The Kyoto Protocol and the United Nations Framework Convention on Climate Change specifically exclude international emissions from aviation transport from developed countries’ national targets. Instead, Kyoto calls on the International Civil Aviation Organization (ICAO) to tackle the issue. Until recently, however, the ICAO had not been able to reach agreement on substantive binding actions aimed at limiting greenhouse gas (GHG) emissions.

On October 8, 2010, the 190 members of the ICAO approved a resolution in which they agreed to improve fuel economy and strive to limit GHG emissions from aircraft. Per the resolution, the ICAO set a goal to improve fuel efficiency 2 percent per year through 2050, cap GHG emissions at 2020 levels, develop a global framework for the use of alternative fuels, and propose a GHG emission standard for aircraft engines by 2013.

The ICAO also agreed to develop a framework for market-based measures (MBMs) and issued 15 guiding principles for the design and implementation of MBMs for international aviation. These principles are intended to minimize market distortions, ensure that aviation is treated fairly relative to other sectors, guarantee that aviation’s emissions are counted only once, and recognize past and future efforts of carriers to minimize emissions. Member states are encouraged, but not required, to submit action plans to the ICAO by the end of June 2012, outlining their plans for reducing and reporting their international aviation GHG emissions.

The European Commission (EC) entered an objection over sections of the resolution that refer to guiding principles that may conflict with the European Union (EU) emissions trading system (ETS), which will include aviation beginning in 2012. Beginning in 2012, the EU ETS will require non-commercial operators and most commercial operators who conduct flights that arrive or depart from airports located in the EU to reduce GHG emissions. Commercial operators that emit less than 10,000 metric tons of carbon per year or operate fewer than 243 flights per period for three consecutive four-month periods are exempted.

In the first year, the EU ETS aviation cap will be set at 3% below the established baseline, which is set at the sector’s emissions between 2004 and 2006. The cap will then be reduced to 5% below the baseline. It is expected that operators will be required to reduce their emissions by more than 200 million tons of carbon equivalent. Operators will be awarded free allowances based on a formula called revenue per ton per kilometer (RTK), which measures weight and distance traveled, but initially will be required to purchase 15% of their necessary allowances. The International Air Transport Association estimates that compliance with the EU ETS will cost the industry at least 2.4 billion euros, or about $3 billion, a year.

Business aviation operators have complained that the EU ETS favors commercial airlines to the disadvantage of smaller, private operators. For example, as noted above, certain commercial operators are exempted from the system, but these exemptions do not apply to non-commercial operators. In addition, business aviation operators will be required to purchase a greater percentage of allowances because the RTK formula will award more free allowances to scheduled airlines and freight companies, which carry far more payload weight than business aviation flights. Moreover, business aviation operators will incur substantial transaction costs complying with the system, especially considering the relatively small number of credits a typical business aviation operator will be required to purchase.

In December 2009, American Airlines, Continental Airlines and United Airlines, backed by the Air Transport Association, filed for judicial review in the British courts, challenging their inclusion in the EU ETS. The airlines are arguing that the EU lacks jurisdiction to regulate flights to and from the United States. On January 20, 2010, the UK Government referred the matter to the European Court of Justice. The suit is pending.

The EC plans to go forward with implementation of the EU ETS as it relates to aviation emissions. In fact, the EC believes that the ICAO has tacitly approved its plan, since the EU ETS is consistent with all 15 principles for MBMs and the ICAO members declined to include language that would have required the agreement of other states before application of the EU ETS to their airlines.