Aviation and Emissions Trading

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In an effort to tackle aviation's small but fast-growing contribution to climate change, the EU has decided to impose a cap on CO2 emissions for all planes arriving at or departing from EU airports. Airlines would then be allowed to buy and sell 'pollution credits' on the EU 'carbon market' (Emissions Trading Scheme).

Background

International aviation contributes to climate change through different aircraft emissions (carbon dioxide and water vapour emissions, contrails or 'aviation smog', indirectly nitrogen oxides). 

Although the air transport industry has made improvements to aircraft technology and efficiency, reductions in greenhouse gas emissions (GHG) made thanks to these investments have not been sufficient to compensate for the rapid growth of global air traffic (50% over the last decade). 

Since 1990, CO2 emissions from aviation – which are directly related to the amount of fuel consumed – have increased by 87% and now account for around 3.5% of total 'human activities' contribution to climate change. The Intergovernmental Panel on Climate Change (IPCC) has estimated that this share will grow to 5% by 2050 – undermining efforts made by other industrial sectors to fulfil Europe's Kyoto commitments

To date, the aviation sector had not been required to do much to address climate change. Indeed, the Kyoto Protocol excludes international aviation and merely requests countries to work towards reducing emissions in this sector through the International Civil Aviation Organisation (ICAO). 

Although the ICAO had initially endorsed the idea of an emissions trading system to meet CO2 emissions reduction objectives, prospects for a comprehensive global agreement appeared distant and, given this situation, the Commission decided to take unilateral action (EURACTIV 01/10/07). 

Several policy options were examined, including aviation taxes, such as a fuel tax – as kerosene is currently exempted from taxation – but this would have required a unanimous decision in the Council of Ministers and was strongly opposed by the aviation industry.  

In a September 2005 Communication, the Commission finally concluded that bringing aviation into the EU's greenhouse gas emissions trading system (EU-ETS) would be the most cost-effective way of reducing the climate change impact of aviation (EURACTIV 1/08/05). 

The Council and Parliament subsequently endorsed the approach but they have yet to approve the formal proposal presented by the Commission on 20 December 2006 (EURACTIV 20/12/06). Peter Liese (EPP-ED, Germany) will be the rapporteur for the Parliament.

Issues

The most contentious issues in the debate on including aviation in the EU-ETS were: 

  • The start date and whether or not to include international flights in the scheme

The initial Commission plan aimed to include international flights in the scheme, but proposed exempting them until 2012, while intra-EU flights would have come under the scheme in 2011. 

A majority of member states and MEPs however rejected this two-staged approach, saying it would not only distort competition between EU and non-EU airlines, but also reduce the environmental impact of the scheme. Many also wanted the scheme to start as early as 2010, while others pushed for a later deadline. 

compromise, reached on 26 June between representatives of the European Parliament and the EU's Slovenian Presidency, finally set a date of 1st January 2012 for all flights, both within the EU as well as international ones arriving or leaving the bloc. 

The United States  has made it clear that it would retaliate with trade sanctions if the EU makes any attempt to force foreign airlines to comply with its emissions trading system - whatever the timeline. 

At the end of September 2007, it succeeded in convincing the ICAO's General Assembly to adopt a resolution that would make it compulsory for countries implementing market-based measures, such as emissions trading, to first obtain the consentment of each third party operating in their airspace - a move which would effectively prevent the EU from going ahead with its plans. But the EU registered a formal reservation on this point, rendering it legally unenforceable (EURACTIV 01/10/07).

  • How to determine the actual cap on emissionswho to apply it to and how to distribute the allowances

The Commission had proposed an EU-wide cap set at 100% of average aviation emissions recorded by the airline sector between 2004 and 2006. Initially, at least 90% of these pollution permits would be handed out to airlines for free, but unlimited auctioning would be introduced as of 2013. Airlines would also be able to buy allowances from other sectors, such as power generation, which are already covered by the EU-ETS, in order to factor in current high growth levels in the aviation sector (EURACTIV 20/12/06).

However, discussions revealed major disagreements on these issues, with Parliament's Environment committee notably voting for the total amount of emission certificates to be capped at just 75% of average emissions in 2004-2006, with at least 50% auctioning. According to the committee, a lower level of auctioning would enable airlines to make 'windfall profits' by passing on non-existent costs to air travellers (EURACTIV 03/10/07).

On the other hand, Parliament's transport committee, adopted a report advocating a cap set at 10% of average emissions from 2007-2009, in order to take into account strong growth levels in the sector, particularly in the new member states. It also argued that airlines be given 80% of this quota for free (EURACTIV 13/09/07).

The Council, on the other hand, had said airlines should be free to maintain emissions at the same levels as the average of 2004-2006, while 90% of pollution permits would be given out for free (EURACTIV 20/12/07).

Under the final compromise   reached in June, and backed by Parliament on 9 July, the number of pollution permits allocated to airlines would be capped at 97% of average greenhouse gases emitted in 2004-2006. This cap would then be lowered to 95% for the 2013-2020 period. Initially, only 15% of the allowances would be auctioned.

  • How to take other greenhouse gases into account

The Intergovernmental Panel on Climate Change (IPCC) has estimated that the total impact of aviation on climate change is currently about 2 to 4 times higher than what stems from CO2 emissions alone, notably due to aircrafts' emissions of Nitrogen oxides (NOx) and water vapour in their condensation trails. 

While the Commission has chosen to leave these forms of air pollution out of its Aviation and ETS Directive, the Parliament has repeatedly called on the Commission to put forward "other policy instruments in parallel to the ETS" to address the non-CO2 impacts of aviation. A first reading vote in Parliament notably proposed multiplying the cost of all CO2 permits bought by airlines by two unless the Commission develops legislation to address additional climate impacts caused by Nitrogen Oxide (NOx) emissions from aircraft (EURACTIV 14/11/07). While the proposal was rejected, the Commission has now pledged, as part of a new package on "Greening Transport" presented on 8 July, to put forward a "proposal to address nitrous oxide emissions from aviation" before the end of its mandate in November 2009 (EURACTIV 09/07/08).

Other Parliament reports also endorse the idea of increased taxation, in the form of kerosene taxes or the elimination of current tax exemptions which give airlines an unfair advantage over other modes of transport. 

Airlines however are firmly against such alternative measures, which they say would divert funds necessary for renewing fleet and optimising operations in view of reducing fuel consumption and, in turn, CO2 gases.

Positions

The Commission’s Head of Unit for clean air and transport Marianne Klingbeil stressed that "including aviation in the ETS is not the worst thing that could happen to the industry" but added that the EU would continue to push for a global agreement that would minimise the competitive disadvantage for European airlines. She denies that airlines were being treated any more unfavourably than other sectors, pointing to legislation currently under preparation to limit emissions from cars and ships. 

The aviation sector has some of the fastest growth rates today, "and this attracts attention", she said, adding: "You ask: does aviation deserve the attention? But does the steel sector deserve it? Does Europe deserve more and more CO2 emissions? The more coming from one sector, the more other sectors already under the ETS have to pay for it. Is this a fair deal?" 

Environment Commissioner Stavros Dimas defended the inclusion of all intra and extra EU flights in the scheme, insisting that his plan is in line with international rules. He said: "I expect that United States airlines or other airlines will not challenge legally something that they know they are not going to win." 

However, US officials stressed that the inclusion of non-EU airlines in the scheme without their consent would be illegal and President of the Air Transport Association of America James May said it was "sure to spawn a legal challenge" as it contravened the Chicago Convention. Carl Burleson, environment director of the US Federal Aviation Administration added that the move amounted to forcing foreign airlines to subsidise the EU aviation industry. A spokesman from the US Mission in Brussels further said the EU's unilateral action would "undercut rather than support international efforts to implement system improvement to manage the impact of aviation emissions".  

A study commissioned by the airline industry  finds that the current proposal would slash airlines' profits by more than €40 billion from 2011 to 2022 "jeopardising the long-term viability of the European aviation industry" (EURACTIV 06/06/07). They say the baseline on which caps are to be calculated (2004-2006) is too far removed from the trading period (2011-2022) and will leave 17 years of growth unaccounted for, forcing the industry to buy massive amounts of credits even if these are given away for free in the beginning. 

AirFrance Chairman and CEO, Mr. Spinetta, who has welcomed the ETS as "the most environmentally sound way of reducing the impact of air transport on climatic change, without compromising the economic growth of this sector and the vital role it plays in the global economy", underlined that the devil lies in the detail: "The success of the ETS will very much depend on the choice of its technical characteristics. A 'closed' market, on which trading schemes would be negotiated exclusively within a single industrial sector, is not adapted to the context of the air transport sector. This sector, currently undergoing growth and already having recourse to the latest available technological developments, is unable to reduce its CO2 output alone. It is and will long continue to be fully dependent on one single energy source, kerosene."

Giovanni Bisignani, Director General of the International Air Transport Association (IATA), stressed that emissions trading must be just one of a package of solutions for reducing CO2 emissions: "Europe has the power to reduce aviation CO2 emissions 12% by implementing the Single European Sky. We have 34 air traffic control centres in Europe but only one in the USA for a similar traffic and land size. This leads to inefficiencies, delays, and too much time in the air."

"It will be a burden and it might be a heavy burden," Association of European Airlines (AEA) spokeswoman Francoise Humbert  said about the scheme. "We operate in a very competitive sector, and we cannot afford to offload the costs on passengers," she said. AEA Secretary General Ulrich Schulte-Strathaus, nevertheless welcomed the amendment of the "more extreme elements of the original proposal…the postponement of the controversial inclusion of flights between the EU and the rest of the world into the proposed scheme." 

The European Regions Airline Association (ERA) criticised the legislation as it would place an additional €7 billion burden on the industry. "It is a mark of the failure of the legislative process that this legislation has been adopted without a thorough assessment of its economic and social impact: this is not responsible law-making," said ERA Director General Mike Ambrose. 

Olivier Jankovec, Director General of Airport Council International Europe (ACI Europe), said the Emissions Trading Scheme was the right approach but lamented that the compromise deal had been "agreed without any serious impact assessment" and left "an open door to litigation from third countries." 

Chris Davies MEP, Liberal Democrat spokesman on climate change in the Parliament, accused the Commission of window-dressing: "A cynical industry sees this as a PR exercise to deflect criticism while doing nothing effective to curb the headlong growth in air travel…The aviation sector should be required to pay fuel taxes and VAT just as other means of transport," he commented. 

The UK's Institute for Public Policy Research (IPPR) says that giving airlines emissions credits at no cost will give them "a cheap flight": "If the airlines are simply given the credits they will pass on costs to passengers, leaving the industry to pocket up to £2.7 billion in windfall profits," it stated in a study published in December 2006. In a separate study, global conservation organisation WWF estimated that EU airlines would make up to €3.5billion per year from inclusion in the ETS (EURACTIV 19/12/06). 

The European Federation for Transport and Environment (T&E) said the proposal was "too weak" and would only lead to emission reductions of 3% - less than one year's growth of the aviation sector's emissions. Jos Dings, director of T&E, added: "It is stunning that the aviation industry can talk about 'fairness' with a straight face. Not only does the industry stand to get double the permits of other sectors, the fuel tax exemption enjoyed by the sector is worth another €35 billion alone, not to mention the lack of VAT on tickets and the €20 billion European taxpayers have paid out in rescue aid to airlines." 

Friends of the Earth Aviation Campaigner Richard Dyer agreed that the compromise reached was so weak "it will have little impact on the rocketing growth in carbon dioxide pollution from flying". 

Timeline

  • 20 Dec. 2006: Commission presented draft legislation aimed at including aviation in the Emissions Trading Scheme.
  • 26 June 2008: MEPs and the EU's Slovenian Presidency reached a deal on the details of plans to include aviation in the EU's Emissions Trading Scheme as of 2012.
  • 8 July 2008: European Parliament backed compromise deal, paving the way for entry into force of the legislation.
  • 24 Oct. 2008: EU justice ministers approved a compromise deal on including aviation activities in the EU ETS.
  • 7 March 2011: Commission decision on historical aviation emissions establishing a scheme for GHG emission allowance trading within the EU.
  • 1 Jan. 2012: Target date for aviation sector to start trading CO2.
  • 1 Jan. 2013: Revised EU-ETS due to come into force, covering not only power-intensive industries, but also aviation.

Further Reading

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