When aviation will be introduced in the EU ETS, airlines will receive some allowances for free, according to the European Commissions proposal. This report studies the impacts of the economic, environmental and distributional impacts of various carbon allowance allocation methodologies on different airline models. It focuses on benchmarking, but shortly discusses grandfathering and auctioning as well. A spreadsheet model was developed to calculate the emissions and allowances allocated under different benchmarks of ten generic aircraft operator types that represent a cross-section of airline business models. The study shows that an output-based benchmarking method is more consistent with encouraging environmental efficiency than other benchmarks. At the same time, the a benchmark based on RTKï¿½s (revenue tonne kilometers) has relatively small distributional impacts. The study has been conducted by professor David S. Lee of Manchester Metropolitan University and CE Delft as a subcontractor, and was commissioned by the UK Department for Transport and the Environment Agency.