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EU Emissions Trading Scheme - A World of Difference

Solutions to the European Union emissions trading scheme controversy are on the table. It is time for stakeholders to take their seats.

Climate change is a very real issue that must be addressed. But it is clear that countries or regions acting unilaterally will not deliver the answer. No one country or region is big enough to stop a global problem on its own.

The clearest example of this is the European Union Emissions Trading Scheme (EU ETS). While it affects airlines across the globe it does not provide environmental mitigation on a worldwide scale. In fact, with the money it raises not obligated to environmental measures it is questionable whether it even reduces carbon emissions in its home territory. The EU ETS also raises the possibility of other countries introducing competing schemes, forcing airlines to pay several times over for the same emissions.

But this is not about the money—airlines have long endorsed positive economic measures as part of the industry’s  Four Pillar Strategy to reduce emissions. Rather, it is about sovereignty and properly dealing with the global climate-change issue. Under the EU proposal, an Air China jet starting up its engines in Beijing to prepare for a flight to Europe becomes immediately accountable to the EU for emissions over its sovereign territory, as well as those over every country it flies across on the journey to Europe. Not surprisingly, China is one of many countries that has argued quite forcibly against the regulation.

Although the Court of Justice of the European Union has upheld the legality of the European legislation, countries around the world haven’t ceased their determination to fight against it. India is another example. It has now formally prohibited its airlines from participating in the EU ETS. The order follows an earlier government directive barring Indian carriers from submitting any data for use in the EU ETS.

Solutions

“The European Union should be congratulated for pushing for environmental mitigation and making it a primary concern for the aviation industry,” says Paul Steele, IATA Director for Aviation Environment. “But the model they have adopted has become a major distraction. It is time to bring some clarity to the debate.”

Steele points out that a global problem in a global industry needs a global solution. All eyes are therefore turning to the International Civil Aviation Organization (ICAO). It is the correct forum to broker a deal that is acceptable to all parties, including developed and developing economies.

ICAO is evaluating a series of options. One of the areas of exploration is a straightforward carbon offsetting scheme. This would use 2020 as a baseline. Beyond 2020, if a state or an airline operator (this is being discussed) grew its carbon emissions, it would have to buy carbon credits to cover the excess. Monitoring, reporting, and verification procedures would also need global standards.

Another possibility is an offsetting scheme combined with extra revenue. As per the first idea, there would be an offsetting cost. But, in addition to this, there is a further cost associated with the amount of credits being bought. Any money spent from the scheme would be subject to internationally agreed criteria. The crucial question here is the level of extra revenue.

A third suggestion is a global ETS, much like the current European model. But unlike the EU ETS this wouldn’t have the associated sovereignty problems. It could also include commitments on how to spend any money raised; mitigating the environmental impact of aircraft engine emissions and supporting developing states would be two possible examples.

“The ideal outcome is to confirm an agreement by the next ICAO Assembly in September 2013,” says Steele. “That would mean having a decision on what scheme, as well as the details of that scheme, by the end of 2012.”

Transition

To have these ideas is a positive step, according to Steele, as is the CO2 standard for aircraft. But he accepts that the EU ETS remains a stumbling block. IATA fully supports the ICAO process and is encouraging countries to become actively engaged in the debate.

Siim Kallas, the European Commission Vice-President and Commissioner for Transport, has stated that the “ETS issue must be tackled, and solved, in ICAO.” The EU, however, is insisting that the ETS stays in place until a new agreement is reached.

Other countries are saying that EU ETS should be taken off the table before talks can begin. South Africa Tourism Minister Marthinus van Schalkwyk concluded his remarks to the Environment Summit in Geneva with a firm proposal. “If the EU is committed to a global solution, which I believe they are, and if the rest of the world is seriously committed to providing new political momentum to negotiations under ICAO, which I believe they are, there may be very good reasons for the EU to suspend the inclusion of aviation in the EU ETS for two years.”

Now the stakeholders are at the table, a decision on the best way forward needs to be delivered in a relatively quick timeframe. Success probably depends on a solution that is easy to implement technically and politically.

“Most observers agree a global ETS would be the most effective solution, but there are challenges. There are no global institutions capable of implementing the program and there is currently no global carbon market in which to operate,” says Steele. “It may be that states agree on simpler proposals that transition into a global ETS in the long term.”

With the economic environment still uncertain, the world can ill afford a trade war sparked by the extra-territorial aspects of the EU ETS. Nor can the world accept that climate change continues unabated. Negotiations on alternative economic measures must make significant progress in the run-up to the ICAO Assembly in September 2013.

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