9 Mar, 2011

Europe Sets Base for Calculating Aviation Emission Caps

Imtiaz Muqbil

BRUSSELS, March 7, 2011 — The European Commission today decided on the historical data for emission of greenhouse gases by the aviation sector which will be used as a base figure on which to calculate the number of emission allowances to be available to airlines from 2012. The move will impact all airlines flying to, from and within the EU region and is expected to have what the EU calls only a “minor impact on ticket prices.”

In an official announcement, the EC said that the aviation emissions figure of 219,476,343 tonnes of CO2 “represents the average of the estimated annual emissions for the years 2004, 2005 and 2006 of all flights that would be covered by the EU Emissions Trading Scheme (EU ETS) performed by aircraft operators to and from European airports.” Based on this figure, the number of aviation allowances to be created in 2012 will be cut to 212,892,052 tonnes of CO2 (97% of the historic aviation emissions figure), and the number of aviation allowances to be created each year from 2013 onwards lowered further to 208,502,525 tonnes of CO2 (95% of the historic aviation emissions figure).

The EC described this decision as an “an important step in preparing for the full inclusion of aviation in the EU’s emissions trading system (EU ETS) from 1 January next year.”

Connie Hedegaard, European Commissioner for Climate Action, was quoted as saying: ”Emissions from aviation are growing faster than from any other sector, and all forecasts indicate they will continue to do so under business as usual conditions. Firm action is needed. By publishing the data on which allocations will be based, we prepare for the full inclusion of aviation in the emissions trading system. ”

According to the EC, the calculation of historic aviation emissions was based on data from Eurocontrol – the European Organisation for the Safety of Air Navigation – and actual fuel consumption information provided by aircraft operators. Additional calculations were carried out to account for fuel consumption associated with the use of the auxiliary power units (APUs) on aircraft at airports.

According to the International Air Transport Association, “Emissions trading is a market-based scheme for environmental improvement that allows participants to buy and sell emissions allowances, i.e. rights to emit a fixed amount of emissions per year. Emissions trading allows established emission goals to be met in the most cost-effective way by letting the market determine the lowest-cost pollution abatement opportunities.”

An IATA brief notes that at the end of each trading year, participants have to hand over (“surrender”) allowances corresponding to their actual emissions in that year. Participants can either sell unused allowances to other participants in the scheme or must buy the allowances needed to cover their extra emissions from other participants.”

It offers the following example of how the scheme would work: An airline joins the trading scheme in 2012 and is given allowances to emit 1 million tonnes of CO2 for that year. If that airline only emits 0.8 million tonnes in 2012, it can sell 0.2 million tonnes worth of allowances to another airline in the scheme. If that airline emits 1.2 million tonnes in 2012, it would have to buy the right to emit the extra 0.2 million tonnes from another company in the scheme (e.g. airline, factory, power plant, etc.).

The key issue here lies in the words “market-based scheme.”

According to non-governmental organisations and activists tracking the climate change debate, this will put an extraordinary amount of control and influence into the hands of those people involved in the buying and selling of these emissions. It is not clear if the aviation sector has sought further transparency on the inner workings, rules and regulations of these “market-based schemes” and what the airlines and passengers will incur in terms of financial costs, legalities and the monumental bureaucratic hassles of managing them.

NGOs have warned that there is a hidden agenda at work that will simply line the pockets of those involved in controlling these “market-based schemes.”

At the moment, however, the focus is purely on the environmental impact, and the need to curb emissions as soon as possible.

According to the EC announcement, “EU emissions from aviation have increased fast – almost doubling since 1990. It is estimated that one passenger, flying from Brussels to New York and back in economy class generates in the order of 800 kg of CO2.

“To mitigate the climate impacts of aviation, the EU has decided to impose a cap on CO2 emissions from flights operating to and from EU airports. From the start of 2012, some 4,000 aircraft operators arriving and departing in the EU will be covered by the EU ETS. Like industrial installations, airlines will receive tradable allowances covering a certain level of CO2 emissions from their flights per year. Aviation represents around 10% of greenhouse gas emissions covered by the EU ETS.”

Moving to deflect any potential criticism about the impact on airfares, the announcement was accompanied by a backgrounder which said, “Including aviation in the EU ETS will not directly affect or regulate air transport tickets. However, aircraft operators may have to invest in more efficient planes or buy emission allowances in the market in addition to those allocated to them.

“The impact on ticket prices will probably be minor. Assuming airlines fully pass on these extra costs to customers, by 2020 the ticket price for a return flight within the EU could rise by between €1.8 and €9. Due to their higher environmental impact, long-haul trips could increase by somewhat more depending on the journey length. For example a return flight to New York at current carbon prices of around €15 might cost an additional €12.”

It also reminded the airlines that they have themselves been adding hefty fuel surcharges on to their ticket prices over the years, and that going down the EU ETS path would be better than facing other kinds of levies.

It said, “Ticket price increases are in any case expected to be significantly lower than the extra costs airlines have passed on to consumers due to world oil price rises in recent years. Including aviation in the EU ETS will also have a smaller impact on prices than if the same environmental improvement were to be achieved through other measures such as a fuel tax or an emissions charge.”

Said the annoucement, “Later this year, as foreseen in the EU ETS Directive3, the Commission will formally determine the amounts of emission allowances to be auctioned, to be distributed free of charge to aircraft operators and to be allocated to a special reserve for new entrants. The EU ETS Directive states that Member States should use all auction revenues from aviation allowances to tackle climate change, including in the transport sector, and to adapt to the effects of climate change.

For the Decision adopted by the Commission, see: http://ec.europa.eu/clima/documentation/transport/aviation/index_en.htm

For more information on monitoring, reporting and verification of emissions, and procedures for aircraft operators and their administering Member States, see http://ec.europa.eu/clima/policies/transport/aviation/monitoring_en.htm and http://ec.europa.eu/clima/policies/transport/aviation/operators_en.htm

For more information on the EU’s Emission Trading System, see http://ec.europa.eu/clima/policies/ets/index_en.htm

Aviation and climate change: http://ec.europa.eu/clima/policies/transport/aviation/index_en.htm

IATA has also published a brief of frequently asked questions on the ETS here: http://www.iata.org/whatwedo/environment/Pages/emissions-europe-faq.aspx

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Backgrounder by the European Commission

Questions & Answers on historic aviation emissions and the inclusion of aviation in the EU’s Emission Trading System (EU ETS)

Why are historic aviation emissions important for aviation’s inclusion in the EU ETS?

Historic aviation emissions are the basis for calculating the cap on aviation emissions applied when the sector is included in the EU ETS from January 2012. Today’s decision by the European Commission publishes the mean average of the annual emissions for the years 2004, 2005 and 2006 of all flights that would be covered by the EU ETS performed by air carriers to and from European airports. Based on this average annual historical aviation emissions for the period 2004-2006, the number of aviation allowances to be created in 2012 amounts to 212,892,052 tonnes (97% of historic aviation emissions), and the number of aviation allowances to be created each year from 2013 onwards amounts to 208,502,525 tonnes (95% of historic aviation emissions).

How were historic aviation emissions calculated?

The Commission has been assisted by Eurocontrol – the European organisation for the safety of air navigation. The comprehensive air traffic data contained in Eurocontrol’s databases from the Central Route Charges Office (CRCO) and the Central Flow Management Unit (CFMU) were considered the best available data for calculation of the historic emissions. These provide among other things a calculation of the actual route length for each individual flight. Emissions were then calculated on a flight-by-flight basis using the ANCAT 3 (Abatement of Nuisances Caused by Air Transport) methodology and the CASE (Calculation of Emissions by Selective Equivalence) methodology.

In addition to Eurocontrol’s data, the Commission also used information on actual fuel consumption from almost 30 aircraft operators of different types and sizes. This data was for aircraft types that were responsible for 93% of emissions in the base years.

Thirdly, additional calculations were carried out to account for fuel consumption associated with the use of the auxiliary power units (APUs). APUs are small engines that are used to provide lighting and air conditioning when the aircraft is stationary at airports. They are used when the aircraft is not connected to ground source electrical power and ventilation services. The approach taken was first to determine the average APU fuel consumption for different aircraft types. The individual emission factors of APU fuel consumption were then extrapolated to calculate total APU emissions applying a process which took into account the actual share of fuel burn for the flights under the EU ETS of each aircraft type and the use of ground power in airports. The emissions corresponding to the resulting total APU fuel consumption were included in the historical aviation emissions for each of the years 2004, 2005 and 2006.

Why was the 2004-2006 period chosen as a baseline for aviation emissions?

The 2004-06 baseline period is defined in the legislation on the inclusion of aviation in the EU ETS. The baseline period for aviation allocation under the EU ETS is different from the 1990 baseline for the EU’s overall reduction commitment as it takes into account the significant growth in aviation over the last 15 years.

Why has there been a delay in publishing historic aviation emissions?

This decision has been adopted later than originally foreseen in order to spend more time collating data on the historic emissions. Additional studies were done to increase the accuracy of the estimations of historic aviation emissions, in particular in relation to the fuel used by auxiliary power units (APU). Together with the support from Eurocontrol and contribution from aviation sector, a methodology to assess the APU was developed and the fuel consultation by APU was estimated. This figure was then added to the flight based CO2 emissions.

The subsequent steps foreseen in the implementation of the Directive are to determine free allocations to aircraft operators and the volume of allowances to be auctioned.

How will allocations per aircraft operator be calculated?

82% of the allowances will be given for free to aircraft operators and 15% of the CO2 allowances are allocated by auctioning. The remaining 3% will be allocated to a special reserve for later distribution to fast growing airlines and new entrants into the market.

The free allowances will be allocated by a benchmarking process which measures the activity of each operator in 2010 in terms of the number of passengers and freight that they carry and the total distance travelled. The benchmark should be published by 30 September 2011.

Member states have agreed that all revenues from auctioning should be used to tackle climate change including in the transport sector.

Will the cap on aviation emissions be affected by the Icelandic volcanic ash cloud in 2010?

The events from the Icelandic volcano in 2010 will have no effect whatsoever on the total size of the emissions cap for aviation under the EU ETS or the total number of allowances that will be allocated free of charge to aircraft operators.

We have not seen data to suggest that the impact of the ash cloud will have a material impact on the distribution of free allowances between aircraft operators. Redistribution might occur if certain airlines had to cancel a greater proportion of flights then others, while the vast majority of operators have been impacted by the flight restrictions resulting from the volcanic ash cloud. Indeed all the estimations that we have seen confirm that distributional impacts are very small.

For the regulator to change or adapt the 2010 benchmarking year for the allocation of free allowances to aircraft operators, it would require a change in primary EU legislation. Adopting such legislation usually takes 2 years and there are no plans to start this process.

Which airlines and routes will be affected by the EU ETS?

The EU ETS will cover any aircraft operator, whether EU- or foreign-based, operating international flights on routes to, from or between EU airports. All airlines will thus be treated equally. Very light aircraft will not be covered. Military, police, customs and rescue flights, flights on state and government business, and training or testing flights will also be exempted.

To reduce administrative costs, each operator will be administered by a single Member State regarding emissions from the total of its flights to, from and within the EU.

The list of aircraft operators that may be covered by the system includes over 4000 operators. The list has been created with the support of Eurocontrol and was based on actual flight information; it was last updated in February 2011 to take account of all changes that happened in 2010.

Aviation is an international business – why not conduct emissions trading at global level?

The EU is the strongest advocate for global action to reduce climate impacts of aviation. States have not been able to agree on a common global system through either the United Nations Framework Convention on Climate Change (UNFCCC) or the International Civil Aviation Organisation (ICAO). In the Resolution on climate change adopted at its most recent Assembly in October 2010, states in ICAO called for further work to explore the feasibility of a global market-based measure. The Resolution also recognized that states may take action prior to 2020. The EU ETS provides a good model for applying market-based measures to aviation. Development of other national programmes covering international aviation, compatible with the EU ETS, are a pragmatic way in which global action can be implemented.

What about the litigation by some US airlines against the EU Directive?

While a number of airlines support action by the EU to address the climate change impacts from aviation, a challenge to the EU Directive has been launched by a number of US airlines. This has been referred to the European Court of Justice, and the European Commission, European Parliament, Council and a number of Member States have submitted observations, in addition to other organisations intervening in the case. The airlines involved are complying with the Directive’s requirements in full pending the resolution of this challenge.

What will the effect be on aviation emissions?

The environmental impact of including aviation in the EU ETS will be significant because aviation emissions, which are currently growing rapidly, will be capped at below their average level in 2004-2006. By 2020 it is estimated that a total of 183 million tonnes of CO2 will be saved per year on the flights covered, a 46% reduction compared with business as usual. This is equivalent, for instance, to twice Austria’s annual greenhouse gas emissions from all sources. Some of these reductions are likely to be made by airlines themselves. However, participation in the EU system will also give them other options: buying additional allowances on the market – i.e. paying other participants to reduce their emissions – or investing in emission-saving projects carried out under the Kyoto Protocol’s flexible mechanisms. Providing aviation with these options does not reduce the environmental impact of the proposal since the climate impact of emission reductions is the same regardless of where they are made.

Will ticket prices increase?

Including aviation in the EU ETS will not directly affect or regulate air transport tickets. However, aircraft operators may have to invest in more efficient planes or buy emission allowances in the market in addition to those allocated to them. The impact on ticket prices will probably be minor. Assuming airlines fully pass on these extra costs to customers, by 2020 the ticket price for a return flight within the EU could rise by between €1.8 and €9. Due to their higher environmental impact, long-haul trips could increase by somewhat more depending on the journey length. For example a return flight to New York at current carbon prices of around €15 might cost an additional €12. However, ticket price increases are in any case expected to be significantly lower than the extra costs airlines have passed on to consumers due to world oil price rises in recent years. Including aviation in the EU ETS will also have a smaller impact on prices than if the same environmental improvement were to be achieved through other measures such as a fuel tax or an emissions charge.

How big is EU aviation’s contribution to climate change?

Direct emissions from aviation account for about 3% of the EU’s total greenhouse gas (GHG) emissions. The large majority of these emissions comes from international flights, i.e. flights between two Member States or between a Member State and a non-EU country. This figure does not include indirect warming effects, such as those from NOx emissions, contrails and cirrus cloud effects. The overall impact is therefore estimated to be higher. The Intergovernmental Panel on Climate Change (IPCC) has estimated that aviation’s total impact is about 2 to 4 times higher than the effect of its past CO2 emissions alone. Recent EU research results indicate that this ratio may be somewhat smaller (around 2 times). None of these estimates take into account the uncertain but potentially very significant effects of cirrus clouds.

EU emissions from international aviation are increasing fast – doubling since 1990 – as air travel becomes cheaper without its environmental costs being addressed. For example, someone flying from London to New York and back generates roughly the same level of emissions as the average person in the EU does by heating their home for a whole year. Emissions are forecast to continue growing for the foreseeable future.

Emissions from aviation are higher than from certain entire sectors covered by the EU ETS, for example refineries and steel production. When aviation joins the EU ETS it is forecast to be the second largest sector in terms of emissions, second only to electricity generation.

What are the next steps?

Airlines have been monitoring their emissions during 2010, and are required to verify and report these emissions to their administering Member States by 31 March 2011. By that same date, airlines may also apply for free allocations of emissions allowances on the basis of their activities in 2010. Based on information submitted by the Member States, the European Commission will calculate the benchmark that will define how many free allowances aircraft operators will receive. This benchmark decision will be published by 30 September 2011.

By end September the Commission will also publish the emissions cap and the percentages of allowances to be: auctioned; given for free; and allocated to the special reserve.