ETS Confusion Reigns

In January 2012, aviation will be integrated into the existing European Union Emissions Trading Scheme (EU ETS) by Directive 2008/101/EC. Flights that arrive at, or depart from, an airport in the EU will be subject to the scheme. This will include non-EU and EU aircraft operators.

Such an encompassing remit has led to a legal challenge by the Air Transport Association of America (ATA). The High Court of England and Wales has allowed ATA to proceed with the challenge, which will now pass to the European Court of Justice in Luxembourg. As yet, it is not known when a final ruling will be announced, although some time before the end of 2011 appears likely.
“The unilateral extension of the EU ETS to international aviation is contrary to international law both as an extraterritorial action and an improper tax or charge,” says ATA Vice President, Environmental Affairs, Nancy Young. “It also clearly stands in the way of an appropriate and effective global solution.”

Compliance with the EU ETS has already begun for airlines. Albeit under protest, all airlines are doing their best to submit the appropriate data. Even here, however, there is a large degree of uncertainty. The methodology is extremely confusing. The Commission has insisted on using the existing Monitoring, Reporting and Verification (MRV) requirements that were originally developed for fixed installations such as power stations. These are unnecessarily complex and burdensome for airlines.

For example, airlines account for their fuel by volume but the MRV requirements are specified by mass. Local temperature fluctuations mean fuel density can vary by as much as 5% and there are a number of other complications in converting the figures. Equally important, with 2010 acting as a baseline year for determining allocations, the ash cloud crisis has caused a significant distortion. Exactly how this will be remedied has yet to be decided.

Meanwhile, the draft Auctioning Regulation is now under review and is due to be finalized by year-end. Auctions for aviation allowances will start in 2012 and will take place at least once every two months.
The whole affair must also be seen in the context of the bigger environmental picture. A regional scheme is clearly impractical in light of aviation’s global nature. The solution to aviation’s environmental issues is in a global approach. And should the EU ETS go ahead for aviation then other so-called green taxes need to be revoked.

For example, in June, Germany introduced a new $1.2 billion (EUR1 billion) “environmental” departure tax with no guarantees that the tax would be rescinded when the EU ETS for aviation starts in 2012. This is totally contradictory to the purpose of paying for carbon emissions through the EU ETS. In effect, airlines will end up paying over and over again for the same emissions. The UK Air Passenger Duty, which has risen some 325% in four years, was also implemented as an environmental measure. EU ETS coordination with other measures seems to be in short supply.

“EU ETS regulations are a shambles,” says Paul Steele, IATA Aviation Environment Director. “We need governments to agree on a global solution to address aviation emissions. The prospect of double taxation in Europe is not only an EU problem but one that affects airlines worldwide.”

Bernard Gustin, co-CEO of Brussels Airlines, also points out that European carriers will be at a disadvantage compared with international competitors. “The EU ETS could unintentionally support some non-EU carriers in drawing passengers away from the EU markets and rerouting transit traffic through their airports,” he says. “These connections are longer than direct flights from Europe, which results in a higher fuel consumption and rising CO2 emissions.”

Source: IATA