European Parliament backs aviation inclusion in EU ETS

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The European Parliament (EP) decided this week to back the inclusion of the aviation sector in the EU Emissions Trading Scheme (EU ETS) as from 2012. This decision followed a vote on the latest common position published by the Council in April 2008 on a proposed directive to include aviation in the EU ETS and will be of interest to airlines as well as investors in the carbon market.

Key elements of the European Parliament proposal

The EP agreed to reach a compromise with the latest common position of the Council on the following grounds:

  • As requested by the Council in its common position, all flights arriving or departing in the EU will be covered by the EU ETS as from 1 January 2012, as opposed to 2011 as previously suggested by the EP
  • The emission reduction target which will be imposed on airlines will be calculated on the basis of each airline’s average annual emissions in the 2004 - 2006 period
  • The emission reduction targets would be fixed at 3% for 2012 and then at 5% below each airline’s baseline for the period starting in 2013. This percentage could be modified for future phases (post Phase 3) following a general review of the EU ETS which the Commission should carry out by 1 December 2014
  • The EP suggests setting the level of auctioning of allowances for the aviation sector at 15 % (as opposed to the 10% suggested by the Council), meaning that 85% of allowances would still be freely allocated to the aviation sector according to a common EU benchmark. This figure could change in future phases following a general review of the EU ETS
  • The EU would be required to continue seeking an agreement on global measures to reduce greenhouse gas emissions from the aviation sector.

Financial implications for the airline industry

The cost to the airline industry is estimated at around £3bn in 2012 by the International Air Carrier Association. The proposed scheme remains controversial with the EU's airline industry, which is already grappling with a high oil price and a squeeze on margins, and is also opposed by many non-EU carriers who would be caught by the scheme.

The EU ETS will have financial implications across the aviation sector, but the impact on each particular carrier will depend on a variety of factors. Key preparatory steps that aircraft operators and other players in the industry should be considering at this stage include:

(i) becoming familiar with the key legal requirements of the scheme and in particular all the initial procedures which need to be carried out to obtain a permit and create an account in the relevant Member State’s registry;

(ii) ensuring that IT systems are compatible with the necessary software required when taking part in the EU ETS; and

(iii) gaining an understanding in emissions trading and, in particular, the commercial and legal considerations that have to be taken into account when buying or selling allowances or CER / ERU credits.

For those in the aviation sector that take preparatory steps early and effectively, the EU ETS could well provide a competitive edge against other players in the industry.

Next steps

The EP’s proposed amendments will now be sent to the Council and the Commission for a further review as part of the co-decision procedure.

To access the EP’s proposed amendments, please click here.