Human-induced climate change has triggered the adoption of measures across the world with the intention of reducing our CO2 footprint. Although shipping and aviation were initially exempt from such measures, over the last decades authorities around the world have changed their views and aligned these sectors with other industries. This is because the share of greenhouse gas emissions from international aviation rose rapidly in recent decades, with the sector now contributing to around 4% of the European Union (EU)'s total greenhouse gas emissions1. Additionally, prior to the COVID-19 pandemic, the International Civil Aviation organization (ICAO) predicted that in comparison to 2015, international aviation emissions could triple by 2050. This has placed increased focus on the industry to help address the climate crisis.
The growth of modern aviation came along in the 1990s through the introduction of new, low-cost business models. Through the de-regularisation of air transport, such business models were encouraged in Europe and the US. This permitted any European airline to fly to any European destination, bypassing major airport hubs like Rome, Paris, etc. Our skies witnessed the creation of numerous non-State controlled airlines, marking the end of decades where a flight was considered a luxurious, not-so-accessible experience. In fact, although it is now normal to fly from Treviso to Bordeaux, or from Copenhagen to Trapani, this was not possible a few decades ago with most flights having to pass through major European hubs. This used to restrict slots availability, with an inevitable reflection on ticket prices. The new open skies, low-cost phenomenon increased the offer of flights and aircrafts flying above our heads.
Aviation will now have to face new challenges prompted by a more environmentally conscious approach.
Over the last decade the EU and the global aviation community have pooled resources to construct a decarbonisation pathway for the sector, with some of the regulatory tools being the European Trading Scheme (ETS), Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA), and the proposed ReFuelEU and Energy Taxation Directives.
What is the EU ETS?
The European Union incorporated the aviation sector in its Emissions Trading Scheme (ETS) in 20122 , following its introduction in 2005. This cap-and-trade scheme is intended to cost-effectively limit greenhouse gas emissions across key sectors such as power generation, energy-intensive industries, and aviation. The scheme works through emission allowances – it sets a limit on the number of emission allowances issued and decreases this cap over time. Since 2012, all flights from, to, and within the European Economic Area (EEA) – the 28 EU Member States, plus Iceland, Liechtenstein, and Norway – have been included in the EU ETS. All airlines operating in an EU ETS member country, both EU and non-EU, are obliged to monitor, report, and verify their emissions. At the end of each year, airlines must surrender enough allowances to cover their emissions, and any extra allowances left over from a reduction in emissions can be sold to other entities within the EEA. The price of allowances is determined by the forces of demand and supply, and naturally a higher price strengthens the incentive to reduce emissions. Surplus allowances are removed from the market through a Market Stability Reserve that has been in place since 2019;3,4 a portion of these reserve allowances may be released when the total allowances in circulation falls below a stipulated threshold5 .
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2. After the necessary amendment to the EU ETS Directive was adopted in 2008 (EU ETS handbook, p. 90).
5. DECISION (EU) 2015/ 1814 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL - of 6 October 2015 - concerning the establishment and operation of a market stability reserve for the Union greenhouse gas emission trading scheme and amending Directive 2003/ 87/ EC (europa.eu)
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