EU mulls ETS aviation changes

Market: Emissions
08/07/20

The European Commission is examining potential changes to the scope of aviation's inclusion in the bloc's emissions trading system (ETS) and the allocation of free carbon allowances to the industry under the scheme, in the context of the upcoming implementation of the International Civil Aviation Organisation's (ICAO) Carbon Offsetting and Reduction Scheme for International Aviation (Corsia).

The application of the EU ETS to aviation is currently limited to intra-EU flights, a move designed to support the application of Corsia to international aviation, which is due to begin in 2024 following a pilot phase in 2021-23.

But the derogation in the EU ETS directive excluding flights to and from the EU from the scheme ends in 2023, and the European Commission has published a roadmap looking at potential amendments to the rules governing aviation's inclusion in the EU ETS from this point on.

If no changes are made to existing rules by the end of 2023, the derogation will expire and both intra-EU and international flights to and from the bloc will be subject to the EU ETS. But the commission has set out a number of additional options in its roadmap, including preserving the current system of simply applying the EU ETS to intra-EU flights, maintaining this system but applying Corsia to international flights, or applying only Corsia across all flights.

The commission has also put forward potential mixes of the two systems, based on either emissions or licensing. In the former, the EU ETS would be applied to aviation emissions from all flights up to an operator's 2020 emissions levels, with Corsia applying to any emissions above this level. In the latter, the EU ETS would apply to flights operated by carriers licensed by member states, and Corsia to non-member state operators.

Free allowances

Any changes to the system could also require amendments to the allocation of free allowances to the industry under the EU ETS. Only 15pc of aviation allowances under the EU ETS are currently auctioned, with 82pc allocated free to operators and the remaining 3pc placed into a reserve for new or fast-growing operators.

Alongside the option of maintaining this 15pc rate until 2030, the commission is considering either gradually increasing the share of auctioned allowances — to 20pc in 2023 and eventually 55pc in 2030 — or phasing out free allocations entirely.

Options for a total phase-out include a linear increase in auction rates starting from 20pc in 2023 and running until 2030, a 60pc share in 2023 leading to full auctioning by 2025, or 100pc auctioning from 2023.

The commission aims to table its proposed updated rules for aviation under the EU ETS by the second quarter of 2021. The changes are part of the EU's "green deal" announced in December, the centrepiece of which is the plan to set a legally binding target to reach net zero greenhouse gas emissions by 2050.

"Given ICAO's failed attempts to regulate international aviation emissions, the commission should propose an ambitious review of the EU ETS for aviation, including the possibility of going back to full-scope," non-governmental organisation (NGO) Transport & Environment said this week in response to the roadmap.

ICAO agreed last week to amend the baseline for emissions cuts under Corsia to 2019 from a previously planned average of 2019 and 2020 emissions, amid fears that the significant reductions in aviation emissions this year caused by Covid-19 restrictions would make a baseline founded partly on 2020 emissions too onerous.

The move was supported by the EU Council and the International Air Transport Association, but came under criticism from groups such as Brussels-based NGO Carbon Market Watch (CMW), which warned that the coronavirus-related reduction in emissions will effectively lead to airlines not having to offset carbon for several years if a 2019 baseline is used.

CMW had also faulted an earlier decision by ICAO on which carbon credits would be eligible for use to offset emissions under Corsia, which it said risks allowing the use of "junk" credits from projects that have not driven genuine emissions reductions.

By Victoria Hatherick

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