Business Aviation and the Environment

 - August 27, 2010, 4:23 AM

There is no silver bullet for reducing the effect of business aviation on the environment, most industry analysts agree, but the combination of new technology–such as engines and airframe components–improved ATC techniques and biofuels promises to dramatically reduce business aviation's carbon footprint. Governments have also stepped in with legislative restrictions, such as Europe's emissions trading scheme, in an attempt to make aviation more environmentally friendly.

Support for the EU's emissions trading scheme (ETS) plumbed new depths this past year, leaving operators on both sides of the Atlantic questioning the validity of the industry's continued participation. The situation became so precarious, in fact, that in May the European Business Aviation Association (EBAA) openly called the directive "a mess" and threatened to advise its members to withdraw support. In spite of some positive developments in recent weeks, some operators–particularly those in the U.S.–are beginning to wonder if non-compliance is an option. 

The chief complaint among operators is that the directive favors the airlines and places business aviation–especially small, private operators–at a disadvantage. A particular bone of contention is the exemption threshold: all non-commercial operators must register, even if they emit as little as one ton of CO2 per year in an EU aerodrome. Commercial operators, meanwhile, are exempt from the reporting process if they emit less than 10,000 tons of CO2 annually (or fly fewer than 243 flights in three consecutive four-month periods). 

Unfortunately, it's unlikely that non-commercial operators will be given an exemption anytime soon, according to EBAA president and CEO Brian Humphries. A change in the status of non-commercial operators would require support from each of the EU's member states to change the "mother" directive. "Our only hope is that the member states will become fed up spending 80 percent of their time looking after thousands of small emitters [who produce] less than 1 percent of the emissions," Humphries said. "But we're not hanging our hats on that."

Although the situation isn't likely to change for non-commercial operators, the exemption threshold for commercial operators might increase. According to Humphries, Eurocontrol will be making changes to the monitoring, reporting and verification (MRV) guidelines as early as next year. It's possible, therefore, that the commercial threshold–which isn't as difficult to change–will be increased to 25,000 tons of CO2 per year. "It's not as high as we would like, but it is higher than 10,000," Humphries said.

Bizav Disadvantaged

Another area of concern is the carbon credit auction process. Currently, carbon credits are available at auction in blocks of 500–a daunting figure for a small operator that might need only 15 or 20 credits per year. Carbon credits cost approximately €14 ($18), and each credit offsets a metric ton of CO2, or roughly 1,100 pounds of fuel. 

The industry had originally lobbied for one-credit auctions for small emitters, but the idea was dismissed. "If you talk to any economist, [a one-credit auction] would have driven the price of carbon credits through the roof," said Adam Hartley, Universal Weather & Aviation's supervisor of regulatory services. "The European Commission would rather see an intermediary buy 500 credits and distribute them."

EBAA, meanwhile, is "not happy" the threshold has been set at 500 credits and is considering the possibility of becoming a handling or distribution agent for its members, or identifying reputable companies that are willing to act as handling agents. "Obviously we don't want people buying 500 tons on the open market and then selling them for much higher prices in small packages," Humphries said. "But we are looking at ways in which we can support our members. I can't give you anything specific yet, but that's rolling forward."

Even if the industry finds a solution, however, small operators will still be at a disadvantage, Hartley said. "They aren't traders and stockbrokers. Big corporations have entire departments that have been doing this for years and will be able to get those credits at a reduced cost. But the small private operator will just be trying to thumb his way through as he navigates the markets."

Business aviation operators are also at a disadvantage in terms of free credit allowances, according to David Carlisle, CEO of ETS Aviation. The current system allows operators to apply for free credits, based on an aircraft's payload weight and the distance flown. Because the scheduled airlines and freight companies carry so much weight, they can get a "large, substantial portion" of their carbon allowance for free. 

Business aircraft, meanwhile, don't carry as much weight. "Business aviation will get a low proportion of credits compared to the airlines," Carlisle said. "That's quite unfair." 

Airlines and freight companies could get as much as 87 percent of their carbon allowance for free, according to Hartley. The best estimate for business operators is 5 to 10 percent. "If you're flying into Europe only once a year, you'll never save enough money in free allowances to make up even the initial application fee [for the free allowances]," Hartley said. "In corporate aviation, we're always going to come out as losers."

Regulators should consider the percentage of occupancy, rather than weight and distance, Carlisle said. "If the aircraft is full, you should get a good amount of your emissions back in free credits, just as the airlines do."

Although business aircraft operators are at a huge disadvantage in several different areas, there is hope in one regard: Humphries is "quite encouraged" and believes "it won't be long now" before the ETS Support Facility is approved and finalized (see article on page 10). The support facility is a development of Eurocontrol's so-called Pagoda model for calculating emissions, based on data from flight plans logged in the ATM agency's Central Flow Management Unit. The support facility also provides verification of the data, thereby eliminating the need to pay for expensive independent verification. 

Earlier this year, EBAA was going to advise its members to withdraw their support for the ETS if the support facility was not approved. "If there had been no tool at all, we would have advised members [not to support the ETS]," Humphries said. "But because the tool is under development and it looks as though it will go ahead, at the moment we're saying, 'Stick with it.'"

In April, the UK High Court ruled that a lawsuit filed by the Air Transport Association (ATA) could be referred to the European Court of Justice for a preliminary ruling on the validity of the EU directive that established the ETS. Although the ruling doesn't actually change anything, it was a victory for operators in the U.S., many of whom believe the ETS violates international law, the jurisdiction of ICAO and the principles set forth at the Chicago Convention. 

"The UK courts decided the complaint had enough merit and was really a community-wide complaint," said Steve Brown, NBAA's senior vice president of operations and administration. "So it's been elevated and will be acted on at some point."

In the U.S., the FAA is considering a "Cash for Carbon" program, in which the administration would set aside up to $6.5 billion over four years to help commercial and GA operators who voluntarily commit to carbon-neutral growth from 2020 onward. The money would fund ADS-B in/out, RNP and Rnav avionics equipment, airspace redesign projects, and the FAA's Cleen (continuous lower energy, emissions and noise) research project. If the operators do not reach a 2005 baseline in emissions by 2050, they would have to reimburse the funding they received or buy carbon offsets.

There is some speculation that the EU might view this program as a measure equivalent to the ETS, thereby giving the operators who take part a means of exemption. The ETS regulations recognize other nations' approaches to environmental miti gation, Brown said. "If the European Commission views something that has been done in the U.S. as an equivalent approach, in theory it could decide that the ETS would not apply to U.S. operators," he said.

The U.S. is also considering so-called "energy" legislation, but nothing is finalized, and no one is sure how the bill will affect aviation. "The legislation isn't that specific yet," Brown said. "It's even unclear to what extent the legislation will affect transportation as a whole. It's so early in the discussion, it could go either way."

Given these developments, operators in the U.S. know there are a number of possible outcomes regarding the ETS: First, the ETS will go into effect in 2012, and U.S. operators would be forced to comply. "This assumes that no legislation passes in the U.S., there is no recognition in Europe of an equivalent approach, and the legal challenges to the ETS have failed," Brown said. "All of that is seen as being unlikely."

Another possibility is that the U.S. passes legislation that Europe views as an equivalent approach. "In that case, the ETS would not apply," Brown said.

And third, the legal challenges currently in the European Court of Justice are successful, and the ETS is found to be illegal in the context of the Chicago Convention and international avi ation rules. 

"Operators are following the challenges and national legislation to see what happens over the next year-and-a-half," Brown said, adding that the aviation industry recognizes the value in reducing its impact on the environment. "That, coupled with the reality that there always has to be an eye on cost benefits, is the point of view people have. The aviation industry wants to have minimal impact on the environment, but whatever is done to accomplish that should be cost effective. There's broad opinion that the ETS does not fit that criterion."

The Cost of Compliance

One of the biggest frustrations for operators in the U.S. and Europe is the question of cost. "The carbon credit market is generally seen as a young or immature market," Brown said. "It hasn't been around for a long time, and prices have varied quite a lot in the time it has been open. So knowing what the price of a credit might be in 2012 is pretty speculative; it's difficult to estimate what the cost might be. It's a good question, but nobody really knows the answer."

Although the cost of the actual carbon credits is unknown, operators are already getting a taste of the administrative costs. The UK, for example, charges £750 ($1,185) to submit the original MRV plan, as well as an additional £820 ($1,295) to submit an application for free allowances (the benchmark plan), according to Universal's Hartley. Yearly administration costs are estimated at around £2,200 ($3,480), and the hourly rate to fly would be approximately £28 ($37), based on the cost of two carbon credits at £14 each. (This is based on an average fuel burn of 2,000 pounds per hour.) If the ETS support facility is not approved, operators would also have to pay for an independent, third-party verifier. 

Some operators have decided to seek help from outside companies, such as ETS Aviation. Carlisle's company provides administration support, accurate emissions tracking, report submissions and so on and charges fees based on the number of aircraft or flights. A small corporate operator might pay $2,500 to $3,500 per year for the service, while a medium-sized company with 30 aircraft might pay $500 per aircraft, or per 1,000 flights. The per-aircraft fee is reduced as the size of the operation increases.

"There is a high degree of misunderstanding about how relatively easy it is to comply with the requirements in a cost-effective way that won't burden the operators," Carlisle said, adding that ETS Aviation–or a similar type of company–is a good option for operators who want to track their emissions accurately. "We'll still work with the EU support system if we think that's the best option for our customers, but it provides only an estimate of your fuel usage. It's as if they're estimating your salary and then taxing you on that estimate."

A 10-percent error in reporting could cost an operator more than $3.5 million over the next eight years, Carlisle said. "The bigger you are, the more fuel you use and the larger your exposure to error is. So personally, I would always go with actual data. I would want a bill based on real numbers. I would be uncomfortable paying money to the European government based on an estimate."

Universal plans to launch similar services within the next year or so and is currently in the business development phase. "We want to make sure that if we put a service out there in the marketplace, we will be able to deliver it to anyone who asks for it," Hartley said. "It's an in-depth process, not a one-size-fits-all type of solution."

At present, the company maintains a free Web site, www.eu-ets.aero, that links to various government Web sites and answers some of the most commonly asked questions about the ETS. The Web site is available to everyone in the industry and has received support from various business aviation organizations and government regulators. 

"Until we can develop a full service, where we can submit the monitoring plans and reporting for clients, we want to empower the operators to understand the program and be able to get through the initial phase of regulatory requirement," Hartley said. "And even if people use other companies, at least they're informed about what the program entails and what the requirements are."

Although the cost to comply with the ETS might seem excessive, it's not much compared to the cost of non-compliance. In the UK, the fine for not submitting an annual MRV plan would be a minimum of £5,000 ($7,915), plus a daily fine of £500 ($790), and a maximum penalty of £50,000 ($79,135). 

The UK has already started sending warning letters to operators who have not submitted their initial plans, according to Universal's Laura Everington, manager of regulatory services. "The letters are official and can get pretty ugly," she said. "We've seen a couple of them. They do mention a number and it's not a small amount."

In essence, non-compliance is not an option, Hartley said. "This is a mandatory regulation; it's on the books," he said. "Regardless of what the future holds for this program, we have to live in the here and now. There is no optional compliance. You're looking at fines, fees and penalties, including exclusion from EU airspace or confiscation of your aircraft in lieu of paying fines. It's a mandatory requirement, and the industry needs to treat it as such."

'Business Aviation and the Environment 2010' PDF