After many delays, the European Commission has announced the emissions cap for the aviation sector when it enters the EU emissions trading scheme (EU ETS) in January 2012.
The sector will have an emissions allowance of 212.9 million tonnes of CO2 in 2012, which is 97% of average annual emissions for the baseline period 2004–06.
When phase three of the EU ETS begins in 2013, this will drop to 208.5Mt – 95% of the baseline – remaining at that level each year until 2020.
In January 2012, over 4,000 aircraft operators flying in, out and within the EU will join about 11,000 factories and power plants covered by the scheme. Aviation will become the second biggest sector after electricity generation.
Military, police, customs and rescue flights are exempt, as are training flights and those on government business.
Airlines will receive 82% of allowances free on a pro rata basis if they have filed their own baseline data. A further 15% will be auctioned, and 3% will be held back for rapidly growing airlines and new market entrants (ENDS Report 430, pp 35–36).
Sell or bank
Operators that do not use all their allowances can sell them or ‘bank’ them to cover future emissions. Those expecting their emissions to exceed their allocated allowances can buy more allowances on the EU ETS market or buy overseas credits through the Kyoto Protocol’s Clean Development Mechanism (CDM).
The commission says that by 2020 it expects the scheme to have cut aviation emissions by 46%, relative to business as usual. But while other sectors are expected to cut their emissions in line with the EU’s 2020 commitment to cut total emissions by 20% relative to 1990, the aviation sector is capped at a mere 5% below its baseline over this time frame.
Connie Hedegaard, European Commissioner for Climate Action, said aviation’s emissions are now growing faster than any other sector, having almost doubled since 1990.
Aviation accounts for 3% of EU greenhouse gas emissions. But according to the Intergovernmental Panel on Climate Change (IPCC), the sector’s total impact could be two to four times higher than its CO2 emissions alone. This is because the altitude-sensitive warming effects of NOx emissions, jet engine contrails and cirrus clouds are not factored into the 3% figure.
The UN Framework Convention on Climate Change (UNFCCC) (ENDS Report 420, pp 32-36) and the UN’s International Civil Aviation Authority (ICAO) (ENDS Report 429, p 29) have failed to deliver a common global system for significantly reducing emissions from aviation.
The commission says impacts on ticket prices will be minor. If airlines pass on all extra costs to passengers, return flights within the EU may rise by two to nine euros by 2020, it says. A return flight to New York may cost an extra €12 (assuming a current carbon price of €15 per tonne).
Compared with rising jet fuel prices, the extra costs imposed by joining the EU ETS are likely to be marginal, it says.
Bill Hemmings, programme manager for European sustainable transport NGO Transport and Environment (T&E), told ENDS this “extremely modest” cap, along with the many free allowances the sector receives, will let it continue expanding.
Given current low carbon prices “the EUETS will represent an equivalent of one [Euro] cent per litre for aviation kerosene,” he said. “Compare this with taxation on road transport fuel – 65 cents per litre – and you put this in some perspective.”
But a report released in March by credit ratings agency Standard & Poor’s says costs are likely to be significant in the longer term and vary from airline to airline.
Those with a higher number of premium–fare revenues may find it easier to pass on costs to passengers, as they will be a proportionally lower percentage of the ticket price than for low-cost flights.
The scheme also risks carbon leakage, it says. European hubs such as Heathrow may become less competitive as non-EU passengers bypass Europe on long-haul flights and connect through other global hubs, especially those in the Middle East.
Peter Hind, managing director of aviation consultancy RDC Aviation, said airline emissions had risen by 25% since the European Commission’s 2004-06 baseline period, despite global recession.
That means free allocations of carbon allowances will cover less than 70% of the sector’s emissions caught by the EU ETS, with the remaining allowances having to be bought. Mr Hind estimates the bill to airlines will total €800m to €1.4 bn in the first year. Standard & Poor’s estimate is €1.1bn.
The British Air Transport Association, representing UK registered airlines, said it wanted a move from a European to a global emissions trading scheme soon.
BATA chief Simon Buck told ENDS: “With the EU ETS covering aviation from next January, we’re urging the chancellor to lower air passenger duty [APD], which will just become double taxation.” In fact, the Budget froze APD, delaying a planned increase until April 2012.
David Henderson, information manager at the Association of European Airlines, the EU’s main airline lobby, says some airlines are likely to drop less profitable short-haul routes as a result of the EU ETS.
In 2009 a Carbon Trust report argued that airlines could make big windfall profits under the EU ETS by passing on the costs of allowances to their passengers even through they were allocated free of charge (ENDS Report 419, pp 10-11). BATA strongly denied this.