European Scrutiny Committee Contents


15 Aviation and the EU Emissions Trading System

(34438)

16723/12

COM(12) 697

Draft Decision derogating temporarily from Directive

2003/87/EC establishing a scheme for greenhouse gas emission allowance trading within the Community

Legal baseArticle 192(1) TFEU; co-decision; QMV
Document originated20 November 2012
Deposited in Parliament27 November 2012
DepartmentEnergy and Climate Change
Basis of considerationEM of 10 December 2012
Previous Committee ReportNone, but see footnotes
Discussion in CouncilEarly 2013
Committee's assessmentPolitically important
Committee's decisionCleared

Background

15.1 Following the adoption of Directive 2003/87/EC, the EU's Emissions Trading System (ETS) came into operation on 1 January 2005, and requires Member States to grant to undertakings in certain areas a permit covering emissions of carbon dioxide, and to establish a national plan dealing with the total quantity of allowances and their allocation. Undertakings with a permit are then able to emit quantities of carbon dioxide up to the permitted limits, and would have to surrender an allowance equal to their actual emissions, but an undertaking failing to surrender sufficient allowances would be subject to a financial penalty (though any unused balance may be sold to another undertaking).

15.2 The question of extending the System to include aviation was addressed in a Commission Communication[50] in September 2005 about reducing that sector's impact on climate change, against a background where its relative contribution to the EU's greenhouse gas emissions was still small, but increasing rapidly. The Communication also noted that, although the Kyoto Protocol covered only domestic flights, it did place upon the parties concerned an obligation to pursue a wider limitation on emissions through the International Civil Aviation Organisation (ICAO), and that, although the Organisation had not so far been able to agree on regulatory standards for carbon dioxide emissions, it had endorsed the concept of international open emissions trading.

15.3 The Communication concluded that including aviation within the ETS appeared to be the most promising way forward, and, in the light of its further examination of the practical implications, the Commission put forward a proposal in December 2006, which was subsequently adopted as Directive 2008/101/EC, and introduced appropriate amendments to Directive 2003/87/EC. As a result, all aircraft operators who fly into or out of aerodromes in the European Economic Area (EEA) are required to monitor their carbon emissions each calendar year from 1 January 2010, and then to submit an independently-verified report to their respective regulator by 31 March of the following year. Also, as from 30 April 2013, aircraft operators must surrender the corresponding number of carbon allowances and project credits to their regulator, to account for their annual verified emissions.

The current proposal

15.4 This draft Decision would suspend for one year the enforcement of the obligations of aircraft operators operating flights to or from aerodromes located in the EEA[51] and third-party countries under the ETS, on the condition that aircraft operators return any free allowances which have already been allocated for 2012 in respect of their international flights. The effect of the measure would be that only flights between EAA aerodromes would face enforcement for failing to submit emissions reports and surrender allowances and project credits for their 2012 emissions.

15.5 The Commission says that its proposal has been made in response to the significant progress towards an international agreement on the global regulation of aviation emissions within the ICAO, and is intended to reinforce this positive momentum, and to enhance the chances of a successful outcome within the ICAO in October 2013. If no "clear and sufficient" progress is made, obligations on international flights would once again apply, but, if progress is made within the ICAO in developing a global market-based measure and adopting a framework to facilitate its application, the Commission has said it will propose further legislative action, Directive 2008/101/EC allowing amendments to be made to the scope of the aviation activities covered, when equivalent measures are adopted by one or more third countries, or by a global agreement.

The Government's view

15.6 In his Explanatory Memorandum of 10 December 2012, the Minister of State at the Department for Energy and Climate Change (Mr John Hayes) says that the proposal respects the principles of subsidiarity and proportionality, adding that, as aviation is an international sector, it would be more effective to have international measures to reduce emissions, and notes that the Commission's justification for the proposal is to reinforce positive momentum within the ICAO and enhance the chances of a successful outcome in 2013.

15.7 The Minister says that the Government welcomes this initiative, and believes it is right to give the ICAO time to make progress on a global approach to tackling aviation emissions. In the meantime, its initial views on the proposal are as follows.

Aviation emissions reductions

The suspension means that, for flights for which the pertaining aircraft operator has returned the relevant free carbon allowances, the carbon dioxide emitted on affected flights between EEA aerodromes and destinations in non-EEA countries would not be covered by the ETS during 2012, and preliminary analysis suggests that, as compared with current legislation, total aviation carbon dioxide emissions covered by the ETS in 2012 could be reduced by around 63%. However, this analysis is subject to a number of uncertainties, and will be refined going forward.

As aircraft operators with routes between two aerodromes in the EEA (and those other specified non-EEA states) will still have to comply with the ETS, and can benefit from zero-carbon rating for flights powered by biofuels, the additional incentives to develop emission-reducing technology and alternative fuels will continue to some extent. Also, aircraft operators already have a considerable cost incentive to reduce fuel consumption, which directly reduces emissions.

By helping to facilitate a global agreement, the temporary suspension of the international elements of the ETS may result in an agreement to a measure with greater global coverage.

International agreement on reducing aviation emissions:

The UK's, and indeed the EU's, priority has always been to obtain a global agreement, and this proposed Decision will act as a gesture of goodwill to allow breathing space for progress within the ICAO. The current timelines mean that the deadline for compliance with the ETS in April 2013 will take place before the ICAO General Assembly in October 2013, which is the first opportunity for any global agreement on these matters.

The Government is firmly committed to achieving a clear and ambitious outcome at the ICAO General Assembly, and the UK's Civil Aviation Director has a seat on the High Level Group which is addressing the key obstacles.

15.8 The Minister's Explanatory Memorandum is accompanied by a preliminary Impact Assessment checklist, which simply notes that the groups which could be affected by the proposal include aircraft operators operating to and from the EEA, passengers on these flights, other participants in the ETS and governments auctioning ETS allowances, and that there could also be environmental impacts. The impacts will depend upon how many aircraft operators decide to take advantage of the proposal, with the financial implications varying as between operators. The Government will be developing its understanding of the impacts as the practical implications of this proposal become clearer over the coming weeks, and will publish an impact assessment accordingly.

15.9 The Minister also points out that receipts from sales of ETS aviation allowances accrue to the Exchequer, with those in 2013-14 estimated at around £80 million, but future forecasts may change due to the impact of this proposal on scope of the ETS and possible changes in the EU emissions allowance price. He also notes that the Commission is currently in the process of calculating a new emissions cap for 2012 based proportionally on the likely number of intra-EU emissions, of which 85% will be distributed to airlines for free and 15% reserved for auctioning by Member States, and that estimates of impact on revenue for the UK can be calculated once these figures are released.

Conclusion

15.10 The place of aviation within the EU's Emissions Trading system is clearly a matter of some importance, as is the conclusion of a wider agreement on the limitation of emissions within the International Civil Aviation Organisation, and we therefore think it right to draw to the attention of the House this document which seeks to ease the way towards such an agreement. However, the measure would be only temporary, has been welcomed by the UK, and does not appear to us to give rise to any issues requiring further consideration. We are therefore clearing it.



50   (26885) 12790/05: see HC 34-viii (2005-06), para 1 (2 November 2005), and Stg Co Deb, European Standing Committee, 24 November 2005. Back

51   Including for this purpose Croatia, Switzerland and the dependent territories of EEA States. Back


 
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Prepared 2 January 2013