UK: Aviation Joins The EU ETS - Now The Focus Is On What The Airlines Must Do

Last Updated: 22 April 2009
Article by Giles Kavanagh

From 2012, all commercial airlines, community and non-community carriers alike, will be compelled to purchase and surrender carbon emissions allowances for their flights within the EU and for flights departing from or arriving at community airports.

We reported in issue 1 of this newsletter that the inclusion of aviation activities in the scheme for greenhouse gas emission allowance trading within the European community (the Emission Trading Scheme (ETS)) had been agreed. Directive 2008/101/EC (amending directive 2003/87/EC) came into force on 2 February 2009. Member states now have one year to bring their national legislation into compliance.

What continues to be negotiated is the process whereby emissions and, thus, entitlements to certificates is agreed. This is known as monitoring, recording and verification (MRV). The European Commission has solicited views from the industry and is currently working on guidelines for MRV. The industry is, therefore, currently in a position where the obligations imposed on airlines have been agreed, but not the means by which the airlines will discharge them.

This is more than a mere legal anomaly; the situation is becoming increasingly urgent for airlines. The directive foreshadows that airlines are required to submit their first filings by the end of June 2009. That filing is aimed to address two issues: first, which European member state will be responsible for overseeing the application of the directive for each airline; and second, to establish each airline's emission 'baseline'.

Certifying authority

Once the ETS comes into effect, all flights within the EU and flights departing from and/or or arriving at community airports will need to be measured, recorded and ultimately verified (MRV). The relevant regulatory authority, the member state responsible for the issuance of certificates to airlines (known in the directive as the 'certifying authority'), will require verified reports before issuing certificates.

For airlines, this means that they must first establish which member state is to be their certifying authority, and build a relationship with their verification body. For European airlines, the certifying authority will be the state that issued their air operator's certificate. For non-European airlines, it is the member state into and out of which most of their flights are operated. What is not clear is what should be the certifying authority of an extra-community carrier that operates, say, a daily service to each of London, Paris and Frankfurt.

The baseline

The baseline is an important component in establishing the certificates that airlines will be entitled to, without charge, when the scheme comes into effect on 1 January 2012. Airlines affected by the EU ETS must report their baseline figures this year. Under the scheme, an average is taken of a carrier's total relevant flights (i.e. those into, out of, and within Europe) between 2004 and 2006. The resulting figure is reduced by three per cent in year one (2012), and by five per cent per annum thereafter, to determine how many "free" certificates are to be made available to the carrier concerned.

EU ETS - the next phase

Whilst the details of the MRV remain open to discussion, one aspect of the ETS in Europe was closed just before the year end. For much of December, it was feared that negotiations on the subsequent rounds of the entire ETS scheme within Europe might see an increase, potentially a substantial increase, in the percentage of certificates that would be auctioned. Environmental groups argued that 100 per cent of carriers' certification needs should be bought, with a clear impact on airline costs, and thus, it was argued, demand.

One of the reasons why this issue was closed was that the European Union felt a strong political need for a finalised and clear position on ETS in preparation for the international conference convened by the United Nations in December 2008 in Poznan, Poland. The Poznan Conference was a preparatory conference ahead of the negotiation of a replacement to the Kyoto Protocol. Those negotiations will take place in Copenhagen in December 2009.

The European Union argues that it is open to exempt flights from other states that operate a 'substantially similar' scheme. This might be the first step in the creation of a global system of ETS for aviation. Australia and New Zealand have recently announced new ETS arrangements that involve aviation. A number of other states are also considering such a move. In the case both of Australia and New Zealand, however, international aviation is currently excluded. It is the extra-territorial aspects of the European ETS that sets it apart from other schemes currently being introduced.

The growth around the world of ETS schemes applying to aviation is putting pressure on the International Civil Aviation Organisation (ICAO). In Kyoto, ICAO and the air transport industry were able to argue that the issues of greenhouse gases, emissions and global warming as they apply to air transport merited particular and specialist attention. Accordingly, ICAO was delegated oversight of emissions and global warming arising from air transport. In Copenhagen, that 'special treatment' will be under the spotlight.

As the number of ETS schemes that apply to aviation around the world grows, airlines may soon find themselves in a situation that parallels the development of the Warsaw Convention liability regime (pre-Montreal Convention 1999), with a patchwork of systems, reciprocal exemptions and treatments.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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