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A4E Input on Public Consultation Updating the EU Emissions Trading System (ETS)

Abstract

European airlines are closely exploring potential pathways towards a net-zero, or low-carbon European air transport through reduction of CO2 emissions in absolute terms and CO2 mitigation. A4E members want to be part of the fight against climate change. It is a challenge we face head-on, and one we will only achieve through integrated, cross-sector efforts across policy fields: transport, climate, energy and research. The solution is not to fly less, but to fly more efficiently and more sustainably. Our core objective is that aviation can grow sustainably while continuing to benefit the social and economic development of countries across Europe in the coming decades.

Introduction

The ETS is the most appropriate economic measure to limit and reduce CO2 emissions and price CO2. To ensure cost-effectiveness, economic measures must be market-based. Climate policies through national taxes, levies or bans are ecologically and economically counterproductive and distort competition, as they are not applied simultaneously in all Member States. Imposing taxes without reinvesting their revenues in de-carbonization does not help effectively lower emissions from flying, as it hampers connectivity without effectively contributing to aviation’s green transformation. Already in the short term, economic measures such as the ETS and CORSIA will contribute to reducing net CO2 emissions and reaching EU and global climate goals.

They bridge the gap until breakthrough technologies and sustainable aviation fuels become widely available. By 2050, it is expected that the role of market-based measures is reduced when larger contributions come from improvements in technology, air traffic management (ATM) and operations as well as SAFs.

A pathway towards net zero CO2 emissions for aviation

Airlines for Europe members commit to work together with all stakeholders and policymakers to achieve the following climate objectives:

  • Reaching net zero CO2 emissions by 2050 from all flights within and departing from the EU. This means that by 2050, emissions from these flights will be reduced as much as possible, with any residual emissions being removed from the atmosphere through negative emissions, achieved through natural carbon sinks (e.g., forests) or dedicated technologies (CCS).
  • Reach significant net CO2 emission reductions from all flights within and departing from the EU by 2030. Through these commitments, we aim to align our ambition with the Paris Agreement, recognising the urgency of pursuing the goal of limiting global warming to significantly less than 2°C.

By doing so, A4E members are also making a significant contribution to the European Green Deal and the EU’s climate neutrality objectives.

These objectives can only be reached through close cooperation between all stakeholders in the value chain and by a collaborative effort between policymakers and the industry to put the right policies in place to support the transition, (eg. Single European Sky, support to innovative fuels, hydrogen). In this process, innovation is key, and should be supported. Ensuring a level playing field within Europe and vis-à-vis the rest of the world is also a prerequisite to achieve these objectives. Considering the strong efforts that will be required to achieve CO2 emission reduction objectives, support for innovative aviation technologies should be proposed and managed at EU level, to ensure equal access by EU airlines.

The access to funding programs should also be made clearer for the entire aviation sector where so many programs are very disseminated, making them partially non accessible in practice. Funding aid intensity should also be increased to cover up to 100% of CO2 cost overruns (only for the part beyond the free allowances benefit of course). Bearing in mind that breakthrough technologies will not be available at a realistic scale before minimum 15 years from now, we need also access to support mechanisms allowing to make the bridge timewise.

Smart economic instruments to cap and reduce emissions

To limit the climate impact of air travel, it is essential that a basket of measures be applied simultaneously to allow European aviation to fully contribute to the climate effort while long-term solutions are implemented to reduce emissions. Other policies should therefore include: 1. Support the deployment and development of greener aircraft technologies, 2. More efficient operations and infrastructure, and 3. The development of and appropriate support for sustainable aviation fuels (SAFs).

Taxes, on the other hand are environmentally ineffective and would divert the industry’s capacity to invest and innovate at a crucial moment where research and development in low carbon technologies should be supported. At the same time, they risk distorting competition, discriminating between actors and risk shifting CO2 emissions to other regions, which is contrary to the desired effect.

Aviation is part of the EU ETS since 2012European Union (EU). Directive 2009/29/EC of the European Parliament and of the Council Amending Directive 2003/87/EC so as to Improve and Extend the Greenhouse Gas Emission Allowance Trading System of the Community, 2009, 140, 63–87. Available online: https://eur-lex.europa.eu/legalcontent/EN/TXT/PDF/?uri=CELEX:32009L0029&from=EN. For the compliance year 2019, A4E airline members purchased CO2 certificates for around 60% of their emissions. For 2019, the value of these purchases under the ETS reached €650 million. This is a significant contribution to the EU’s decarbonization effort coming from an industry currently experiencing one of its worst crises as a result of the COVID-19 pandemic.

The EU’s Emissions Trading System and CORSIA

At the international level, aviation will be the first industry to have a global scheme to limit CO2 emissions from 2021. We were delighted when governments agreed in October 2016 to regulate global aviation emissions through a smart economic measure – CORSIAInternational Civil Aviation Organisation (ICAO). Resolution A39-3: Consolidated Statement of Continuing ICAO Policies and Practices Related to Environmental Protection—Global Market-based Measure (MBM) Scheme; International Civil Aviation Organisation: Montréal, QC, Canada, 2016; Available online: https://www.icao.int/environmental-protection/documents/resolution_a39_3.pdf .  We recognise the contribution made by the EU to achieve this historic outcome and are committed to support the introduction of CORSIA.  The scheme, which is overseen by ICAO, will deliver projects that will reduce carbon by around 2.5 billion tons between 2021 and 2035. 81 countries have currently signed up, covering 77% of global aviation CO2 emissionsInternational Civil Aviation Organisation (ICAO). CORSIA States for Chapter 3 State Pairs. Available online: https://www.icao.int/environmental-protection/CORSIA/Pages/state-pairs.aspx.

All national and regional policy on aviation emissions must now be done with the upmost care to align with and support CORSIA, avoid double regulation of the same CO2 emissions, and avoid international dispute.  This applies especially when considering the future of the EU ETS.

Carbon leakage protection

Energy and capital-intensive sectors are at a significant risk of carbon leakage. Europe needs to ensure that European airlines remain competitive. This requires the EU ETS reform to include adequate carbon leakage measures. Free allocation and a possible Carbon Border Adjustment Mechanism (CBAM) must be complementary. To ensure such a level playing field and prevent carbon leakage, decisions related to the free allowances must be handled in conjunction with the establishment of mechanisms seeking to address the displacement of traffic flows or the competitive distortion such as a carbon border adjustment mechanism.

Effective use of the EU ETS revenues

The share of revenues of Member States’ auctioning of aviation ETS allowances used in supporting SAFs, fleet renewal or zero-emissions hydrogen and electric technologies is minimal. At European level too, the development of alternative fuels for aviation and zero-emissions technologies should be supported by the EU’ s ETS Innovation Fund.

In the absence of an alternative to liquid drop-in sources of energy for mainstream commercial flights in the next years, coupled with the commitment for aviation to reduce its CO2 footprint, the decarbonisation of air transport will have to be achieved by switching to aviation fuels increasingly CO2 neutral, whilst remaining cost-competitive. The development and deployment of Sustainable Aviation Fuels (SAFs), Research and innovation on alternatives to fossil fuels including hydrogen and electric propulsion are ongoing and should be supported. To mobilise the huge amounts of investments needed, financing for R&D and deployment must be improved.

Free allocation and auctioning

Modifying the share of allowances auctioned will have no impact on CO2 emissions. Under a cap-and-trade mechanism, the climate benefit is defined by the cap, not by the level of auctioning. If the auctioning of allowances generates revenues for EU and EFTA Members States, it does not lead to an additional mitigation in CO2 emissions from aviation unless the revenues from such auctioning is reinvested into the development or deployment of aviation decarbonization technologies. For the compliance year 2019, A4E airline members purchased CO2 certificates for around 60% of their emissions. For 2019, the value of these purchases under the ETS reached €650 million. This is a significant contribution to the EU’s decarbonization effort coming from an industry currently experiencing one of its worst crises as a result of the COVID-19 pandemic.

A4E recommends to take into account the current extraordinary circumstances in the drafting of the proposals related to the increase of the auctioning percentage of allowances. The realities of the large structural changes required to enable the aviation sector to decarbonise should also be considered. For these reasons, any future change in the allocation of allowances should take place only after the crisis has passed.

Similarly, the review of the share of auctioning should not create market distortion within the EU/EEA and globally. To ensure such a level playing field and prevent carbon leakage, decisions related to the free allowances must be handled in conjunction with the establishment of mechanisms seeking to address the displacement of traffic flows or the competitive distortion such as a carbon border adjustment mechanism.

Market stability reserve (MSR)

A separate review of the MSR is scheduled for 2021. In the upcoming review, the impact of a possible inclusion of aviation under the MSR needs to be evaluated in the light of the importance of ensuring a smooth functioning of the market, whilst taking into consideration the impact of the COVID-19 pandemic on air transport.

 

About A4E

Launched in 2016, Airlines for Europe (A4E) is Europe’s largest airline association, based in Brussels. The organisation advocates on behalf of its members to help shape EU aviation policy to the benefit of consumers, ensuring a continued safe and competitive air transport market. With more than 720 million passengers carried in 2019, A4E members account for more than 70 per cent of the continent’s journeys, operating more than 3,000 aircraft and generating more than EUR 130 billion in annual turnover. Members with air cargo and mail activities transport more than 5 million tons of goods each year to more than 360 destinations either by freighters or passenger aircraft. Current members include Aegean, airBaltic, Air France-KLM Group, Cargolux, easyJet, Finnair, Icelandair, International Airlines Group (IAG), Jet2.com, Lufthansa Group, Norwegian, Ryanair Holdings, Smartwings, TAP Air Portugal, TUI and Volotea. Follow us on Twitter @A4Europe.