November 19, 2012

Developments in Washington, DC and Brussels last week have had a significant impact on the European Union’s Emissions Trading Scheme (EU-ETS) as it is applied to aviation.

While certainly not a one-two knockout combination to the emissions-reduction program adopted by the EU’s 27 member nations, the past week’s events are an indication not only of international resistance to the program, but of a new willingness to compromise within the highest levels of the European Union itself.
Rising above all of that is the question: Just what do these developments mean for NBAA Members whose business it is to fly to Europe?

The European Commission said Nov. 12 it would recommend a delay in implementation of EU-ETS as applied to operators on international legs flown to or from non-EU countries. That would, at least temporarily, remove a major bone of contention that had threatened to ignite a trade war between Europe and much of the rest of the world.

EU-ETS is aimed at lowering carbon-dioxide emissions. Aircraft operators are assessed a per-ton cost for their CO2 emissions based on miles flown to and from Europe. Rather than calculating those miles from the point of entry into EU airspace, EU-ETS calculates them from the point of departure to the point of arrival, raising the ire of operators and governments, which say the European Union has no right to charge fees for flight segments that take place outside of Europe.

The complex walk-up to implementation of EU-ETS had been all but complete. Operators were to purchase their carbon credits by the end of April 2013. And then came European Commissioner for Climate Action Connie Hedegaard’s proposal to “stop the clock” on EU-ETS for one year.

In a memo describing her decision to institute a moratorium, Hedegaard explained it was in large part because the United Nations civil aviation arm, the International Civil Aviation Organization (ICAO), had suddenly stepped up to the plate after years of inaction on the topic of climate change.

“The EU has always been very clear: nobody wants an international framework tackling CO2-emissions from aviation 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. Now it seems that because of some countries’ dislike of our scheme, many countries are prepared to move in ICAO, and even to move toward a Market Based Mechanism (MBM) at the global level.”

“Very good news came from the ICAO Council last Friday,” Hedegaard’s memo continued. “Among other things, it was agreed that:

  • A high-level policy group will be set up shortly;
  • Options for a regulatory MBM will have to be reduced from three to one, and;
  • There is an explicit reference to the global MBM that the world now needs to agree on.

“In short, finally, we have a chance to get an international regulation on emissions from aviation. This is a long-sought for opportunity that we must use. This is progress! But actually to get there, a lot of tough negotiations lie ahead of us,” she wrote.

But along with the carrot of a long-sought delay in EU-ETS implementation, Hedegaard made it clear she was also carrying a stick.

“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,” she wrote.

Where does that leave NBAA Members?

“It doesn’t say EU-ETS is going away for the next 12 months,” explained Adam Hartley, supervisor of global regulatory services at Universal Weather & Aviation, Inc. “All it says is that they will remove the inclusion of international legs” from the EU-ETS program.

In other words, Hartley said, flights from Los Angeles to London would, for the next year, be exempt from carbon tax assessment. However, London-Paris legs would not be exempt.

“I think there’s not a lot of push-back on the concept of taxation of flights within the EU,” he continued. “Most people feel it’s acceptable to have a program like that, and that’s the program we’d be left with under this proposal.”

But Hartley warned Hedegaard is flirting with disaster. In a carbon-trading market already roiled by uncertain valuations, further uncertainty added by possible changes in the aviation program could be disastrous.

“If they’re going to make these kind of changes… in a process where people, whether they like it or not, are fairly well set up… it would need to happen now,” he warned.

Analysis of Hedegaard’s proposal and its impact on operators outside the EU will be a major topic early next month at the Cross-Border Issues Conference in Ottawa. Hartley will speak on EU-ETS during the event, which is to be held Dec. 6–7.

In Washington, lawmakers dealt another blow to EU-ETS, issuing final Congressional approval to a measure that would prohibit U.S. aviators from participating in the carbon-trading scheme.

The House last week passed the European Union Emissions Trading Scheme Prohibition Act (S.1956), reconciling similar legislation from both houses of Congress and sending the proposal to President Obama for final approval and passage into law.

“On a bipartisan, bicameral basis, the United States Congress has sent a strong message to the EU, opposing the imposition of the ETS on civil aircraft,” said NBAA Senior Vice President for Legislative Affairs Lisa Piccione. It was a measure NBAA and other aviation groups had long fought for in the halls of Congress.

“By taxing emissions on flights outside of the European Union, there’s an extra-territorial reach,” Piccione said. She pointed to that as the reason most lawmakers in the U.S. and in other countries had become insistent that regulation of aviation carbon emissions be governed on a global, rather than regional, basis.

“Members of Congress simply believe this is a job not for the EU, but for ICAO,” she said.