine: scaling Europe’s strategic e-fuel market for shipping and aviation

The EU's Emissions Trading System (ETS) review proposal, released in July 2026, aims to adapt the EU's climate policy mechanism for its 2040 targets. This review focuses on how the ETS can act as an "engine for innovation and investment," particularly in the aviation and maritime sectors, which are significant contributors to ETS revenue generation. However, the proposal argues that the current framework is not suitable for supporting clean fuel investments in these difficult-to-decarbonize sectors.

The ETS Review presents a chance to develop a specific investment tool to mitigate risks and promote the production and usage of e-fuels, using revenues from aviation and shipping. Early financial assistance is crucial for establishing a domestic e-fuels value chain, enhancing Europe's strategic autonomy concerning clean fuels, and strengthening the EU's standing in global clean technology competition.

Key recommendations include utilizing national ETS revenues to allocate 50% for decarbonization support in priority sectors, such as producing and deploying aviation and maritime e-fuels, with stricter reporting rules to ensure compliance. Including the aviation and maritime sectors within the scope of the ETS Investment Booster, Industrial Decarbonisation Bank (IDB), and Modernisation Fund can help foster e-fuels support and ensure fairness across challenging sectors.

Creating an e-fuels funding pool by 2028, using ETS revenues and other funding sources, is another proposed action to support the market intermediary for e-fuels. Implementing market-making schemes, like double-sided auctions (DSAs), will be essential to unlock pending final investment decisions and scale the emerging European e-fuels market by reducing risk and connecting supply.

Lastly, improving the design of Sustainable Aviation Fuel (SAF) and Sustainable Marine Aviation Fuel (SMAP) allowances would help maximize offtake support for e-fuels, even though market-based schemes cannot fully replace the market-making and risk-reduction functions of DSAs.