After years of discussions, the body that sets international standards for the commercial aviation industry reached a landmark deal to cap and regulate the industry’s greenhouse gas (GHG) emissions. The agreement opens the door to rulemaking by the Environmental Protection Agency (EPA) and Federal Aviation Administration (FAA). Coinciding with the Paris Agreement’s entry into force on November 4, 2016, the aviation agreement also indicates new resolve by governments and the private sector to tackle all major sources of GHGs in the global economy.

OVERVIEW OF THE AVIATION GHG AGREEMENT

As noted in prior Client Alerts1, the International Civil Aviation Organization (ICAO), a specialized agency of the United Nations, has been negotiating a global scheme to regulate GHG emissions from commercial aviation. A breakthrough came at the 39th Assembly in Montreal in early October 2016. ICAO parties agreed to the so-called Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA), the first climate agreement intended to cap the sector’s rapidly growing GHG emissions.

Under CORSIA, emissions from commercial aviation will be capped in 2020 in participating countries. The agreement will then proceed in phases, but not all of the ICAO parties have agreed to participate in all phases. So far, sixty-six nations, accounting for approximately 86% of global air travel, have agreed to take part in the pilot phase, which will run from 2021 to 2023.2 A first phase will then follow, from 2024 to 2026, which will again be voluntary. The third phase, running from 2027 to 2035, will be mandatory for all states, with limited exceptions. Most major emitters, including the United States, the European Union, and China, have agreed to take part in the initial phases, but Russia and India have so far refused to do so. This will leave an estimated 20% of emissions growth unregulated until 2035.

CORSIA seeks to eliminate an estimated 2.5 billion tons of cumulative GHG emissions during the period of 2021–2035.3 To do so, the scheme will initially rely on offsets: instead of reducing their own emissions, airlines will purchase carbon credits from GHG-abatement projects, such as forestry conservation and renewable-energy projects, to compensate for their rising emissions. This provides industry flexibility until optimized routes, operations (efficiency improvements of 1.5% per year are targeted), fuel, and design allow airlines to cost-effectively cut emissions internally. This scheme also has the potential to generate significant revenue for forest conservation projects in developing countries. But the environmental integrity of these offsets, and the environmental benefits of CORSIA, will depend on strict safeguards for the generation and trading of these offsets, which have yet to be negotiated.

The cost of compliance for the airline industry is expected to range from $2.9 billion to $12.4 billion annually by 2030, which amounts to $0.31-$12.10 per seat.4 It remains to be seen to what extent airlines absorb this cost or pass it on to passengers.

In addition to offsets under CORSIA, airlines are free to pursue other measures to reduce their carbon footprint. For example, JetBlue, United, Virgin, Alaska Airlines, and Lufthansa have started blending traditional fuel with biofuels, and some airlines are striking multi-decade supply agreements with biofuel producers.5 The offset value of biofuels will vary, however, as the “lifecycle” emissions associated with producing those fuels can be significant.6 In addition, ICAO continues to negotiate energy-efficiency standards for the industry, including optimized design and fuels.7

RELATION TO THE PARIS AGREEMENT

Today, GHG emissions from commercial aviation represent approximately 2.5% of the world’s total, including 12% of the United States’ emissions in the transportation sector. Before the deal at ICAO, these emissions were projected to triple in the next decade. But in deference to ICAO, the Paris Agreement did not cover emissions from commercial aviation. Nevertheless, given the sector’s growing contribution to global GHG emissions, some coordination between the Paris Agreement and CORSIA will be necessary in order to meet the Paris deal’s goals. The Paris Agreement seeks to limit a global rise in average temperature to “well below” 2 degrees Celsius above preindustrial levels and to pursue efforts to limit such warming to 1.5 degrees. The Paris Agreement also calls for a global peak in GHG emissions “as soon as possible,” before reaching net-zero global GHG emissions in the second half of this century. In turn, CORSIA aims to “contribute” to the Paris Agreement’s goals.

Both the Paris Agreement and CORSIA include periodic reviews of parties’ efforts to adjust national commitments to achieve the agreements’ environmental objectives. This leaves room for the agreements to tighten over time and to be better coordinated.

NEXT STEPS AND IMPLICATIONS

With the initial elements of CORSIA in place, the ICAO will now turn to the operational details, including reporting procedures and offset generation and trading.

The deal also opens the door to national rulemaking in the commercial aviation sector. Parties to ICAO traditionally adopt domestic regulations at least as stringent as those set by ICAO. As noted in our earlier Alert,8 as a first step toward regulating the industry, the EPA issued an endangerment finding in July 2016, which has since been challenged in court.9 With the ICAO deal in place, the EPA is expected to move forward with regulations, although the precise timing is unclear. Similarly, the European Union—which had put its national regulations on hold pending a deal at ICAO—will again consider what obligations to impose on international commercial airlines.

In addition, we expect the ICAO agreement to result in pressure on other sectors that remain under- or unregulated. In particular, the international maritime sector’s GHG emissions remain unregulated, and the International Maritime Organization could use the ICAO agreement as a template for an international mechanism to regulate GHG emissions.