Aviation is the only major industry that has never paid for the fuel it burns. No fuel tax, no VAT on international tickets and no meaningful carbon price on long-haul flights. Decades of these exemptions have done more than cost public budgets billions in foregone revenue. They have removed the single most powerful incentive for aircraft manufacturers to innovate: the prospect that cheaper, cleaner technology will outcompete a dirty one.
The consequences are visible in the industry’s own product pipeline. The commercial aircraft market is dominated by a duopoly, Airbus and Boeing, which severely limits competition and disincentivises the creation of disruptive aircraft. Neither manufacturer has introduced a clean-sheet aircraft design since 2015. Instead, both have spent the intervening decade fitting new engines onto airframes designed in the 1960s and 1980s.
Our previous analysis found that no new aircraft models are expected from either manufacturer in the next ten years, leaving the European fleet locked into a stalled efficiency trajectory for at least another decade. With fossil jet fuel kept artificially cheap, there is simply no commercial case for the multi-billion-euro investment that a genuinely new aircraft requires. The market signal that should be driving that investment, namely the rising cost of polluting, has been deliberately suppressed.
The fragility of this model was exposed by the 2022 oil price shock, a stark warning that the industry largely ignored, making the current 2026 crisis an inevitable consequence of a system built on artificially cheap energy. An aviation ecosystem built around the assumption of cheap, untaxed fossil energy is not a resilient one. It is a system that has traded long-run decarbonisation capacity for short-run cost comfort and it will remain exposed to exactly these shocks for as long as manufacturers have no incentive to develop aircraft that use less of it.
Extending the EU carbon market to all departing flights changes this calculus. A meaningful and rising carbon price raises the operating cost of fossil-fuelled aircraft year after year, while simultaneously narrowing the price gap between today’s polluting planes and more efficient planes, including zero-emission hydrogen and electric aircraft, that are technically feasible but commercially stranded.
We quantified this effect. Using a total cost of ownership model, we compared two scenarios: one in which the carbon market continues to apply only to intra-European flights and one in which it extends to full scope, covering all departing flights from 2027. The model tracks the full economics of aircraft development and operation across regional, single-aisle and widebody aircraft classes covering both revolutionary next-generation kerosene aircraft and zero-emission hydrogen and electric alternatives, from entry into service through to fleet retirement. It incorporates manufacturer development costs, airline fuel and carbon expenditure and projected SAF blending mandates under ReFuelEU.
Our central estimate is that an additional carbon price of €121 per tonne of CO₂ would be sufficient to make cleaner aircraft cost-competitive with conventional alternatives at a system level. Crucially, this figure sits within the range of carbon prices that current EU ETS projections already imply by the mid-2030s. The policy lever needed to tip the economics is not out of reach.
However, if the ETS scope is not extended after 2027, the additional carbon price needed to make efficient technologies cost competitive rises to €245 per tonne of CO2. Restricting the scope of the ETS would hinder the economic case for new aircraft, incentivising the aviation industry to stick to a logic of low cost, incremental improvements which has slowed down technological progress in recent decades.
That support requirement is visible in the numbers. Bringing revolutionary aircraft to market would require an estimated €186 billion in development expenditure across all manufacturers, compared to €26 billion in a scenario where only conventional next-generation aircraft are built. This seven-fold difference in upfront capital is the core structural barrier. It is also precisely the gap that revenues from a fully scoped carbon market could help to address: through industrial support measures like the Innovation Fund, the Clean Aviation Joint Undertaking successor programme and measures to bring the cost of capital down for the development of revolutionary aircraft technologies.
