1 November 2022, London Marriott Hotel County Hall
21 November 2022, Hilton London Metropole
12 December 2022, etc.venues Monument, London
Jonathan Hart untangles the web of arguments over the contentious European Union Emissions Trading System
IT HAS BEEN described as generating so much gas – both literally and figuratively. And now, to add to its multiple New Year woes, the European Union Emissions Trading System (EU ETS, sometimes known as the emissions trading scheme) appears to be backfiring under a darkening cloud of global criticism and politically charged hot air. As the first carbon trading scheme of its kind, the ETS consistently has been challenged since its inception in 2005 and has struggled to earn credibility and compliance among its nominated participating industries. Entering 2013, and arguably its most decisive phase, the scheme is, at best, regarded as a worthy but as yet inconsistently applied climate control mechanism; at worst, it is derided as a damaging and costly bureaucratic “omnishambles” – an eco-crazy directive imposed with scant regard to its feasibility in practice or as little more than a conscience-driven device to feed Brussels’ tax-hungry coffers.
Whatever your view, ETS has gained a powerful army of fresh detractors on the eve of its fuller and wider-spread implementation. Its unilateral insistence on including not just member-state airlines but all the world’s carriers into the scheme has sparked an explosive war of words and a travel industry backlash, boiling with indignation and bristling at the EU’s extra-territorial impudence.
Airlines, including regional carriers now locked into the scheme, have always opposed the validity of their inclusion in the cap-and-trade system alongside other energy intensive industries. In line with the United Nations’ Kyoto Protocol to cut greenhouse gases globally, they claim their own emission control formulation and governance through the UN-associated International Civil Aviation Organisation (ICAO).
The EU counters that ICAO has been dragging its heels on producing a globally acceptable system. It claims this is needed urgently because international aviation emissions, even if fuel efficiency improves by 2 per cent annually, are projected to be 70 per cent higher by 2020 than they were in 2005. It also claims that international flights into and out of the EU account for the large majority of direct aviation emissions currently responsible for 3 per cent of the region’s total greenhouse gas output. Airlines claim to be ahead of regulators with their own commitment to carbon-neutral growth from 2020, leading to a 50 per cent reduction in emissions by 2050; and, having legally challenged (and lost) their enforced inclusion in ETS, an influential alliance of non-EU carriers has since been playing political brinkmanship over mandatory emissions reporting scheduled for April this year.
In general, airlines brand ETS as ambiguous and tax discriminatory, a dictatorial edict riddled with hidden costs, administrative complications and devoid of joined-up thinking for sustainable application, both regionally and beyond EU borders. Moreover, they claim an emissions levy imposed on entire flights, rather than just over European airspace, is an infringement of non-EU state sovereignty.
A European Court of Justice ruling has dismissed these claims. Despite this, and through the threat of trade sanctions endorsed by major governments, including China and the US, they have earned a temporary standoff.
In November, the EU reluctantly offered ICAO more time to produce a global solution for the sector. The net result is an official stalemate on the issue. Coupled with the now extended game of push and shove between the EU and airlines, it remains unclear as to what will ultimately transpire. In the meantime, the EU ETS appears no longer to be cooking on gas – but the hot air continues.
HOW IT’S MEANT TO WORK
Aviation’s inclusion in the EU ETS from January 2012 was proposed by the European Com
mission (EC) in 2006 and endorsed by the European Parliament two years later. The overall target of the scheme is to cut pre-1990 emission levels by 8 per cent or more by 2020. Under the cap-and-trade system, regional airlines join main energy-intensive industries in receiving tradeable European UnionAllowances (EUAs) covering a pre-set level of CO2 emissions per year. The reputed aim of the scheme is to enable EU-identified heavier polluting industries to manage their emissions cost-effectively. These include power stations, refineries, iron and steel, cement and lime, paper, food and drinks, glass, ceramics, engineering and vehicle manufacturing.
The UK is a key player in a system that requires each member state to submit a National Allocation Plan (NAP), approved by the EC, which sets an overall cap on total emissions permitted and shared between participants regionally, with one allowance equalling one tonne of CO2. After each year, operators must surrender a number of allowances equal to their actual emissions for the year or face a penalty. If actual emissions are lower than their allowances, they can either sell the surplus to other ETS participants or bank them to cover future use. If operators anticipate exceeding their allowances, they can either take measures to reduce their emissions or buy additional EUAs on the market. They can also buy certified emission reductions (CERs), a type of carbon credit, from clean energy projects carried out in developing countries, or emission reduction units (ERUs) from projects in industrialised countries.
The devil is in the administrative detail for airlines joining the scheme. Prior to the new 2013-2020 trading period, they have already had to account for their ‘free’ or ‘percentage-capped’ EU aviation allowances (EUAAs) during the scheme’s second phase, 2008-2012, and (historic period) 2004-2006. Monitoring and reporting, with auditing and verification, is channeled through a designated ‘competent authority’ within each member state. In the UK, this is the Environment Agency.
Each member state has a national ETS registry and, in order to buy or sell allowances, operators must open an account with the relevant registry. This confines them to a limited carbon trading market.
Penalties for failing to report/surrender allowances or comply with an ETS plan can be harsh. In the UK, these exceed those of the directive and range from £500 to £3,750, with daily incremental fines ranging from £50 up to a maximum of £33,750. If a fine is not paid within six months or if the EU orders an operating ban, aircraft can be impounded.
AT LOGGERHEADSThe EU claims the inclusion of aviation in ETS is a potential building block towards achieving a global agreement on aviation emissions. Non-EU airlines claim the opposite. They say they won’t be bullied by a unilateral regional edict, and that their compliance with any system must come globally under the auspices of ICAO.
EU climate commissioner Connie Hedegaard claims Europe has been seeking agreement with ICAO, without success, for more than 15 years. ICAO secretary general Raymond Benjamin says diplomats and technical advisers are still narrowing down three market-based measures (MBMs) on limiting emissions. These include a cap-and-trade system similar to the EU’s. Other options are global carbon offsetting, and offsetting with a revenue-generating mechanism.
Benjamin says ICAO is working on an emissions control framework to be presented to the body’s next general assembly this autumn. He says this framework will lay out how any MBM should be implemented, including how to account for emissions released over international territory and how to address developing countries’ fears that any scheme could hold back growth. The framework will apply to a variety of different mechanisms and local or regional systems, as well as any global scheme, he adds.
The EU’s Hedegaard says she has “stopped the clock” on ETS implementation for non-EU carriers as “a goodwill gesture” until the ICAO assembly. She says ICAO’s failure to adopt a robust solution at the assembly will mean the EU reverting to its ETS plan globally and penalising non-compliant, non-EU carriers.
FIGHTING TALKThe EU ETS has no stronger opponent than the International Air Transport Association (IATA). The global association, representing 240 airlines and 84 per cent of all air traffic, has strongly countermanded the scheme from the outset seven years ago.
Former IATA director general and CEO Giovanni Bisignani said at the time: “The environment is a global concern. A European solution is no solution at all. Unilateral regional efforts will only distract from the process.” He added that Europe’s aerospace industry had already set collective targets to comply with governmental goals by 2020: to reduce CO2emissions by 50 per cent, nitrogen oxide emissions by 80 per cent and noise by 50 per cent.
Fast forward to November last year when current IATA director general and CEO Tony Tyler described ETS as “poisoning the atmosphere needed to achieve a global approach on managing emissions”. Ahead of the current hiatus on non-EU carrier implementation, he called for the EU to identify an off-ramp solution before the issue boils over. “Europe needs to find a way of relieving the pressure it has created,” he said. “There is no time to lose.” ETS was not a stepping-stone to meeting global environmental targets, he said – it was a polarising obstacle preventing real progress.
Through ICAO and both before and since the advent of ETS, IATA has championed a global sector approach to reducing emissions in excess of the Kyoto Protocol agreement.
It claims airlines, airports, air navigation service providers and manufacturers are united in a commitment to improve fuel efficiency by 1.5 per cent per year to 2020, to stabilise carbon emissions from 2020 with carbon-neutral growth, and to halve emissions by 2050 compared with 2005. Claiming industry self-discipline and a solid track record with this commitment to date, the association argues only a global approach will ensure a level playing field in providing full accounting for aviation’s emissions as a global industrial sector, not by state; global co-ordination of economic measures to ensure that aviation will not pay more than once for its emissions; and access to global carbon markets.
Whatever the outcome, one thing’s for sure – this is an argument with wings.
SPREADING THE COST