EU Carbon Trading in the Aviation Industry

  AVIATION EMISSIONS AND CARBON TRADING

 THE DEBATE

Helen Tung Barrister, One Temple Avenue ChambersIPBA 2014

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1. INTRODUCTION

EU Emissions Trading System (EU ETS) limit or reduce greenhouse gas 2005 1 January 2008 applied to not only 27 EU MS

but + EEA, Norway, Iceland and Liechtenstein

10,000 installations in energy and industrial sectors – responsible for half of EU’s emissions and 40% total greenhouse gas emissions

Agreement to aviation sector from 2012

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1. INTRODUCTION

December 2008 ‘2020 climate-energy package’ 1. -20% at least in GHG emissions by 2020 +30% if other developed countries finally commit to

similar reductions within a new global agreement

2. +20% in energy efficiency by 2020

3. +20% share of renewable energy sources by 2020 + 10% bio fuels in transport

Joint outcomes, not separately. (The Strategic Energy Technology (SET) Plan, EU Commission, 2008)

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1. INTRODUCTION

Lisbon treaty Sustainable development= Domestic + International Major EU goal, Article 3(3) of the Treaty on European Union (TEU): ‘The Union . . . shall work for

the sustainable development of Europe based on balanced economic growth and price stability, a highly competitive social progress, and a high level of protection and improvement of the quality of the environment.’

Article 3(5) adds that: ‘In its relations with the wider world, the Union shall uphold and promote its values and interests,’ which among other impulses will entail the contribution ‘to the sustainable development of the Earth.’

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1. INTRODUCTION

Title XX, Articles 191 to 193 of the Treaty on the Functioning of the European Union (TFEU) (ex Articles 174 to 176 EC):

‘promoting measures at an international level to deal with regional or worldwide environmental problems, and in particular combating climate change.’

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2. UK EXPERIENCE

Industry saw taxes as discriminatory and of dubious environmental value

Trading provided a flexible way to reduce compliance costs and create tradable assets (emissions allowances) that could be retained or sold (Bailey and Rupp 2005)

Trading produced accumulation possibilities for specialist trading companies whose activities could further enhance the efficiency of trading (Nye and Owens 2008)

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3. WHAT IS EU – ETS? Common trading ‘currency’ National allocation plans (NAPS) Installations must surrender allowances Facing difficulties in keeping their emissions in line with their

allowances Or buying extra allowances Legislation adopted 2008, applies to EU and non-EU airlines.  International Civil Aviation Organisation (ICAO) Assembly in

Autumn 2013 -global agreement to tackle aviation emissions  October 2013, ICAO Assembly – develop by 2016 a global

market-based mechanism (MBM) addressing international aviation emissions and apply by 2020

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4. EU- ETS AVIATION

intra-EU flights until the start of 2017 Apply to all flights to and from the EU thereafter,

until rules approved by the EP (Climate Connect News) Airlines for America (a4A)- ‘stock the clock’ EU Parliament vote will stay the application of the

EU ETS to and from EU through 2016

US Congress rejected EU ETS by passing bill -prohibit U.S aircraft operators from complying with the scheme (Business wire)

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4. EU- ETS AVIATION Council of Ministers - approved by 458 to120 with 24 abstentions,

despite having been opposed by the Environment Committee in March.  Limited emissions from flights within the EEA for 2013 to 2016

March 2014, the Council of the EU and European Parliament reached agreement to limit the aviation coverage of the EU ETS

Applies to all –including third country aircraft operates European Parliament voted in favour of this agreement on 3 April 2014

Options left to EU to re-adjust scope of EU ETS from 2017 onwards

Regulation includes new exemptions for small emitters

Legislative process end of April 2014

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5. ARGUMENTS AGAINST EU –ETS IN AVIATION- THE POLITICIANS Liberal MEPs, Chris Davies from the UK“We should not allow the EU to be bullied by the Chinese

threatening trade wars over what we do in our own airspace.” “Here we are going into elections. What is the point of getting elected to the European Parliament if we're simply going to do what the Chinese tell us?”   (European Voice)

"We invite the European Commission to rethink the usefulness of unilateral strategy that hits Europe without environmental gain," MEP Eija-Riitta. (Airwise)

“The compromise is a step in the right direction, in which the reality of international climate policy is recognised.” German liberal MEP Holger Krahmer

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6. ARGUMENTS FOR EU –ETS IN AVIATION- THE POLITICIANS Satu Hassi, a Finnish Green MEP “It is reckless to dismantle this effective climate policy

instrument in exchange for a vague promise on a global scheme in the distant future without guarantees of environmental integrity or ambition.”

Centre-right German MEP Peter Liese “Parliament could not accept the Council's wish to

‘stop the clock' until 2020. We have the next International Civil Aviation Organization (ICAO) assembly in 2016, and if it fails to deliver a global agreement, then nobody could justify our maintaining such an exemption for another four years. Our system will then automatically snap back to full scope.”

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7. ARGUMENTS AGAINST EU –ETS IN AVIATION- INDUSTRY

“A4A and our members commend the Parliament’s extension of stop the clock, thereby protecting U.S. travellers and shippers from unwarranted EU ETS tax hikes that drive up the cost of air travel,” A4A President and CEO Nicholas E. Calio. (Business Wire)

The European Low Fares Airline Association (ELFAA) said unless the EU reverses its decision it "will have no option but to reactivate its currently stayed legal challenge against such discrimination." (Airwise)

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7. ARGUMENTS AGAINST EU –ETS IN AVIATION- INDUSTRY Low-cost airlines such as Ryanair and easyJet, which fly almost

exclusively within Europe, argue that the measure puts them at a competitive disadvantage versus rivals with more long-distance flights such as Lufthansa and Alitalia. (Airwise)

Simon McNamara, director-general of the European Regions Airline Association (ERA), representing some 50 carriers, said Wednesday’s ENVI vote “adds to the confusion of what is a sorry mess. There is continuing uncertainty and people don’t know what’s going to happen.” (Business Wire)

Jørgen Henningsen, a senior adviser, European Policy Centre Scheme had not delivered CO2 reductions and was stifling

energy-efficiency investment in the electricity sector (EurActiv 2009)

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8. ARGUMENTS FOR EU –ETS IN AVIATION- INDUSTRY Bill Hemmings, aviation manager at Transport &

Environment, “Regulating emissions in European airspace is not only our right, but also our obligation - something those who cried wolf about a 'trade war' seem to have forgotten.”

Jean Leston, Transport Policy Manager, WWF-UK: “Today's vote has sacrificed the integrity of aviation within ETS on the altar of a possible global agreement in ICAO.”

“This is a compromise too far with no guarantee of much in return. With less ETS pressure to prompt ICAO into action, we need to see far more action from the US, BRICs and other countries, to get a global deal for aviation off the runway.”(Business Green)

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9. CONCERNS RE EU –ETS IN AVIATION- ACADEMIA In a world with uneven climate policies, the carbon

price differentials across regions could shift the production of energy-intensive goods from carbon-constrained countries to ‘carbon havens’, or countries with laxer climate policy. This would reduce the environmental benefits of the policy (carbon leakage) while potentially damaging the economy (competitiveness concerns)

(Frédéric Branger and Philippe Quirion, 2013)

Another problem has been the high and variable price of natural gas, since this raises switching prices and reduces confidence that gas will remain commercially attractive (Kanen 2006).

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9. CONCERNS RE EU –ETS IN AVIATION- ACADEMIA The unpredictable release of price-sensitive

information by the Commission and governments has created EUA price uncertainty (Betz and Sato 2006).

One outcome of political deals struck over Phase-I and -II NAPs was that differences in sectors’ ability to pass on abatement costs (caused by differences in exposure to domestic and international competition, market share, level of vertical integration and so on) were not properly reflected in the allocation process (Kallbekken 2005)

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9. CONCERNS RE EU –ETS IN AVIATION- ACADEMIA The USA..announced that any attempt by the EU to

move forward unilaterally will be met by trade sanctions. (Malte Petersen, 2008)

..Industrial competitiveness within and outside Europe drove most Member States to create a generous carbon space for their industrial output to grow when drawing up their NAPs. In this regard, the decentralised character of the ETS gave the Member States the opportunity to game the system to favour their own industries. This is why the free allocation of emission allowances has merited strong criticism as the ETS has generated windfall profits.

(D. Morris, B. Worthingtons, 2010; Sandbag, 2010)

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10. OTHER THOUGHTS Manufacturers were generally more

successful than energy producers in arguing that they were already subjected to national measures and faced international competition using the case that although individual power companies are affected by carbon pricing, stable energy demand within countries limited the overall risk of carbon leakage from this sector (Alberola, 2008; Reinaud 2007).

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10. OTHER THOUGHTS

Then Australian Prime Minister, Kevin Rudd, recently drew intense criticism for introducing a string of concessions to Australia’s Carbon Pollution Reduction Scheme, and for delaying its introduction from 2010 to 2011, on the grounds that it would hurt business in the current economic climate (MacGill and Betz 2009)

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10. OTHER THOUGHTS• Attention needs to be given to the interaction between

climate change laws and the constitutional role of the EU judiciary.

(Sanja Bogojević, 2013

Research analyzes the financial and ecological impacts of the ETS for the Lufthansa Group using a simulation model built on the now-fixed system design.

The results show that while ecological impacts are modest in the first years after introduction, the ETS will result in much higher emission reductions in the medium and long term. These ecological benefits come at the expense of increased financial impacts.

(Jan Vespermann and Andreas Wittmer, 2010)20

10. OTHER THOUGHTS In 19952 yrs prior to the Kyoto Summit US federal programme of sulfur dioxide (SO2)

emissions causing acid rain.

Applied to electricity sector. Fed. programme on acid rain vs. ETS is a cap-and-

trade programme, SO2 emissions trading in USA is a standard

emissions trading model, a centralised programme under exclusively federal government control, the state not having any role in determining caps, distributing allowances, record-keeping rules or any other undertaking. (Beatriz Pérez de las Heras, 2013)

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10. OTHER THOUGHTS Critical exploration of the territorial logics

and practices of EU emissions trading from regime creation to operation provides new insights into the emerging spatial politics of neoliberal environmental governance and its implications for climate protection. (I. Bailey and S. Maresh, 2009)

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10. OTHER THOUGHTS Real- world territorial logistics of emissions

trading are, of course, rather more complex and must consider interactions between areas within and outside missions trading schemes caused, for

E.g, by firms’ competing in international markets or threatening to switch production or relocate to other countries (Levy and Kolk 2002; Levy Newell 2005)

Basic tension between states’ allegiance to collective action and the defence of national sovereignty and domestic political-economic interests (Collard- Wexler 2006; Keohane and Martin 1995; Newman

1998)

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11 . FUTURE DEVELOPMENTS Global Climate Change Alliance (GCCA)

New framework for dialogue b/w EU and countries vulnerable to global warming; strategies = preventing deforestation; natural disasters; optimise CDM projects; climate change into national development policies. 18 countries

From 2008 to 2010 : €100 million + €300 million Participation in the GCCA is aimed at those countries that

commit themselves to adopting effective measures against global warming. (A. Behrens, 2008)

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10 . FUTURE DEVELOPMENTS

EU–China Partnership on Climate Change Permanent working team EU–USA on issues

of common concern(Beatrice, 2013)

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Thank you

http://helentung.blogspot.co.uk/ onetempleavenue.co.uk/barristers/helent.html

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