Fifteenth Report of Session 2019–21 Contents

2Aviation and climate change: COVID-19 and UK/EU future relationship negotiations6

These EU documents are politically important because:

  • they give formal effect to the UK’s participation in the ‘Pilot Phase’ of CORSIA (the international aviation community’s effort to reduce greenhouse gas emissions by way of a Carbon offsetting scheme);
  • they change the ‘baseline’ year for the scheme; meaning that emissions reduction targets will be calculated against data from 2019—not 2020—to take account of the significant drop in traffic—and thus emissions—consequent on the COVID-19 pandemic; and
  • they are related to the EU’s own scheme—the EU ‘ETS’—and raise questions regarding the UK’s future ‘linking’ to it—or participation in other schemes—at the end of the transition period.

Action

  • Write to the responsible Minister, Kelly Tolhurst MP, requesting further information on progress of UK/EU future relationship negotiations on Carbon pricing and trading and, whether, in light of the opening of trade negotiations with New Zealand, Carbon trading will be discussed.
  • Draw this Report chapter to the attention of the Transport Committee, the Environmental Audit Committee, the International Trade Committee and the Environment, Food and Rural Affairs Committee.

Overview

2.1At transnational level, the International Civil Aviation Authority (ICAO) is responsible for the development and management of air transportation. This includes, but is not limited to, setting standards and recommended practices covering issues such as air safety, navigation and flight inspection.

2.2The 1997 Kyoto Protocol gave ICAO responsibility for tackling greenhouse gas emissions from civil aviation. Set against this responsibility and with progress towards the entry into force of the Paris Agreement (under the UN Framework Convention on Climate Change), in 2010, ICAO committed itself to the medium-term goal of maintaining net emissions from international civil aviation at 2020 levels.

2.3As part of this pledge, in 2016, ICAO established CORSIA (the Carbon Offsetting and Reduction Scheme for International Aviation).

2.4As a Carbon reduction mechanism, CORSIA requires operators on routes between participating States to offset any increase in emissions covered by the scheme above a baseline of an average of 2019 and 2020 levels.

2.5CORSIA is split into three phases:

i)a pilot phase covering 2021–23;

ii)a first phase covering 2024–26; and

iii)a second phase covering 2027–35.

State participation in the pilot and first phases is voluntary. When a State participates, all routes between the State and other participating States are subject to offsetting obligations. Participation is mandatory for all operators on routes that meet certain thresholds (regardless of the nationality of the operator). As of 2027 (with the entry into force of the second phase of CORSIA), routes between all States will be included.

Documents under scrutiny

2.6The two documents under scrutiny—41251 and 41260—would authorise the EU to vote in favour of a number of minor technical changes to the implementation and operation of CORISA at forthcoming ICAO meetings.

2.7During the transition period (as established by the UK/EU Withdrawal Agreement), the UK is bound by the majority of EU laws (including Council Decisions giving effect to the EU’s position(s) in international bodies such as ICAO).

2.8The Minister responsible for the documents under scrutiny, Kelly Tolhurst MP, wrote to the Committee by way of Explanatory Memorandum on 2 June 2020.

Decision to voluntarily participate (41251) (document (a))

2.9On 3 September 2016, all EU Member States—including the UK—committed through the ‘Bratislava Declaration’ to participate in the voluntary phase of CORSIA.7 The draft Council Decision under scrutiny would reaffirm this commitment and signal the EU’s intention to participate in CORSIA from 2021 (the launch of the pilot phase). The Government is supportive of this position and argues that the UK’s participation “…will demonstrate our [the UK’s] commitment to international action to tackle aviation’s contribution to climate change…”

Impact of COVID-19 on the design of CORSIA (41260) (document (b))

2.10The Coronavirus pandemic has had a significant impact on international aviation with air traffic dropping markedly since its onset. As a consequence, it is expected that for 2020 total greenhouse gas emissions from aviation will be considerably lower than for 2019. With 2020 serving as the ‘baseline’ year for CORSIA, there is the potential for disproportionately low emissions data leading to higher offsetting costs for operators.

2.11The draft Council Decision would, in effect, allow the EU to support the use of data from 2019 for baseline calculation purposes. The Minister notes that “…this change would be consistent with the Government’s position on the issue”.

2.12In her Explanatory Memorandum of 2 June, the Minister highlights the interaction between CORSIA and the EU’s own ‘Emissions Trading Scheme’ (ETS).8 This link is explored in further detail below; in terms of the differences between the respective schemes and the place of Carbon pricing in UK/EU future relationship negotiations.

EU ETS and future UK ‘linking’

EU ETS

2.13Whereas CORSIA is a CO2 ‘offsetting’ scheme—where emissions reductions that cannot be achieved in the aviation sector alone are compensated by schemes in other parts of the economy with greater reductions potential—the EU’s ‘ETS’ operates in a slightly different way and is known as a ‘cap-and-trade’ system.

2.14For ETS, a limited number of emission ‘allowances’ are issued and steadily decreased over time. Allowances are awarded centrally free-of-charge to operators and can be traded on an open marketplace.

2.15Supply and demand is driven by the emissions profiles of users, for example, an operator may emit less CO2 than it has allowances for as a result of utilising CO2 reduction strategies. These leftover allowances can then be sold to ‘heavier’ users; for whom reducing CO2 emissions is either not possible or, versus the cost of buying extra allowances, not considered to be economically viable.

2.16As a market-based system, supply and demand for allowances is said to establish a stable price—as of September 2018, allowances were trading at c.€20 per tonne—and the decreasing number of allowances in circulation, an incentive to reduce emissions. Alongside the aviation sector, ETS also covers operators of stationary installations such as power stations and energy intensive factories.

2.17After initial controversy,9 ETS has been clarified as applying to flights within and between Member States and not, as originally planned, international flights as well. The scope of ETS takes in all EEA airports including the EU Member States, Norway, Iceland, Liechtenstein and related territories (and Switzerland as of 1 January 2020 with the advent of the EU-Swiss ETS linking agreement).

2.18When fully effective, CORSIA offset credits will not be valid in the ETS system and nor will ETS allowances be redeemable in CORSIA. This is a consequence of both systems having been developed separately. The Commission is, however, keen to look at how ETS could be amended to integrate CORSIA obligations given the potential for operators to be subject to two sets of charges under schemes with similar objectives.

Future UK linking

2.19The UK will cease to be a member of the EU’s ETS at the end of the transition period (as established by the UK/EU Withdrawal Agreement).

2.20Article 96 of the Withdrawal Agreement provides that from the 1 January 2021 the UK will be obliged to, and will retain the ability to, enforce EU ETS for 2019–20. Due to how ETS functions, 2020 emissions will have to be submitted by UK operators and verified by regulators by no later than 31 March 2021. Furthermore, the deadline for surrender allowances for 2020 emissions will be the later date of 30 April 2021.

2.21In their recent response to their consultation on UK Carbon pricing after EU Exit,10 the Government and Devolved Administrations signalled their intention to establish a UK ETS and noted that they were open to considering linking this to the EU’s system. Indeed, in both the UK and EU’s draft future relationship texts, mention is made of linking systems for the pricing of Carbon.11

2.22With regard to the EU’s suggestions for ‘linking’, under the now well-known heading of ‘level playing field’ commitments, the EU specifies that the UK shall “…implement a system of carbon pricing of at least the same scope and effectiveness of that provided by the EU Emissions Trading System (EU ETS)”.12

2.23The idea of linking is well established and is viewed as a way of creating larger Carbon markets which can reduce overall compliance costs, increase market liquidity and, ultimately, improve market stability. The respective systems of the EU and Switzerland have been linked as of 1 January 2020. This link allows for the recognition of emissions allowances and monitoring processes. With similar systems either in operation or development in New Zealand, Canada, China, Japan, South Korea and the United States, the possibility of a future UK ETS linking to jurisdictions other than the EU is a distinct possibility.

2.24As an alternative to an ETS (and in the event of a ‘no trade deal’ EU Exit or a barebones UK/EU trade agreement), a domestic UK ‘Carbon tax’ has been proposed. Indeed, in the 2018 budget, the previous Government announced the introduction of a ‘Carbon Emissions Tax’ in place of the EU ETS in the event that the UK left the EU without a negotiated agreement at the end of 2019. It is possible that this idea could be revived if a standalone UK ETS is not ready by the end of the transition period.

Action

2.25The Committee has written to the responsible Minister, Kelly Tolhurst MP, requesting further information on progress on UK/EU future relationship negotiations on carbon pricing and trading, in particular, covering the following points:

The Committee has also asked the Minister whether the introduction of an interim Carbon Emissions Tax—as suggested in the event of a no-deal EU Exit—would be compatible with the EU’s future trade requirement “…for carbon pricing of at least the same scope and effectiveness of that provided by the EU Emissions Trading System”.

Finally, the Committee has asked the Minister whether, in light of the opening of trade negotiations with New Zealand, linking Carbon trading systems will be discussed.

2.26This Report chapter has been drawn to the attention of the Transport Committee, the Environmental Audit Committee, the International Trade Committee and the Environment, Food and Rural Affairs Committee.

Letter from the Chair to the Parliamentary Under-Secretary of State (Kelly Tolhurst MP), Department for Transport

The Committee have asked me to thank you for your Explanatory Memorandum on the above listed documents dated 2 June 2020.

We were pleased to hear of the Government’s plans for reducing greenhouse gas emissions and the commitment being shown to international efforts to mitigate the role played by aviation in climate change.

Of particular interest to the Committee was your mention of the EU’s ‘Emission Trading System’ and the Government’s plans for its replacement with a domestic equivalent at the end of the transition period (as established by the UK/EU Withdrawal Agreement). In this regard, we have carefully considered your response—along with the Devolved Administrations—to your joint consultation on UK Carbon pricing after EU Exit. With this in mind and against ongoing negotiations on the UK’s future relationship with the EU, we request further information on:

We also seek your view on whether the introduction of an interim Carbon Emissions Tax—as was suggested in the event of a no-deal EU Exit—would be compatible with the EU’s future trade requirement “…for carbon pricing of at least the same scope and effectiveness of that provided by the EU Emissions Trading System”.

Finally, in light of the recent opening of trade negotiations with New Zealand, we are interested to know whether linking Carbon trading systems will be discussed.


6 Document (a) Proposal for a Council Decision on the position to be taken on behalf of the European Union in the International Civil Aviation Organization, in respect of notification of voluntary participation in the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) from 1 January 2021 and of the option selected for calculating the aeroplane operators’ offsetting requirements during the 2021–23 period + Annex; Council and COM number: 7973/20 + ADD 1, COM(20) 194; Legal base; Article 192(1) and 218(9) TFEU, OMV; Department: Transport; Devolved Administrations: Consulted; ESC number: 41251. Document (b) Proposal for a Council Decision amending Council Decision (EU) 2016/915 as regards the reference period intended to be used for measuring growth of CO2 emissions, to take account of the consequences of the COVID-19 pandemic in the context of CORSIA + Annex; Council and COM number: 8122/20 + ADD 1, COM(20) 219; Legal base: Article 192(1) and 218(9) TFEU, OMV; Department: Transport; Devolved Administrations: Consulted; ESC number: 41260.

7 European Civil Aviation Conference, ‘Bratislava Declaration’ (3 September 2016).

8 Directive 2003/87/EC of the European Parliament and of the Council of 13 October 2003 establishing a scheme for greenhouse gas emission allowance trading within the Community and amending Council Directive 96/61/EC (Text with EEA relevance).

9 A derogation from the full application of the ETS Directive was granted in 2014 to facilitate the negotiation of a global market-based measure for international aviation emissions within the auspices of ICAO (which subsequently saw fruition as CORSIA).

11 The Government’s draft text notes the potential of ETS linking and states that “additional legal provisions on carbon pricing may be inserted following further discussions”. See Chapter 4 ‘Carbon Pricing’ ‘Draft working text for an agreement on energy between the United Kingdom and the European Union’ (last updated 19 May 2020).

12 See Article LPFS.2.35: Carbon pricing ‘Draft text of the Agreement on the New Partnership with the United Kingdom UKTF (2020) 14.




Published: 8 July 2020