Emissions Trading for Aviation: the Theory

 - July 28, 2009, 11:51 AM

Aircraft operators who will be subject to Europe’s new emissions trading scheme (ETS) beginning Jan. 1, 2012, need to start preparing now to be part of this complex process. Pre-compliance emissions monitoring will be conducted for flights in 2010 and 2011 and to be part of this phase operators need to submit a monitoring plan likely by November and have it approved by year-end.

The only exemption for commercial operators will be for those who fly an average of fewer than 243 flights over three consecutive four-month periods within European airspace (equivalent to an average of two flights per day over the course of a year, i.e. fewer than 730 flights total per year). An alternative exemption is available if an operator’s fleet generates fewer than 10,000 metric tons of carbon dioxide (CO2) each year. In fact, the European Business Aviation Association is now trying to get the emissions threshold raised to 50,000 metric tons on the grounds that Eurocontrol’s Pagoda system is so reliable as a basis for calculating carbon output from each aircraft as to justify a larger margin of error.

Importantly, this so-called de minimis exemption simply means that the operators concerned will not have to actually trade in emissions credits, but they will still have to report their emissions to European authorities. Non-commercial operators falling into this so-called small-emitters group will have to both report emissions and trade in credits, and some experts believe that this could prompt some private operators to apply for all or part of their fleet to operate under a commercial air operator’s certificate.

The pre-compliance emissions monitoring will measure each aircraft’s emissions in terms of metric tons of carbon dioxide per kilometer flown. In fact, operators do not have to take part in this benchmarking process from 2010, but unless they do so they will not be entitled to any of the “free” ETS credits or allowances that will be issued on the basis of the measurements. The benchmarking data will be based on analysis of the passengers, baggage and freight carried, with flight distances calculated according to the Great Circle route plus 95 km (51 nm).

Under ETS, total emissions from aviation will be capped in 2012 at 97 percent of the total average levels from the 2004 to 2006 time frame, and this limit will then be reduced to 95 percent from 2013. Operators needing more than their assigned allowance will have to purchase additional carbon credits (each allowing for an emission of one metric ton of CO2) on the open market.

Credits can be bought from companies or individuals in industries other than aviation. ETS requirements can also be met by purchasing so-called clean development mechanism credits that pay for emissions-reduction projects in developing countries.

Under ETS, 85 percent of available carbon credits will be allocated free to operators, with 3 percent of the total number of credits held back to allow for new market entrants and operators who grow particularly quickly. The remaining 15 percent of the credits available in 2012 will be auctioned off to operators between then and 2020, with proceeds being spent on measures intended to deal with climate change within the EU. The business aviation lobby has complained that its operators will not have sufficient buying power to bid against major airlines in this auction process.

Operators who fail to account for the emissions associated with their flights within Europe can be fined, blacklisted and ultimately have their aircraft impounded. Fines will be levied at a rate of ?100 ($160) per metric ton of CO2.

The European Commission will be able to trace all flights into European airspace through the Eurocontrol CFMU en route slot-allocation system. This will also allow the EC to check that the number of credits spent corresponds accurately with the actual emissions associated with a given flight.

The ETS directive was finalized last December and became EU law on February 2. EU member states have 12 months from that date to implement the rules on their own national statute books.