Aviation Emissions and Carbon Trading in the Aviation Industry The Debate - Views and perspectives from the public and private sector IPBA 2014

1. AVIATION EMISSIONS AND CARBON
TRADING
THE DEBATE
Helen Tung
Barrister, One Temple Avenue Chambers
IPBA 2014
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2. 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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3. 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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4. 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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5. 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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6. 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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7. 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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8. 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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9. 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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10. 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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11. 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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12. 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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13. 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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14. 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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15. 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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16. 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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17. 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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18. 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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19. 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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20. 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)
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21. 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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22. 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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23. 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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24. 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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25. 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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26.  Thank you
 http://helentung.blogspot.co.uk/
 onetempleavenue.co.uk/barristers/helent.html
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