European bizav seeks to avoid CO2 emission trading scheme

 - May 17, 2008, 4:08 AM

The need to demonstrate environmental responsibility while remaining operationally viable has been identified as the biggest single challenge facing business aviation. This has prompted the business aviation industry to offer self-governing carbon-offset-based alternatives to the European Union’s CO2 emission trading scheme (ETS). However, the European Union seems likely to insist that ETS is a well-oiled machine with proven environmental benefits and require that it be imposed on all of aviation.

“Business aviation is the ultimate minority interest and easy to portray as a wasteful use of resources despite the fact that we are [a tiny part of] annual emissions,” HRH Prince Michael of Kent, new patron of the British Business and General Aviation Association (BBGA), told the group’s annual conference in March. “Nonetheless, we must be seen to be acting responsibly by voluntarily offsetting emissions. We have to win our right to continue flying.”

The European Business Aviation Association (EBAA) is lobbying both the European Commission and the European Parliament to keep business aviation out of the mandatory ETS, which it is preparing to impose on the air transport sector in 2011. The EBAA claims that aircraft weighing less than 20 metric tons (44,091 pounds) or certified for fewer than 20 passengers should have an alternative means of compliance.

The EBAA proposes that this alternative means of compliance be a voluntary carbon offset program such as the new Carbon Balance Scheme BBGA introduced last year. The Brussels-based aviation group has said it can establish a not-for-profit foundation that would handle purchasing and administration of carbon offsets for its members. This would help spread the administrative costs that could otherwise be burdensome for small operators.

According to Mark Wilson, director of regulatory affairs for NetJets Europe, the typical administrative cost for business aircraft operators to be part of ETS would be approximately $45,000 per year. Based on a recent study by accountants Ernst & Young, this is, proportionally, about 60 times the cost that major airlines will face.
Peter Griffiths, director general of civil aviation with the UK Department of Transport, made it clear to BBGA delegates that they must confront their environmental responsibilities. While acknowledging that aviation generally accounts for a relatively small proportion of carbon emissions, he stressed that at current projected growth rates the industry’s impact will undoubtedly grow exponentially.

“Technology alone cannot tackle aviation’s [impact on] warming,” Griffiths continued. “Growth in traffic will outstrip technological improvements.” However, he said industrial groups reportedly are tired of being the only ones asked to make the effort. They claim that since 1990, they have cut their CO2 emissions by 20 percent in volume, while air transport has increased its emissions by 82 percent.

The EBAA is encouraged by the recent publication of the European Commission’s policy document on “a sustainable future” for business and general aviation, which discussed the need for “proportional regulation.” Prince Michael said such a document would have been “unimaginable” a few years ago when the EC’s attitude toward this sector of aviation appeared to be ambiguous and confused.

However, most experts in climate change see offsetting as a second choice. It does compensate for emissions but it is not a long-term solution. At present, the number of CO2-saving projects is limited. By contrast, a cap-and-trade system such as the ETS actually and directly limits the total volume of emissions. In the case of the EU ETS, the EC sets a decreasing cap that has to be consistent with Kyoto protocol goals. Therefore, EBAA may find it difficult to convince the Commission that it should treat business aviation differently.

The ETS is working according to its designers’ expectations–as with any other commodity market. Emmanuel Fages, head of development at Orbeo, a Paris-based CO2 trading company, told EBACE Convention News, “The EU ETS covers 11,000 facilities”; these are big CO2 emitters, such as coal powerplants, glass factories and cement works.

The EC probably will treat air transport differently from other sectors. As their number of players is smaller, air carriers will have a more direct relationship with the Commission. Other industries usually talk to national authorities, which in turn talk to the Commission.

Fages explained that aviation CO2 quotas will be worked out using benchmarking techniques. “The Commission will pick a recent aircraft’s fuel burn and tell operators, ‘This is how you would perform if you had proper fleets’ and CO2 allotments will be calculated accordingly,” he said. He pointed out that the ETS is not aimed at cutting demand; rather, “it is designed to provide the same service, with a lower CO2 content.”

One option for business aircraft operators, should they be included in the ETS, could be to hire companies such as Orbeo, a joint venture between French industrial chemicals group Rhodia and the Société Générale bank, to do their trading. The administrative burden would thus be passed on to a specialist, but “operators would still be in charge of reporting,” Fages said. The reporting process is straightforward–fuel consumption easily converts into CO2 emissions.

Asked about small business aviation operators, Fages admitted the ETS is not suited to them. “A market-based system is not effective at their level because it is too time-consuming for them to deal with it,” he said. Taxes would be more appropriate, he suggested.

Several questions hang over the inclusion of aviation into the ETS. One of them is the date of inclusion; the Parliament, the Council of Environment ministers and the Commission still have to decide whether it will be 2011, 2012 or 2013. It seems definite that all carriers, whether European or not (as long as they fly to Europe), will be included simultaneously.

Still to be determined is whether one aviation allowance will be equivalent to one “ground-based” allowance. If there is a differentiation, a carrier that wants to emit one ton might be required to buy three tons on the market. Also to be taken into consideration is other gases that accompany CO2, which, according to scientific studies have a major climate impact when emitted at altitude. To simplify the mathematics, a company could choose to convert all aircraft emissions into CO2 equivalents and calculate a ratio of three to one.

An increasing portion of the permit allotment (see box on page 38) is being auctioned. The amounts being discussed for aviation range from 6 to 25 percent, as of the inclusion date.

Fages insisted that the collective cost of the ETS is less than that of other systems. For example, he said, car manufacturers will almost certainly be required to build cars that emit 20 percent less CO2 in 2015. This values the ton of CO2 between ?200 and ?300 ($300 to $450), he explained.

The complete details about the inclusion of aviation are not yet established, but if business aviation is included in the ETS, it will see its own set of rules derived from those governing airlines.

Some airlines have started buying CO2 permits on the market, just as they would hedge against fuel prices. However, they need to hedge several years in advance, considering that 2012, the likely year of inclusion, is imminent. Many of those airlines are Asian, and they are anticipating having to be part of the ETS to fly into Europe.