Developments in the EU ETS continue to perplex, with no sign of the war of words over this highly contentious scheme abating.

The EU’s latest position

The European Union, having previously “stopped the clock”, set out its latest position by an announcement/ memorandum on 16 October 2013. This stated that international aviation emissions would be covered by the scheme only for the parts of the flights that take place in European air space. This amendment would apply from 1 January 2014 until a global market-mechanism becomes applicable to international aviation in accordance with the intentions of ICAO (see further below).

The main features of the revised EU ETS scheme are:

  • All emissions from flights between airports in the EEA will be included in the scheme
  • From 2014 to 2020, flights to and from airports outside the EEA will be exempt, except for that part of the flight that takes place within the EEA (meaning 12 nautical miles from the furthest point of EEA territory). Readers familiar with the objections raised by most if not all non- EU airlines to the ETS will recall the allegation of alleged violation of sovereignty by imposing the scheme over flights occurring in non-EEA territory, a point dismissed by the Court of Justice of the European Union in its judgment in the Airlines for America case in December 2011
  • Flights to and from developing countries, which emit less than 1% of global aviation emissions, will be completely exempt
  • Overflights will continue to be exempt
  • Non-commercial operators which emit less than 1000 tonnes of CO2 a year will be exempt
  • The next date for the surrender of allowances (for the 2013 trading period) would have been 30 April 2014 (now subject to the two-year compliance cycle referred to below), so the EU Commission is keen to have these amendments to the legislation in force by then. Emissions from flights to and from third countries in 2013 will be fully exempted from the EU ETS, because implementation of the new scheme will require adjustment to monitoring and reporting and the allocation of free allowances

Further, there will be an “extraordinary two-year compliance cycle” for 2013 and 2014, with emissions for these two years only having to be reported by 30 April 2015 in the form of two emission reports, with allowances for these years to be surrendered by 30 April 2015. The Commission will conduct a review following the 2016 ICAO Assembly, to decide on any further actions to be taken with regard to the ETS.

Why has the Commission changed the goal posts in this way?

The ICAO 2013 resolution

On 4 October 2013, ICAO at its general assembly resolved  to implement a global market based mechanism (MBM)  for international aviation emissions by 2020, with reporting back on possible options by 2016.

The ICAO Council President, Robert Gonzalez, hailed this resolution as an “historic milestone for air transport and for the role of multilateralism in addressing global climate change” but it is hard to see it as anything but an aspiration, with no clear plan in place to achieve the goal. Most commentators seem to agree that the only realistic market-based mechanism option available is a form of emissions trading (carbon offsetting is not technically an MBM), the procedural requirements for which have been developed by the EU. Two years is a long time to come up with options, and a lot of carbon dioxide will have been emitted by 2020.

None of this is a victory for the EU, in fact quite the reverse, and it is reasonably clear that if the EU had followed the exact terms of its “stop the clock” announcement of November 2012 it should have “snapped back” application of the ETS to non-EEA flights. Clearly this was a politically unpalatable option given the hostilities that would be re- commenced, including the very real possibility of a trade war, and following the ICAO Assembly most commentators expected the EU to draft new legislation permanently to amend the ETS Directive so as to cover only intra-EU flights. Their actual decision to exempt emissions from  that part of flights over non-EU territory was therefore surprising, but logically consistent in addressing one of the main objections raised to the ETS.

The EU’s approach may seem a reasonable compromise, but has itself faced widespread opposition. Environmental groups claim that the scheme is now too watered down the new proposal covers only 35% of the emissions that would otherwise have been covered by a fully implemented ETS as originally crafted – whilst trade associations such as IATA still object to a scheme that has any extra-territorial scope (ie, still imposing monitoring and reporting, and potentially enforcement action, on non-EU carriers, for  their EU flights). Airlines for America has stated that in its view the amended ETS “flies in the face” of the ICAO agreement. Sources familiar with the debate report that the EU may yet consider an extension of the “stop the clock” policy to 2020 in order to give time (and plenty of it…) to ICAO to work on its MBM.

ELFAA action

Amongst these developments, objections have also been raised to the EU’s “stop the clock” mechanism, which was announced in November 2012 and suspended enforcement of the ETS for one year against carrier’s obligations in respect of flights to and from the EEA, whilst leaving the ETS fully applicable in respect of intra-EU flights. This partly appeased international operators but has been objected to by predominantly intra-EU aircraft operators,  in particular those represented by the European Low Fares Airline Association (ELFAA) and the European Regions Airline Association (ERAA). ELFAA commenced proceedings in the English High Court, arguing, amongst other points, that the “stop the clock” mechanism is distortive of competition, and was made on political grounds without a proper economic impact assessment. ELFAA registered a stay of proceedings until the ICAO Assembly in October 2013. The path remains open to object to the EU Commissions’ latest announcement.

Conclusion

Approaching two decades since the Kyoto Protocol was signed requesting airlines to work through ICAO to come up with a global solution, and six years since Directive 2008/201/EC included aviation in the EU ETS, the debate on the best way to address emissions from aviation seems far from resolved and as polarized as ever. At the ETS level, the scheme has only been running for two years but has already been significantly amended twice, in reaction to political events and without much assessment of the underlying economic impact or the frustrations for carriers having to deal with constantly changing legislation. Most non-EU airlines still oppose the scheme even in modified form, and many have been instructed by their national governments not to comply with it; whilst many intra- EU carriers support it, but not in its modified form. In the meantime ICAO has committed to implement a scheme in six years’ time, but operators have already waited 16 years for ICAO to provide an alternative to the ETS. Barry Moss, chief executive officer of Avocet Risk Management, says: “Judging by the international response so far consensus concerning the mechanics of a global aviation emissions scheme at the next ICAO general assembly in 2016 seems unlikely”. It is indeed very hard to see a way forward that will have the support of the entire airline industry.