CO2 (carbon dioxide) emissions restrictions are already in place on the power, cement, oil and gas industries via the existing EU ETS. The inclusion of aviation in the scheme is considered as a key element in the greening of transport strategy, which aims at meeting the overarching political objective to cut green house gazes emissions by 20 percent from 1990 levels by 2020. While aviation is currently responsible for only 2% of global emissions (of which the world’s airports only account for up to 5%), the almost uninterrupted growth of our sector is raising fears that aviation emissions are offsetting emission cuts in other industries.
Growing concerns for European airports
Since the beginning of the discussions concerning aviation and ETS, ACI EUROPE has been a keen advocate of the inclusion of aviation in ETS as one of the key measures to effectively addressing the growing contribution of the sector to climate change.
ETS will apply to CO2 emissions from all flights departing and/or landing in the EU from 1 January 2012.
Crucially, ACI EUROPE backed the initial proposed Directive made by the European Commission (December 2006) and the common Council position (April 2008). However, we were extremely critical of the position of the European Parliament as it totally failed to meet the key conditions of environmental efficiency and economic viability. Unfortunately, the ensuing debate resulted in a compromise between the European Parliament and the Council (July 2008) that was merely political and did not include any impact assessment.
As a result, ACI EUROPE has raised serious concerns about key elements of the scheme design, in particular as regards the level of the cap beyond which aviation will need to buy emission allowances from other sectors and the percentage of allowances within the cap that would not be allocated for free to aviation, but subject to auctioning. ACI EUROPE has also denounced the fact that Member States will not be under a firmly binding obligation to transfer revenues accruing from auctioning to environmental research and development. In this context, auctioning becomes mere taxation on aviation, with no environmental benefit. This certainly does not help in generating international acceptance from non-EU countries whose airlines will be submitted to the scheme whenever they fly to or from Europe.
Design elements for aviation
Let’s have a deeper look at the most important elements resulting from the compromise reached between the Council and the European Parliament.
What scope? How soon?
ETS will apply to CO2 emissions from all flights departing and/or landing in the EU from 1 January 2012.
Airlines are identified as the trading parties. They will be able to buy allowances in an “open” market across sectors and access to project credits (Clean Development Mechanism/Joint Implementation) will be limited to the average of other sectors. No multiplier is to be applied to the purchase of allowances to take into account the effect of NOx (Nitrogen Oxide) emission, but a separate EC proposal is currently envisaged by December 2008.
In what way?
A cap (or limit) is set on the level of emissions that aviation will be allocated for the year 2012, based on 97% of average emissions of the period 2004-2006. However, this cap will be further decreased to 95% in the period 2013-2020. All emissions beyond the above-mentioned cap will need to be purchased from other sectors.
85% of emissions below the cap will be allocated for free and 15% will need to be purchased through auctioning.
As aviation has grown in Europe by an average of about 6% per annum over the last 5 years, this means that further growth or simply maintaining present levels of activity will come at a substantial cost for airlines. The costs for the major European airlines are estimated to be potentially 1200-300 million per year (per airline).
Where does the money go?
At present, the current text states: Revenues generated from the auctioning of emissions allowances “should” be used to fund climate change mitigation, research on clean aircraft, anti-deforestation measures in the developing world, and low-emission transport. ACI EUROPE has been very vocal that auctioning revenues must be used to fund research on cleaner, more efficient aviation. We (along with many other industry associations) are conscious of how easily by-passed such a phrase is and feel that the current text is too weak and risks turning ETS into simple blunt taxation and a potential coffer-sweller for national governments.
Europe and the world
The current text requires the EU to seek an agreement on global measures to reduce greenhouse gas emissions from aviation. Bilateral agreements with countries adopting or proposing cap-and-trade schemes is viewed as a first step, in this process.
Towards harsher and punitive conditions?
After two years of legislative process, the proposed Directive on the inclusion of air transport within the EU ETS should be formally adopted in the coming weeks.
While aviation is currently responsible for only 2% of global emissions (of which the world’s airports only account for up to 5%), the almost uninterrupted growth of our sector is raising fears that aviation emissions are offsetting emission cuts in other industries.
However, as this adoption runs in parallel with the revision of the general EU ETS for the period starting in 2013, there is a lot of uncertainty as to the regime that will actually apply to aviation as of this date. As evidenced by the vote of 7 October 2008 of the Environment Committee in the European Parliament, some are keen to use this opportunity to push through new amendments and undo the compromise reached with the Council for aviation and impose even tougher conditions.
Such uncertainty is particularly harmful at a time when aviation is facing a severe crisis as a result of higher fuel prices and falling demand resulting from the present financial and economic turmoil.
Most significantly, the proposed amendments single out aviation for severe and punitive treatment. While all other energy intensive industries would be subject to 15% auctioning in 2013, aviation would uniquely be subject to 20% auctioning.
Additionally, despite a significant risk of carbon leakage that still needs to be analysed (carbon leakage refers to situations where ETS constraints result in operators moving emissions from Europe to other regions), the proposed amendments mandate a progressive increase of auctioning in subsequent years so as to achieve 100% by 2020. If carbon leakage is proven, the level of auctioning should be set at an appropriate level and not increased to 100% by 2020, as currently discussed for other sectors. Moreover, given the impossibility of substituting kerosene by 2020 and the need to fund and conduct further research into cleaner aircraft technology, such a requirement would not only be infeasible for aviation but would also prevent airlines from renewing their fleet as more efficient technology becomes available (the estimated costs per annum for major European airlines could reach then 1 billion EUR per annum).
The economic and environmental impact of these amendments has not been assessed. The real risk is that after all the time spent developing ETS, the system may end up being neither environmentally efficient nor economically viable. And if it is neither of those things, then it is unlikely to be international acceptable to those third countries that the European Union is seeking to lead by example in view of the forthcoming post-Kyoto negotiations of Copenhagen in 2009.
