UK: The EU Emissions Trading Scheme

First published in the Winter Issue of BLG Aerospace News

The ETS will commence on 1 January 2005. The first phase of the ETS runs from 2005-2007 and the second phase will run from 2008-2012. Further 5-year periods are expected subsequently. The ETS only applies for the moment to industries that encompass energy activities, the production and processing of ferrous metals, processing and manufacturing activities involving minerals, and pulp paper and board manufacture.

Each installation covered by the scheme must hold a greenhouse gas emissions trading permit (in effect, a licence to operate and to emit carbon dioxide) from 1 January 2005. Each permitted installation will receive an allocation of carbon dioxide emission allowances. The number of allowances allocated to each installation will be based on the Member State’s National Allocation Plan approved by the European Commission. Member states must allocate allowances to installations by 28 February each year. Installations will therefore receive their first allocation by 28 February, 2005. Member States must ensure that by 30 April each year at the latest, the operator of each installation surrenders a number of allowances equal to the total emissions from that installation during the preceding calendar year. These allowances are then retired. If an installation’s allocation is insufficient to cover its total emissions, allowances to cover the shortfall must be purchased from an installation whose allocation exceeds its emissions. Failure to cover a shortfall will result in a financial penalty being imposed.

Greenhouse gas emissions from international aviation are not included within the Kyoto Protocol and the transport sector is not a sector covered by the ETS. The contribution of the aviation industry to global greenhouse gas emissions in the coming years is set to grow however, and there are increasing calls for action to be taken to ensure that the emissions are kept within the limits required to avoid climate change. The introduction of fuel taxation and the extension of emissions trading to the aviation sector are often suggested as measures that could be taken to achieve this. Clearly there are practical difficulties in each case and the debate goes on as to which would be the most politically achievable and/or cost-effective in practice.

At the international level, although there is an increasing acceptance that aviation’s climate change impact needs to be investigated and addressed, binding measures aimed at limiting aviation’s emissions seem unlikely in the short to medium term. The 35th ICAO Assembly, which concluded in October 2004, requested ICAO to study the effectiveness of, and to develop further guidance on, emissions levies by the next Assembly in 2007. It further urged states not to implement greenhouse gas emissions charges unilaterally prior to that date.

The ICAO Assembly recognised, however, that implementing such charges by mutual agreement of States that are members of a regional economic integration organisation on operators of those states is not precluded. This has left the way open for organisations like the EU to take matters into their own hands. At the EU level, taxation and the extension of emissions trading to aviation within the EU are a distinct possibility in the medium term, although steps will need to be taken to ensure coherent administration. In particular:

• The UK Government has promised during its presidency of the EU in 2005 to promote the idea of aviation entering the ETS from 2008.
• The European Commission has launched a study into extending the ETS to cover aviation within 5 years.
• European airport groups and some airlines have declared themselves in favour of emissions trading, thus easing the way for its introduction.

A gradual acceptance that aviation’s greenhouse gas emissions will not be allowed to grow unchecked seems to be emerging, therefore. It is most apparent at the EU level, where it appears more than likely as things stand, either that emissions trading will be extended to cover aviation in the EU or an emissions related tax will be introduced within 5 years.