Including aircraft operators in the EU Emissions Trading Scheme

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Issues such as whether or not to include outside operators in the future aviation arm of the EU’s Emissions Trading Scheme (EU ETS) as well as how to determine the emissions cap itself could prove stumbling blocks in the expansion plans, says a report from PricewaterhouseCoopers (PwC).

The European Commission has proposed an enlargement of the ETS to include aircraft operators from 2011, but debates over its implementation are likely to continue, says the report. It adds that carbon thinking will have to be integrated into the long-term planning of aircraft operators or they will have to “get savvy about trading and investment options in the short term.” 

Many operators are still not ready for the expected launch of the system in 2011 as they are waiting for binding rules. But the report urges them to prepare early to give them an advantage in the long term. Additionally, the report highlights the importance of viewing the system holistically, as most companies are only considering it as an environmental issue. 

Operators are mainly concerned with tax and accounting issues and whether or not the ETS will ensure a level playing field for operators based within and outside Europe, says the report. It states that most operators would favour a global emissions trading scheme to avoid unfair competition. The report urges operators to engage in the debate now while they still can, and possibly influence the shape of the aviation ETS. 

With a 3% share – and growing – of CO2 emissions in Europe, the aviation industry is a prime candidate for the Commission’s plans to expand the ETS to other sectors, argues the report. PwC believes this is a “small but significant” portion of European emissions. The report quotes some figures suggesting the aviation industry’s impact is “at least double that of ground-based emissions”.

Many operators are already voluntarily looking to reduce emissions, as fuel is a major cost for air traffic, says the report. As air traffic is the only global passenger transportation network, destabilising the industry’s stability would have an adverse effect on the European economy, argue PwC. 

The Commission proposal favours integrating the aviation industry into the current ETS, rather creating a separate framework, notes the report. Therefore, operators will be able to buy allowances from other emission sectors but will not be able to sell these to the other sectors. Trading within their own sector will be permitted. 

PwC believe the Commission sees the need for a global emissions trading system, but a sense of urgency led it to press ahead with a European scheme for now because there have not been any concrete proposals from the global aviation authority. 

The remaining issues that need to be agreed upon are whether caps on emissions are determined nationally or at EU level, how many of the allowances are auctioned and whether or not to include other greenhouse gases, says the report. 

PwC conclude that the most contentious issue will be whether or not to include international flights and non-EU operators in the ETS for the aviation industry. EU operators have argued that including non-European operators would be essential in the interests of competitiveness. 

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