The Proposal

The EU has proposed “stopping the clock” on the implementation of the international aspects of the EU Emissions Trading System (EU ETS).  This means suspension of EU ETS for one year for flights that take off or land outside Europe pending the outcome of the International Civil Aviation Organisation (ICAO) General Assembly next autumn. At the General Assembly it is hoped that a global emissions package will be finalised.

However, the exact effect of this proposal still unclear, in particular what happens if the ICAO fails to reach agreement.

The EU ETS will continue to apply to flights which both land and take off in the EU.  

The Background

The EU ETS has applied since 1 January 2012 to all EU and non EU flights that land at or take off from an EU airport. It applies to both EU and non EU airlines.

There has been strong opposition to the inclusion of the aviation sector within EU ETS, especially from non-EU airlines arguing that the scheme is contrary to international law. The countries most vocal against the EU ETS have been the US, China and India. India banned its airlines from complying with the scheme in April this year and China had threatened to block orders of European aircraft by its carriers.

So what happens next?

During the one year “deferral” the ICAO will look into the possibility of encouraging airlines to reduce their emissions through market-based mechanisms at a global level.

Historically progress at the ICAO has been slow, however, as Commissioner Hedegaard acknowledges, “the EU has always been very clear: nobody wants an international framework tackling CO2 emissions more than we do. Our EU legislation is not standing in the way of this. On the contrary, our regulatory scheme was adopted after having waited many years for ICAO to progress.”

However, Commissioner Hedegaard made clear that, “if this exercise does not deliver – and I hope it does – then needless to say we are back to where we are today with the EU ETS. Automatically.”

What does this mean for the sector?

The announcement is timely as the aviation sector prepares to buy allowances for the first time in 2013. The one year proposed suspension would mean that for the time being at least, flights which take off or land outside the EU will avoid the costs of EU ETS for their 2012 emissions.

However, if the ICAO fails to finalise a global emissions package then flights which land at or take off from an EU airport will be brought back within the scope of the EU ETS. How this will work in practice is unclear, but it looks as if this would mean buying allowances in 2014 to cover 2013 emissions.