EU ETS compliance level reaches over 98 per cent of 2012 aviation carbon emissions, reports Commission

Wed 29 May 2013 – The European Commission reports that aircraft operators responsible for over 98 per cent of the 2012 aviation emissions covered by the EU Emissions Trading System (EU ETS) have complied with the scheme’s requirements and surrendered the necessary allowances by the April 30 deadline. Following the ‘stop the clock’ decision that came into force on April 25, operators that chose to limit their responsibility for 2012 to flights within Europe had until last Monday, May 27, to return free allocations of allowances for flights outside Europe. According to Commission data, Ryanair reported the most carbon under the revised scheme in 2012 at just under 7.5 million tonnes, followed by Deutsche Lufthansa (4.9 million), easyJet (4.6 million) and Air France (3.8 million). A stand-off remains with airlines from China and India that are refusing to comply with the EU ETS, even on their intra-EU flights.

“We all knew that the first full compliance year for aviation was going to be a challenge. However, I am happy to say that after a remarkable effort from our aircraft operators, we have opened the majority of Aircraft Operator Holding Accounts and have achieved a high level of compliance, covering 99.9% of aviation emissions,” said Mladen Vukovic of the UK Environment Agency, one of the EU’s most proactive authorities responsible for administering the EU ETS. “The exact aviation compliance figures will be finalised by the Commission once the deadline for returning allowances under ‘stop the clock’ has passed.”

He said that those operators that did not return their allowances for exempted flights by the May 27 deadline would be deemed as having fully participated in the EU ETS and as such would find themselves as not having surrendered sufficient allowances by April 30. “This would then make them non-compliant and could change the compliance status by the end of May,” he added.

Under instructions from their authorities, airlines from China and India that may have conducted intra-EU flights in 2012 have not complied with EU ETS regulations and are therefore at risk of fines from the EU states that administer them. It is understood that eight Chinese and two Indian carriers may be involved. There is a mandatory €100 ($130) per tonne civil penalty across EU states for non-compliance.

The Chinese carriers could face fines totalling €2.4 million ($3.1m), and the two Indian airlines combined fines of €30,000 ($39,000), reports the New York Times.

According to the state-owned China Daily, a senior official from the Civil Aviation Administration of China (CAAC) said his country “will not accept any unilateral and compulsory market measures.” Speaking at the 2013 China Civil Aviation Development Forum in Beijing, Yan Mingchi, Deputy Director-General of the policy, law and regulation department, said airlines in developing countries should be provided with financial and technological support in their efforts at coping with the effects of climate change. He added that technology and operational improvements were the most effective methods of aviation emissions reduction, rather than carbon taxes.

The European Union Transaction Log shows other airlines that are in current non-compliance include Aeroflot (Russia), Evergreen (USA) and Pakistan International Airlines.

Many small business jet operators have found the compliance process particularly difficult, admits Vukovic, with limited options to purchase the required small numbers of allowances, as most carbon traders deal in batches of over 100.

“We will feed back our experiences in the hope that the majority of traders will be able to offer this service for compliance during the remainder of Phase III,” he said.

One trader that has already stepped in to fill this market gap is advisory and investment firm CF Partners. Finn Payne, Head of Aviation, said: “Most of the larger banks do not have the appetite or systems in place to help smaller airlines purchase the small numbers of credits they need. We have identified this problem and have designed a bespoke service specifically to enable smaller airlines to purchase the credits they need easily and efficiently.”

The administrative burden has also proved too much for a sizeable number of smaller operators, many from outside Europe.

“The EU ETS now has no minimum threshold for emissions below which aircraft operators are exempt. This means smaller operators must jump through exactly the same administrative hoops to comply with the scheme as large airlines,” said Payne. “The worrying reality is that many of them did not have the administrative capabilities to complete the compliance process before the April 30 deadline and could be hit with large fines.”

Andrew Pozniak, ETS Consultant with Avocet Risk Management, said the ‘stop the clock’ proposal had confused many smaller operators into erroneously believing they no longer needed to comply with EU ETS.

He reported that a number of operators had faced extreme difficulties in opening holding accounts. “There are significantly differing compliance requirements and efficiency levels between EU member states,” he said. “Some states’ procedures are especially onerous and their processing of account applications and provision of feedback to operators has taken place so slowly that it helped push some operators beyond the deadline and facing large fines. Some Competent Authorities appear not to have adequately planned nor resourced themselves to be able to deal effectively with the massive increase in their workload. Nevertheless, there were at least three authorities we experienced that were especially helpful and went the ‘extra mile’ to help operators comply.”

Help may be at hand in the longer term for the so-called small emitters. The European Commission has instigated a project, led by PwC, to identify quick wins within the current legislation to make life easier. The aim is to provide input for the review of the functioning of the EU ETS, as laid out in Article 30 (4) of the directive, which is due in December 2014. Finalisation of the project is due shortly following a reported strong feedback from stakeholders.

From data contained in the Union Registry and the European Union Transaction Log, GreenAir has been able to put together a list of the Top 20 largest airline carbon emitters in 2012 covered by the revised Aviation EU ETS (see table below).

Two non-European carriers make the list: Federal Express and Korean Air. The Asian airline appears to have taken the decision to include both extra-EU as well intra-EU flights into its 2012 reporting as it made financial sense. Korean was allocated free allowances totalling 2,051,522 but emitted only 1,859,876 tonnes, therefore making a gain of 191,646 free permits, worth €670,000 ($860,000) at the current price of around €3.50 per tonne.
Green Air, May 29, 2013