TRADING
There are significant number of countries where there is carbon emissions trading scheme. Like Australia, New Zealand, Switzerland, United Kingdom and some many more. China has launched its first carbon emission trading scheme. Providing a market incentive to control pollution, companies which exceed their quota of carbon emissions can buy unused allocations from others- as per the scheme. It is unlikely to have much impact as analysts say the scheme’s limited range means. With some permits allocated free and others auctioned, companies must construct a permit for every tonne of carbon dioxide they produce, under the emissions trading system. Such as solar panels or wind farms, awarded by the United Nations to projects that cut emissions in developing countries, companies can also top up their permit quota with carbon credits. Rather than make real reductions, IATA (International Air Transport Association) resolution could allow airlines simply to buy low-cost carbon credits to offset their emissions, as green campaigners pointed out. Due to a surplus on the market carbon credits are presently at rock bottom prices. Companies were awarded far more free permits than they needed as they covered by the EU’s emissions trading system. Bill Hemmings said that better air traffic control, better planes and bio fuels alone can solve the problem as the IATA resolution represents a welcome departure from their chronological position. He is the aviation manager at the green campaigning organisation Transport and Environment. The ICAO and the success of the IATA resolution also depend on whether governments can agree later this year (2013) on how to adjust airline emission.
Figure: Celent experts the market to surpass €40 billion by 2012, as while it is difficult to make assumptions about a market that is so dependent on regional and international regulations.
European Regulation imposes restraint how unused carbon emission is permitted. Under directive 2003/87/EC the opening of the United Kingdom Emissions Trading Scheme in 2002 was a forerunner to the European Union (EU) wide scheme. Under the Green House Gas Emissions Trading Scheme Regulations 2003 (SI 2003/3311) the EU scheme has statutory backing and has been transposed. To designate an aircraft operator to be subject to the regulations where they do not appear on the commission list the UK regulations allow for the Secretary of State.
Carbon emissions trading specifically targets Carbon dioxide and it currently constitutes the bulk of emissions trading. In order to meet their obligations specified by the Kyoto protocol this form of permit trading is a common method countries utilise; in an attempt to reduce future climate change namely the reduction of carbon emissions. To and from (and within) the EU aircraft operators will have to surrender one allowance per tonne of co2 emitted on a flight from 2012. The first global emissions trading scheme is European Emissions Trading Scheme (ETS). On top of the obligation to procure and surrender missing allowances even non-complying aircraft operators face a penalty of €100 per missing allowance. From operating in the EU they may even be banned. To include aviation in the EU ETS in 2008 the EU passed legislation 15% of allowances will be auctioned but this share may increase with the planned revision of the EU ETS directive under current rules. Only about 60% of the allowances the sector needs will be issued for free in 2012, given that the sector’s emissions are expected to grow to 130% by 2012. Assuming a price level of €30 per allowance this shortfall equals costs for entire sector of about 3.5 billion Euros per year. As specific emission levels vary widely between aircraft these costs are likely to be spread unevenly amongst affected operators. Regardless of where they are based the EUETS affects all aircraft operators; provided that they operate flights departing from and/or arriving at an aerodrome in the EU. Flights will not be covered by the scheme that made entirely outside the EU. With a maximum take-off weight of more than 5700kg the EU-ETS affects passengers and cargo flights in aircraft. Assigning a member state to each aircraft operator and national competent authorities have started contacting operators as the European Commission has already published a provisional list. In other countries Europe is looking to link the EU ETS with compatible schemes. It has been agreed in principle that it is a corridor for linking with Australia’s system.
Give those ambitious goals teeth which are set to be binding on the airline industry beginning in 2012, as the European Union’s “Aviation Amendments” to its GHG ETS. Regardless of whether the emissions occurred inside or outside of EU airspace, aircraft operators surrender emissions allowances equivalent to the GHG emissions associated with their flights into and out of EU airports and their flying into or out of EU airports will be required to participate in the ETS, under the amendments.
European Union told all airlines have to have certain quota for carbon emissions. If they exceed the quota they must buy from other airlines. They have to buy unused quota from other airlines.US, China and India began a legal battle. They objected to their airlines being included in the EU ETS. North American airlines brought legal action against European Union. They argued why we should pay for unused quota. European Union said ‘if you do not pay you cannot operate into Europe’. For 2013-2015 the Shanghai government has set annual carbon emissions quotas for the companies, however has not publicly revealed them. Chinese airlines already challenged the EU ETS. EU’s climate chief (2013), Connie Hedegaard said that to keep their emissions in check it is a very tough message that the airline industry seems ready to prop up a single global market-based measures. Of allowing airlines to buy carbon credits, could be less effective than alternatives as Eva Filzzmoser, director of the campaigning organisation Carbon Market Watch, warned that the simplest scheme on offer.
There are impacts which are illustrated as follows:
Including the US and India, numerous nations have already balked at a global emissions scheme for airlines. Saying it wanted to give all sides more time to accomplish a global accord; the EU suspended its CO2 ETS for international flights for 2013, as late last year, after running into a storm of criticism. To cover 15% of their co2 emissions for the entire flight, airlines flying in EU airspace were required to buy pollution credits, wherever it originated, under the ETS. Led by the US and China, EU is ready to compromise over its tax if opponents apply a parallel tariff by 2016 as a European source remarked. The global aviation industry’s chief said on Wednesday that the EU should scrap a controversial carbon tax on air travel and seek a global solution to the emissions problem. Despite retaliatory trade measures by China, the EU will maintain its carbon tax imposed on airlines operating in its airspace, as the Danish climate minister remarked. In 2013 the EU Commission said that for not paying for their GHG emissions throughout flights within the bloc, 8 Chinese and 2 Indian airlines face fines of up to several million Euros.
The UK government is to refer the legal action instigated against it last month over the EU emissions Trading Scheme (EU ETS) by 3 US airline –American, Continental and united-to the Court of Justice of the European Union (CJEU) on the grounds that it is likely to offer the swiftest resolution of the issue, according to Business Green, in 26 January 2010. The EU ETS has decided to include airlines within the scheme from January 2012, with its eyes on the fast-developing rates of carbon emissions from airlines. According to Thomson Reuters Point Carbon, given it will place an estimated additional cost of US$10 billion during the next 8 years on the struggling air transportation industry, as the decision has raised much conflict. It is beginning to emerge that carbon offsetting, rather than emissions trading, is the favoured option for states and industry, as ICAO expert groups continue their work on a global market based approach to limiting the growth of international aviation emissions. Saudi Arabia has joined India and China in instructing its national airline not to comply with the EU ETS legislation, according to reports. The Association of European Airlines has condemned proposals by the European Commission to change the timing of EU ETS allowance auctions in an effort to boost a flagging carbon price, which has now fallen below the €7. In 2050, UK policy is for aviation carbon emissions to be no more than they were in 2005- around 37 million tonnes. As airlines join schemes such as the EU ETS, carbon pricing is critical to the business Case for aviation bio fuels. According to IATA, around 1.67 million tonnes of co2 emissions were saved by the grounding of scheduled flights within Europe, estimates consultants RDC Aviation, whilst the Iceland volcano ash cloud has cost the airlines $1.7 billion. To challenge the legal validity of its airline members be included unilaterally in the EU ETS, a judicial review held in 2010 at the High Court in London agreed an application by the Air Transport Association of America (ATA). Against the UK’S Secretary of State for energy and climate change the action was brought. Request for the case be referred to the CJEU in Luxembourg by both sides was granted. Until the introduction of airlines into the Aviation EU ETS scheme in 2012 the German government is to introduce a departure tax on all passengers departing German Airports. On the 2nd July 2010 it was published that the first major carbon emissions trading scheme to affect airlines started in New Zealand. It is expected to add around 3 New Zealand cents (2 US cents) to a litre of jet fuel. To proceed with including the aviation sector in their domestic carbon tax and GHG cap-and-trade schemes the lack of greater progress under ICAO also led Australia and New Zealand. Nevertheless, from their requirements both nations exempted international aviation fuels. Emissions obligations under the New Zealand Emissions Trading Scheme (NZ ETS), unlike the European model, which starts in 2012, are accounted for ‘upstream’ so fuel suppliers bear the responsibility for compliance and they in turn pass the costs on to the user. The US House approved a Senate version (S. 1956) of a bipartisan bill that aims to prevent US aircraft operators from complying with the EU legislation as less than 48 hours after the EU had announced it was suspending the inclusion flights to and from Europe from the EU ETS. Paris-based verifAvia said that aircraft operators included in the Aviation EU ETS face yet another and imminent hurdle, with the monitoring and collecting of data now underway. Only a handful of declared verifiers are so far in place and the aviation industry risks a shortage in the lead-up to the deadline, with over 2,000 aircraft operators worldwide included in the scheme, according to verifAvia CEO Julien Dufour. In 2013, with a pledge by a senior US Administration official that the tone will different on this occasion as the 3rd meeting of countries opposed to the inclusion of the airlines into the EU ETS starts in Washington DC. The EU would have to set aside its scheme in the near term as he said an ambitious goal had been agreed at ICAO in 2010 of limiting the growth of emissions from 2020 and should a global solution be found. Members of European Parliament unanimously voted in support of the measure. The European Commission’s ‘stop the clock’ proposal to temporarily suspend the inclusion of intercontinental flights from the EU ETS has moved an important step forward. To reach a global agreement to tackle aviation emissions- something Europe has been seeking for more than 15 years the EU took the initiative to allow time for the ICAO Assembly in autumn 2013. 1200 aircraft operators have submitted their 2011 EU ETS emissions reports by the 31st March 2012 deadline but it appears Indian and Chinese airlines have headed instructions from their authorities and failed to comply, according to the European Commission. The larger EU carriers have yet to declare their hand, apart from Ryan air, whereas some major international airlines flying to Europe like Delta, American, United, US Airways and Qantas have already added specific surcharges to their European routes to cover their EU ETS costs. The inclusion of foreign airlines in the EU ETS could hold up global climate talks as the US special envoy for climate change, Todd Stern has warned in 2012. EU scheme was “a deal-breaker” for the global talks on climate change as India’s environment minister, Jayanthi Natarajan said in 2012. To allow global deal at ICAO South African tourism minister calls for 2 year suspension of aviation EU ETS. To put a stop to the growing probability of a trade conflict with China and other major nations over the EU ETS the CEO’s of 9 leading European aerospace manufacturers and airlines have written letters to the Prime Ministers of France, Germany, Spain and the UK. It was expected that the airline industry would experience marvellous growth, as before the current spike in oil prices followed by the global recession and sharp decline in oil prices. The aviation industry would become one of the biggest contributors to anthropogenic climate change by 2050, as expected upswing in air travel raised concerns. In 2012 it was published that to help achieve emissions reduction goals airlines could require $1.4 billion of carbon offsets annually. Failure to resolve US aviation dispute with Europe over EU ETS would pose enormous international trade and climate risks. With the EU insisting that Switzerland includes civil aviation emissions as well as those from stationary installations in the Swiss scheme, as the move follows ongoing discussions between the EU ETS and the Swiss ETS from 2014. Believing they would advantage from the EU ETS in the long term due to their advantages in developing now bio fuels, as the second group is someway helpful, including Brazil and Middle Eastern airline carriers. Chairman of IATA and chief executive of KLM said that we call upon EU institution to act rapidly to avoid a needless trade war.
In the EU ETS the EU directive 2008/101/EC provides for the inclusion of aviation. For implementing phase 3 of the EU ETS in the GHG Emissions Trading Scheme Regulations 2012 the directive was first transposed into UK regulations in 2009, and is set to be included in the legal powers. For Jet engines ICAO sets emissions standards. FAA is working reduce GHG emissions from aviation or through ICAO to evaluate policy options to limit. To demonstrate air quality improvements with alternative fuel ground support equipment FAA developed a pilot program, with EPA and DOE. Airlines have engaged in voluntary emissions reduction programs. To reduce emissions from their ground support equipment California and Texas have agreements with the major airlines. By converting gasoline and diesel equipment to electricity and alternative fuels as these new agreements will reduce emissions.
IATA analysis on the Structural reform of the European carbon market
The European Commission published a report on the State of the European carbon market (COM (2012) 652) in 2012. Consequently lower emission levels from stationary installations than anticipated one of the key problems identified in the report is the surplus of allowances that has accumulated. The European Commission proposed to suspend the auctioning of 900 million allowances in phase 3 of the EU emission trading system (EU ETS) as a short-term measure. Increasing the EU’s GHG reduction target; retiring a certain number of phase 3 allowances; revising the yearly reduction in the number of allowances; bringing more segments into the EU ETS; limiting entrance to international credits; and, introducing discretionary price management mechanism, the European Commission also commenced a constitution on some options to reform the European carbon market.
To take account of the following considerations, IATA would like to call on European institution and members states:
Regulatory Predictability: Where the price of carbon is the outcome of demand for allowances and of a pre-defined environmental result which determines supply as the EU ETS is a cap-and trade method.
Acceptability by third countries: To the application of EU ETS to their airlines and to emissions outside of European airspace third countries have objected strongly. Against the European scheme manipulations of the carbon market would further strengthen their reservations.
Economic impact on airlines: Aviation will be a net buyer of allowances, though the number of aviation allowances in phase 3 will be 95% of aviation’s historical emissions. Increasing to 108 million in 2020, aviation’s will exceed the number of freely allocated aviation allowances by 74 million in 2013, according to the European Commission.
Cost-effective environmental policy: Green house gas emissions must be cost-effective as market-based measures to address. For achieving the similar environmental outcome any measures therefore considered should not have the effect of imposing a further cost burden on airlines.
Aviation and climate change:
In 2011, 670 million tonnes of CO2 were produced by global airline operations. To moderate GHG emissions from aviation in 2009 IATA airlines took a landmark decision to implement a set of ambitious targets:
From 2009-2020 an average improvement in fuel efficiency of 1.5% per year;
From 2020 a cap on net aviation co2 emissions (carbon-neutral growth);
Relative to 2005 levels, by 2050 a reduction in net aviation co2 emissions of 50%.
In September 2009, these combined targets were endorsed by the aviation industry in the joint submission to the ICAO. A multi-faceted approach is required with a strong assurance from all aviation stakeholders to achieve it.
The application of market-based measures to aviation:
On a global approach to market-based measures and refrain from applying regional or national measures as IATA urges governments to agree:
Over international waters and even different continents co2 will be emitted over numerous different countries for a typical flight.
The multiplication of regional and national measures results in an indefensible mess of unconditional; administrative and reporting requirements, also, with some aircraft operators flying to almost 100 different countries.
Finally, it is believed that the relationship amongst the airlines, environmentalists and political establishment of the respective countries should be cooperative in relation with carbon emissions trading.