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Wednesday, October 3, 2012

Aviation and the European Union’s Emission Trading Scheme

Jane A. Leggett
Specialist in Energy and Environmental Policy

Bart Elias
Specialist in Aviation Policy

Daniel T. Shedd
Legislative Attorney

Beginning January 1, 2012, most carbon dioxide (CO2) emissions from commercial flights to, from, and within the European Union (EU) are covered by the EU Emission Trading Scheme (EU ETS). Flights are covered regardless of whether the airline or operator is based in the EU region. The EU ETS caps aviation emissions of CO2 in 2012 at 97% of the average in 2004-2006 and at 95% in each year 2013-2020. Each April, beginning 2013, covered aircraft operators must turn in emission “allowances” (permits) equal to the previous year’s covered emissions. Airline operators receive free allowances for 82%-85% of their 2010 emissions. Airlines that have more allowances than they need may sell them or save them for future use. Airlines that need more allowances may buy them from EU auctions, other carriers, other emission sources in the EU ETS, brokers, or international emission trading mechanisms. A small reserve of free allowances is available for new or rapidly expanding airlines.

The EU law covering international aviation emissions is a significant move in a two-decade process concerning whether and how aviation emissions of CO2 may be abated. Even among those who agree on the benefits of reducing greenhouse gas (GHG) emissions, how to share reductions across nations and sectors remains controversial internationally and within countries. Emissions from international air transport pose a particular challenge.

The 1997 Kyoto Protocol (to which the United States is not a Party) specified that Parties should pursue limitation or reduction of GHG emissions from aviation fuels, working through the International Civil Aviation Organization (ICAO), an agency of the United Nations. In 2008, the EU cited a lack of “substantive progress” in ICAO and legislated to include aviation in its existing EU ETS by 2012. ICAO members have agreed to a variety of voluntary actions and goals. In October 2011, faced with impending inclusion of aviation emissions in the EU ETS, the ICAO Council agreed to accelerate its work, including continuing to explore market-based measures, CO2 standards for new aircraft, and other options. In mid-2012, ICAO’s environment committee approved guidelines for how to measure CO2 emissions from new aircraft as a step toward possible agreement among countries to regulate those emissions.

EU officials have stated their preference for agreeing on global, binding measures in ICAO. One official stated that the EU would agree to suspend inclusion of aviation in the ETS only if a new global ICAO scheme met three conditions: it must deliver more emissions reductions than the EU ETS on its own; it must have targets and measures; and any action must be non-discriminatory and apply to all airlines. Alternatively, EU law allows exemptions for incoming flights from countries that have adopted “equivalent measures” to reduce emissions. Some countries are likely negotiating with the EU for an equivalent measures exemption for their airlines.

Air carriers from the United States and other countries vociferously object to including international aviation in the EU ETS. The U.S. government continues to press the EU to exclude foreign carriers. In October 2011, the House passed H.R. 2594, the European Union Emissions Trading Scheme Prohibition Act of 2011, prohibiting U.S. aircraft operators from participating in the EU ETS. It also would direct the Administration to negotiate and take other actions to ensure that U.S. civil aircraft operators are not penalized by unilateral EU regulation of GHG emissions. The Senate Commerce Committee approved S. 1956 on July 31, 2012, a similar bill with more flexibility, in parallel with a U.S.-hosted meeting with other countries opposed to the scheme. In addition, House and Senate conferees on reauthorization of the Federal Aviation Administration (FAA) agreed in January 2012 to a sense of the Congress resolution opposing the EU action.

Date of Report: September 17, 2012
Number of Pages: 46
Order Number: R42392
Price: $29.95

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