AEF questions the impacts of ending the UK ETS aviation free allocation on regional connectivity 

14th January, 2026

Late last year, AEF responded to a consultation on domestic connectivity and the UK Emissions Trading Scheme (ETS). 

Airlines operating flights within the UK ETS are required to purchase ETS allowances proportionate to their emissions. Airlines have historically received a free allocation of allowances as a method of mitigating ‘carbon leakage’ (the risk of high emitting activities being moved to regions with less decarbonisation regulation). This free allocation was phased out for 2026 as aviation presents minimal carbon leakage risk, a change that effectively increases costs for airlines. The UK ETS Authority was consulting on the possible impact of these increased costs on domestic routes in the UK, with a focus on routes that connect communities with few travel alternatives (largely island routes).  

The Authority proposed providing direct funding or ETS exemptions for routes that may be at risk of being withdrawn following the change. The qualifying criteria for support was suggested to be aircraft flying to, from and between island communities with a maximum takeoff weight up to and including 18,600kg (typically representing commercial aircraft capable of carrying less than 50 passengers).

In response, AEF recommended that no policy intervention should be made for three key reasons:

1. The Public Service Obligation system is already in place to protect domestic connectivity by providing government support to routes that are not commercially viable but are deemed socially and economically vital. 
2. There is no clear evidence to suggest that preemptive financial support for island routes is needed at this stage, as the loss of free allowances is not expected to affect the margins of individual routes.
3. Any exemptions would reduce the effectiveness of the UK ETS by removing the decarbonisation incentive on these routes. This is especially important for island routes which are likely to be ideal candidates for the early adoption of zero emission aircraft due to short distances and low passenger numbers.

You can read our full response below