On 19 March 2014 the European Parliament Environment Committee rejected a deal exempting flights travelling outside of the EU from EU ETS compliance until 2016. Although this may still be agreed in plenary, the clock is ticking for airline operators who need to know whether they will have to meet the impending 30 April surrender deadline.

As the stop the clock derogation only applies to 2012 aviation emissions and legislation will not be in force before the 31 March reporting deadline, airline operators are left with the threat of enforcement action if they fail to comply. Unless operators have been preparing to comply the impending deadlines are probably unachievable at this late stage. If a deal is reached it may incorporate the European Commission's proposal for 2014 compliance obligations to be postponed for a year, but this will not be confirmed until after the reporting deadline has passed.

If the deal is rejected in plenary there is a risk that counties such as the US and China will commence previously the threatened retaliatory measures against the EU and ban their airlines from complying.

Background

Since aviation was first included in the EU Emissions Trading Scheme (EU ETS) in January 2012 the extent of its participation has been a source of constant debate. Following significant opposition from countries such as the USA and China throughout 2012, the European Commission decided to 'stop the clock' and exempt all flights between EEA and non EEA countries. This meant that only flights within EU airspace had to report on and surrender their 2012 allowances by 30 April 2013.

Pressure has since been on for the International Civil Aviation Organisation (ICAO) to reach an international agreement on the reduction of aviation emissions. Despite much discussion during 2013 no international agreement is expected to be agreed until 2016.

Consequently the European Commission proposed that:

  • All emissions from flights between an EEA and non EEA country in 2013.
  • should remain fully exempt in 2013. From 2014 – 2020 emissions from flights between an EEA and non EEA country should be exempt for the portion of the flight outside EU airspace.

Unsurprisingly this proposal was still subject to opposition from non EU countries which argued that all emissions from flights entering or leaving the EU should be exempt.

Will stop the clock continue?

On 4 March 2014 it looked like a deal might have been reached for the EU ETS to only apply to intra-EU flights until 2016. Under this agreement, if no international agreement on the reduction of aviation emissions is reached by 2016 then the full scope of the EU ETS will be reinstated for the next compliance year.

However, this deal was rejected by the European Parliament's Environment Committee on 19 March 2014. Although several commentators expect the deal agreed on 4 March 2014 to be approved in plenary on 3 April 2014, uncertainty still remains for operators who need to know whether they will need to meet compliance deadlines in March and April 2014.

Members of the European Parliament (MEPs) will undoubtedly face opposition whatever the outcome on 3 April 2014. If the deal is accepted the EU is likely to face legal challenge from the EU's low cost airlines on the basis that the deal puts them at an unfair disadvantage in the market. If the deal is rejected, the EU faces the potential of a trade war with countries such as the USA, China and India.  Prior to the stop the clock derogation several countries had threatened retaliatory measures against the EU and banned their airlines from participating.

What should airline operators do now?

In theory, until new legislation is formally agreed, all airline operators are obliged to meet the 2014 compliance deadlines. As several Member State authorities, including the Environment Agency, have said that penalties will be applied for failure to comply, all operators should carefully consider the risk of enforcement action if they fail to comply with the 31 March 2014 deadline. Hopefully a final decision will be made on 3 April 2014 which will provide some much needed certainty.

We will continue to watch the development of this and provide a further update following the decision on 3 April 2014.