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Feedback on EU Emissions Trading System

Updated Rules for Aviation (Roadmap)

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Abstract

Hereby, Airlines for Europe (A4E) takes the opportunity to submit feedback on the EU emissions trading system — updated rules for aviation (Roadmap).

European airlines are closely exploring pathways towards a net-zero, or low-carbon European air transport through reduction of CO2 emissions in absolute terms and CO2 mitigation (offsets or market-based measures). It is crucial to recognise the magnitude and urgency of the commitment adopted by the European Commission. Airlines fully understand the importance of not failing in turning this pledge into a future reality. Carrying more than 720 million passengers each year and operating around 3000 aircraft, A4E airlines are ready and willing to contribute to making the European Green Deal a success.

Over the next 10 years, European airlines will invest €169 billion in greener aircraft technologies which are on average 25% cleaner and less noisy than their predecessors. The breadth of knowledge, best practices, track record in efficiency and especially the competencies that Europe’s aviation sector holds are valuable tools in reaching these ambitious goals. Air transport is a prerequisite for achieving many UN Sustainable Development Goals. It represents the right to access essential human needs: jobs, markets and goods, social interaction, education and other services. Improved access helps address general concerns such as socio-economic cohesion throughout the EU or the depopulation of rural areas.

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. These include:

  1. Greener aircraft technologies,
  2. More efficient operations and infrastructure,
  3. The development of and appropriate support for sustainable aviation fuels (SAFs), and
  4. Smart economic instruments.

Smart economic instruments such as carbon trading and offsetting schemes are preferable to taxes, as they achieve substantial emissions cuts at least cost to consumers, which is something that simply imposing taxes does not lead to. Market-based measures have therefore the advantage of ensuring the achievement of pre-defined environmental targets in a cost-efficient manner. By putting a market-based price on CO2 emissions, emitters are incentivized to reduce their carbon footprint the most cost-efficient way.

Such instruments also provide further stimulation to progress in the other elements of the basket of measures, including driving further efficiency across an airline’s business.

The EU’s Emissions Trading System and CORSIA

Aviation is part of the EU ETS since 2012.European 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 It is currently the only transport sector that is part of the ETS scheme where the cost of emissions is fluctuating around the €26 per tonne of CO2 mark.Source: European Energy Exchange, August 2020. In total, the net reduction in aviation related emissions for the entire 2013–2020 phase is estimated to be 193 million tonnes of CO2 emissions.https://www.eurocontrol.int/sites/default/files/publication/files/eaer-2019.pdf, 2019. European Aviation Environmental Report. In 2019, A4E airline members purchased over 20 million tonnes of CO2 certificates representing around 60% of their emissions under the EU ETS.

At the international level, aviation will be the first industry to have a global scheme to limit CO2 emissions from 2021 onwards. We were delighted when governments agreed in October 2016 to regulate global aviation emissions through a smart economic measure – CORSIA.International 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…/resolution_a39_3.pdf The EU played a key role to achieve this historic outcome and are committed to support the introduction of the scheme. CORSIA, which is overseen by ICAO, will deliver projects that will reduce carbon by around 2.5 billion tonnes between 2021 and 2035.

As of 5 July 2020, 88 countries have currently signed up to the scheme, covering 77% of global aviation CO2 emissions.International 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 utmost 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’ application to aviation.

The EU ETS and CORSIA post-2021

Regional climate solutions risk shifting CO2 at the expense of airlines based in the region. Aviation is a global economic activity and air traffic is international by nature. Global solutions are therefore the most effective in terms of climate and environmental policy addressing air traffic. While CORSIA as a global instrument has minimal negative competitive effect, the EU ETS hinders EU airlines’ global competitiveness. A global scheme offers a level playing field for European airlines, provides a global solution to the global carbon challenge, and minimises the risk of loss of market share and carbon leakage. The drafting of regional climate measures should avoid creating competitive disadvantages and market distortions at an international level. Proposals for a carbon border adjustment mechanism, for selected sectors, to reduce the risk of carbon leakage should take into consideration such disadvantages.

A4E fully supports the EU’s ambition that CORSIA should be as robust as possible and believes it should be the key mechanism to curb aviation emissions. It will help to achieve one of the industry’s key goals: carbon-neutral growth from 2020 onwards.

The requirements of the Chicago Convention Annex 16 on CORSIA must be implemented for intra-European flights in full. The European Commission has proposed that CORSIA Monitoring Reporting and Verification (MRV) be implemented through the EU ETS legislation, with various inconsistencies in the MRV rules. In this respect, A4E is concerned by some of the proposed options in the inception impact assessment that imply CORSIA compliance requirements could be automatically met by compliance with only the EU ETS from 2021. This would be highly inappropriate and would be a failure to implement CORSIA, a vote of no-confidence in the scheme, a disregard for the harmonised requirements that are necessary in aviation and would set an unacceptable precedent.

Policy options for EU ETS & CORSIA

A4E airlines are ready and willing to contribute to making the European Green Deal a success and willing to contribute to the decarbonization effort. European airlines recognize the role they should play in the decarbonization of the EU and the central role the EU ETS plays in reducing CO2 emissions in the EU.

Very soon, the EU will have to decide how to continue with the EU ETS from the beginning of the CORSIA pilot offsetting phase. The lack of clarity over the presence of the EU ETS alongside CORSIA needs to be addressed, especially with regards to international intra-EEA flights which are, as matters stand, subject to both schemes. According to Annex 16, Vol. IV, this issue is clear: All EU states have agreed to join CORSIA from its inception, which regulates all international routes between participating states. Hence, emissions from international intra-EU flights are clearly subject to offsetting under CORSIA.

Many of the international flights currently covered by the EU ETS will also be in the scope of CORSIA from 2021. The scope of the EU ETS application to aviation should therefore by very clearly defined going forward as the same tonne of CO2 should not be accounted for under multiple schemes.

Scenarios which may open the door to divergences on the pricing of carbon within the EEA due to the emergence of a patchwork of initiatives for domestic flights such as national ticket and CO2 taxes would be detrimental for the integrity of the single market.

Recognizing the EU’s willingness to review its CO2 emissions targets for 2030 and 2050, there is an opportunity to rethink the way that intra-European ambition and policy can co-exist and complement CORSIA. We believe future policy should be built on CORSIA rather than trying to ‘shoe-horn’ CORSIA into the EU ETS model.

KEY PRINCIPLES FOR THE REVISION OF THE EU ETS FOR AVIATION

  1. Avoid double regulation of CO2 emissions
  2. Align with CORSIA principles
  3. Seek CO2 mitigation where it is the most cost-efficient
  4. Prevent market distortion between EU/EEA and third countries
  5. Limit the administrative burden
  6. Ensure long term regulatory stability

Reviewing the policy options outlined in the inception impact assessment published, A4E’s views are that:

• Option 1 (EU ETS full legal scope), option 2 (Intra-EU/EFTA ETS only) and option 4 (ETS-CORSIA “clean cut”) would fail to implement CORSIA and not be compatible with EU commitments. It would also undermine the EU’s efforts to mitigate emissions from international aviation in a multilateral way.
• Option 3 (CORSIA only) would fully implement CORSIA whilst the ETS would be subject to a significant adjustment.
• Option 6 (ETS-CORSIA “mix” according to licence of aircraft operators) risks creating an unequal treatment of operators on certain routes and would be incompatible with international law insofar as EU/EFTA Member States would not be implementing CORSIA on intra-EU/EFTA flights.
• Option 5 (ETS-CORSIA “mix”) would see CORSIA applied in its full scope and limit EU ETS scope to intra-EEA flights. However, as currently written, the ETS would apply up to each operator’s individual 2020 baseline, whereas under the CORSIA, obligations are set with respect to sector emissions growth which for many operators will be more stringent than their 2020 baseline. The resultant overlap of measures is likely to cause double counting of the same CO2 emissions and market distortions. Airlines should not pay twice for the same single tonne of CO2.

For these reasons, A4E recommends amending policy option 5 to ensure the option respects the principle of no double counting. The option should be restated as “The EU ETS would apply to CO2 emissions that are not already obligated by CORSIA” This amended option 5 should then be fully assessed by the Commission in light of the objectives of the initiative.

The other policy options currently proposed are unsuitable and fail to meet the stated aims. Considering the assessment of the policy options laid out in the inception impact assessment, it is advisable for the European Commission to assess additional policy options that more closely respect the principles set out in the Roadmap. Such additional policy options could notably explore the possibility of an intra-EU/EFTA policy synchronised with CORSIA (Option 7).

Under such a scenario, CORSIA would apply to CO2 emissions as obligated in that scheme for all international flights (including intra-EU/EFTA flights). An evolution of the ETS policy as applied to intra-EU/EFTA flights would apply to CO2 emissions that are not already covered by CORSIA. The intra-EU/EFTA policy reference year would align with CORSIA (2019) and adopt the same approach to surrender of units above an emissions reduction target. Surrender units could be aligned to those used in CORSIA or could be EUAAs or a combination. The policy would also apply to domestic flights.

This hybrid system could thereby align future EU climate policy for aviation closely with the CORSIA agreement, respect the spirit of a single market-based measure instrument for international flights with limited compliance costs, whilst also reflecting European climate change ambitions for Intra-EU/EFTA flights. From a practical perspective, close alignment of MRV and design parameters would reduce administrative complexity.

Auctioning and allocation of CO2 allowances

For the compliance year 2019, European airlines purchased CO2 certificates for around 60% of their emissions. For 2019, the value of the purchase of CO2 certificates under the ETS by A4E airline members 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.

While the European airlines are not seeking to step away from their contribution towards reaching the EU’s CO2 reduction targets, future decisions on the increase of the auctioning percentage of allowances under the EU ETS should take into consideration the realities of the large structural changes required to enable the aviation sector to decarbonize and the unprecedented crisis related to the COVID-19 pandemic. The belief that the additional costs of the EU ETS and CORSIA can be directly passed on to consumers is unfounded in the current competitive landscape that has resulted from the pandemic. It should be recognized that additional cost factors also reduce airlines’ ability to invest in greener and cleaner technology and thus conversely have a negative impact on real emissions.

In parallel, decisions related to the free allowances allocated to airlines have to be handled in conjunction with future plans for mechanisms seeking to address the displacement of traffic flows or the competitive distortion such as the planned EU carbon border adjustment mechanism. To ensure a level playing field in a global sector such as aviation, adjustment mechanisms should be considered before reviewing the allocation of allowances for aviation under the EU ETS.

ETS revenues and the 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 that are increasingly CO2 neutral, whilst remaining cost-competitive. The development and deployment of Sustainable Aviation Fuels (SAFs), Research and innovation on alternatives to fossil fuels are ongoing and should be supported. To mobilise the huge amounts of investments needed,According to the European Commission’s long-term climate strategy, investment needs for low-emission transport alone under the current energy and climate policy will amount to EUR 685 bn/year between 2021-2030, and EUR 904 bn/year between 2031–2050. European Commission, 2018. 2050 long-term strategy. financing for research, development and deployment must be improved.

To this end, measures to support the development of SAFs are crucially missing and were not sufficiently considered in the 2018 Review of the Renewable Energy Directive (REDII); the remaining structural funds and the new Multiannual Financial Framework (MFF) should be leveraged; incentives could be improved under the Alternative Fuels Infrastructure Directive and infrastructure and technology solutions could be further standardised; projects with the potential to significantly contribute to aviation decarbonisation efforts, notably through the development of alternative fuels for aviation or electrification should also be supported by the EU’s future ETS Innovation Fund.

At member states level too, the full revenues of auctioning of aviation allowances in the EU ETS should be fully used in supporting the development and deployment of SAFs as well as electrification.

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 each year, 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. In 2019, A4E was named “Airline & Aviation Business Development Organisation of the Year” by International Transport News. Follow us on Twitter @A4Europe.