Environment Report

ENVIRONMENT REPORT

Aerlines

Airlines and Global Warming: All Passenger Flight s to be Covered by the EU Emissions Trading Scheme Under a recent European Directive1, greenhouse gas emissions from passenger flights are being brought within the EU Emissions Trading Scheme – the EU’s ‘flagship’ climate change measure. It is a wide-ranging proposal covering all flights arriving at or departing from an aerodrome situated in the territory of a Member State. This article will examine the scope of the Directive. Before doing so it will provide a broad overview of the wider EU Emissions Trading Scheme, since it is this structure into which control of aviation sector emissions is being incorporated. The article will then look at those aspects of the new Directive that are of practical import to airlines (including what aviation activities will be covered and the timelines applying to the various lead-in steps). The article will also examine some of the important technical aspects of the regime, such as the methodology for calculating and allocating airline emission allowances to individual airlines. How the measure attempts to address the concerns of the aviation sector will also be looked at. There will then be some concluding analysis and assessment. by: Conor Linehan Introduction Up to now, greenhouse gas emissions from the aviation sector have not been subject to direct climate change regulation or control. When the EU Emissions Trading Scheme (EU ETS) commenced in 2005, aviation was omitted, partly in the interests of concluding an otherwise wide-ranging scheme at that stage. The priority in 2005 was to get an acceptable emissions trading scheme up and running in order to show leadership internationally in meeting the EU’s Kyoto Protocol commitments.2 The 1997 Kyoto Protocol did not impose on contracting states any specific targets or obligations in relation to aviation emissions but, rather, encouraged them to reduce emissions of greenhouse gases from aviation by working through the International Civil Aviation Organization (ICAO).3 The EU considers that insufficient progress has been made at ICAO level.4 The EU is increasingly concerned at the contribution

that aviation is making to global warming and climate change – through increasing releases of carbon dioxide, nitrogen oxides, water vapor, sulphate and particles. It also has a major concern around contrails and the cirrus cloud effect. Aviation emissions are one of the fastest growing emission sources. While the EU’s total greenhouse gas emissions fell by 3 per cent from 1990 to 2002, emissions from international aviation increased by almost 70 per cent. There is a concern that if aviation emissions are not controlled they will significantly undermine progress achieved in other sectors. The aviation sector points to the ostensibly low emission figures from aviation - accounting for approximately 3 per cent of EU greenhouse gas emissions.5 The new Directive placing aviation within the EU ETS formally came into operation in February 2009, and while formal regulatory control of the aviation sector’s GHG emissions will only commence on January 1st, 2012, the Directive will already be of considerable interest and concern to airlines. Already important decisions are being taken that affect individual aircraft

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operators (such as what body in what Member State will be the administering authority for a particular airline). Very soon, airlines will have to commence the process of providing to those authorities their historic flight and emissions data with a view to substantiating their formal applications for admission to the regulatory regime and their claims for allocations of aviation emission allowances, the tradable currency of the Scheme. Some Member States have already undertaken their own consultation processes and initial steps towards transposition of the directive.6 The Existing EU Emissions Trading Scheme – The EU’s ‘flagship’ Climate Change Measure The EU ETS, by creating an EU-wide ‘market’ in carbon (or, more precisely, in the allowances to emit carbon dioxide) aims to reduce industry-generated emissions of this gas at the least cost. It is a ‘cap-and-trade’ scheme and is part of the EU program for compliance with the Kyoto Protocol. The scheme is currently in its ‘Kyoto phase’, running from 2008 to 2012 to coincide with the commitment period of the Kyoto Protocol. Approximately 10,000 industrial installations across the EU are covered, drawn from a range of carbonintensive sectors including fossil-fuel-based energy production, oil refining, metal production, cement, glass and ceramic production and pulp and paper manufacture. Each installation is issued with a quantity of allowances. Each allowance is, in effect, an allowance or permit to emit one metric tonne of carbon dioxide. The quantity of allowances issued is somewhat lower than historic emission levels so as to create scarcity and room for trade. Most allowances are issued free of charge while some are auctioned. Allowances must be surrendered annually to match reported and verified CO2 emission levels. Where installations generate extra emissions they can purchase extra allowances in the market to match those extra emissions.

Aviation in the EU ETS – Critical Design Issues The transboundary nature of air travel raised important issues of jurisdiction and geographic coverage in adapting the EU ETS to airline emissions. The outcome of much debate on these elements is a scheme that is wide-ranging in scope - all flights departing from or arriving at an aerodrome situated in an EU Member State are covered.9 The EU viewed this as a necessity, having regard to the need to achieve real reductions in airline sector emissions in EU territory and airspace, while at the same time respecting the non-discrimination principle under applicable international airlines law.10 There is a range of exemptions, including for ‘commercial air transport operators’ that have performed fewer than 243 flights per period for three consecutive four-month periods or flights with total annual emissions lower than 10,000 tonnes per year. Diplomatic and public service flights and military and training flights are also excluded, as are flights performed by certain small aircraft. The Commission has developed guidelines for interpreting the Directive’s description of ‘aviation activities’ and of the various categories of excepted activities.11

“...All flights departing from or arriving at an aerodrome situated in an EU Member State are covered...”

Already the EU ETS operates under quite a complex of legal measures. In addition to the ‘parent’ EU ETS Directive, dating from 2003,7 the EU ETS has been amended in a number of important ways to reflect the evolving climate change agenda. The ‘Linking Directive’8 allowed for exchangeability, in certain circumstances, between EU ETS carbon allowances and Kyoto protocol carbon credits (essentially units representing carbon emissions avoided). More recently, in a Directive agreed as part of the EU’s ‘Climate-Energy Package’, fundamental changes are being effected to the way the overall EU-ETS will operate in the period 2013 to 2020, with new ground-based sectors and gases being added from then; greater emphasis on auctioning of allowances; the principle of no free allocation for the powergen sector; as well as a proposed EC-wide set of harmonized allocation rules rather than differentiated Members States’ rules. Also to be considered part of the legal and structural framework of the EU ETS are the detailed sets of EU Regulations covering the monitoring, reporting and verification of installations’ emissions, and covering the maintenance and operation of the ‘Registries’ (the interconnected system of central database hubs or accounting systems maintained by the various Member States to track and account for the allocation, transfer and surrender of allowances under the trading scheme). It is this legal and regulatory system – this ‘cap-and-trade’ scheme for limiting carbon emissions - into which it is now proposed to include aviation and aviation emissions.

A number of critical considerations underlie the Scheme’s design: ensuring the Scheme would be effective environmentally; avoiding distortions in competition; and ensuring that emissions trading in aviation would be consistent with the system already in place for industrial emissions. These considerations in turn determined the resolution of key practical and technical issues such as the overall cap or limit to be applied to emissions from the aviation sector (determining this figure would determine the level of environmental gain); the appropriate balance (within that cap) between the proportion of allowances to be allocated for free and the proportion to be auctioned (striking a fair balance here was considered key to not making the scheme unduly financially burdensome to operators at the outset whilst ensuring enough liquidity and all while achieving sufficient scarcity to create the incentive for trade). The design had to take account of existing regulatory arrangements and technological and market developments within the aviation industry itself. The system of international airlines registration and licensing meant that the design has to accommodate issues such as what countries would regulate what airlines’ participation. Recent and anticipated aviation activity levels and technological advances were factored into settling such issues as the baseline year(s) (for establishing airlines’ historic emission levels); and the level of reserve/set-aside (for expected new entrants and increased activity in the future). Creating, at once, millions of new carbon allowances specifically for aviation raised the issue of protecting the integrity of Member States’ existing GHG inventories under the Kyoto Protocol. The extent to which the new aviation emission allowances would be tradable and exchangeable with allowances/credits issued under the existing EU ETS, and under the Kyoto Protocol’s flexible mechanisms, were therefore important considerations.

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The remaining sections of this article will look at what has emerged in terms of the key elements of aviation’s inclusions in the EU ETS. The ‘Cap’ As far as the EU ETS has operated to date for existing (nonaviation) sectors, those sectors’ emissions ‘caps’ – for the purpose of ‘cap-and-trade’ – have been generally based on recent historical emissions within those sectors. Typically a recent past, multi-year average is taken. This is also the approach taken with aviation emissions. The new Directive’s starting point for assessing the cap for the aviation sector is the concept of ‘Historical Aviation Emissions.’ These are defined as “the mean average of the annual emissions in the calendar years 2004, 2005 and 2006 from aircraft [departing from or arriving in a Member State].”12 The cap will be set initially at a level amounting to 97 per cent of these ‘Historical Aviation Emissions.’13 The Commission will compute historical aviation emissions based on “best available data, including estimates based on actual traffic information.” This obviously is going to be an extraordinarily complex task, and it is anticipated that the Commission will commence on this exercise immediately in order to ascertain the final figure well ahead of the 2012 commencement date. It is important to remember that this computation of “97 per cent of historical aviation emissions”, while based fundamentally on emission levels from 2004-2006, is designed to fix the overall collective pool (of emission allowances) for all airlines – it does not follow that the Scheme intends that individual airline operators will be required to revert to 2004 or 2005 operating levels when the Scheme commences in 2012. Once the size of the pool comprising “97 per cent of historical aviation emissions” is clear in CO2 tonnage terms, aviation emissions allowances will then be generated with each aviation emission allowance matching (being equivalent to) one metric ton of aviation CO2. From this overall pool of aviation emission allowances allocations to individual airline operators will then be undertaken in three broad ways - allocation by auction, allocation out of a special reserve (for new entrants) and allocation of allowances for free. Each of these is now looked at briefly.

period, and for subsequent periods, 3 per cent of the total quantity of allowances available shall be set aside into a special reserve to ensure that new entrants will be catered for and that airlines have scope to increase their operations while having access to a pool of allowances to meet increased emissions. In summary, the reserve will benefit those airline operators: ñ that start performing after 2010; or ñ whose level of activity (measured by reference to ‘tonneskilometres data’)17 increases by an average of 18 per cent annually between 2010 and 2014. Free Allocations of Allowances - How are these Calculated? Deciding the quantity of emission allowances that each individual airline operator will receive is the central plank in the Directive.18 This process is already underway and will involve ongoing liaison between operators, competent authorities and the European Commission over the next few years. For simplicity, the process can be viewed as involving three steps: ñ Firstly, settling the EU-wide quantity of free allowances (from within the wider pool available for overall allocation through auctioning, set-aside and free allocation); ñ secondly, fixing a common ‘benchmark’ as the basis for deciding on individual allocations out of that pool of free allocation allowances; ñ thirdly, calculating final allocations to individual airlines in accordance with that benchmark. Each of these steps is examined briefly. As regards firstly, the number of allowances to be allocated free of charge across the entire EU-27, this will be based on a combination of the European Commission’s own research and on individual aircraft operators’ applications. In very general terms the figure here will be the overall aviation ‘cap’ figure of “97 per cent of historical aviation emissions,’ less the total of (a) the 15 per cent of that cap to be dedicated to auctioning and (b) the 3 per cent special reserve set aside. The Directive requires that, by September 30th, 2011, the European Commission will have made and published these calculations in the form of a formal allocation Decision. The second step in the process of calculating what each individual aircraft operator will receive involves settling on a ‘benchmark.’ Given that each airline’s allocation is likely to

Auctioning of Allowances At present, the proposal is to set aside 15 per cent of the overall (EU 27-wide) cap or pool of allowances for the purpose of auctioning.14 Within that 15 per cent, the proportion to be auctioned by each Member shall be proportionate to that Member State’s share of the total attributed aviation emissions for all Member States in certain reference years.15 It is proposed that a Regulation setting out detailed provisions for auctioning will be passed in due course. Auction revenues are to be used for purposes related to tackling climate change, in particular through research and development in the fields of aeronautics and air transport. Special Reserve The ‘Special Reserve’ mechanism will apply from 1 January 2013, when the second ‘period’ of aviation’s inclusion in the EU ETS commences.16 For this

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involve a reduction below business as usual emission levels, the purpose of the benchmark is to ensure there is a common, equitable approach to settling the level of that reduction.19 The Commission calculates the benchmark/reduction factor that is to be applied by dividing the total pool of allowances for free allocation by the sum of the ‘ton-kilometer data’ of all of the allowance applications submitted to the Commission by Member States on behalf of aircraft operators.20 The third step, arrived at once the Commission has settled on the benchmark, involves Member States’ competent authorities then proceeding to calculate and publish the number of allowances to be allocated to each aircraft operator that has applied to it for an allocation. Each individual allocation is calculated by multiplying the benchmark by the verified tons-kilometers data21 included in that aircraft operator’s application. As already indicated, the use of this common benchmark is intended to determine, on a fair, equitable and pro-rata basis, the reduced quantity of allowances that each aircraft operator will be allocated. There are some important points to note about this three-stage process of settling individual airline operators’ free allocations. Contrary to some airlines’ criticisms of the design, it is not a methodology that by any means ties or consigns airlines’ free allocations to 2004-2006 activity levels. While it is the case that the overall pool of allowances for allocation in EU-27 is based on 2004-2006 activity levels, when it comes to calculating individual airline allocations much more recent activity levels are recognized in that, for the period commencing January 1st, 2012, airlines will make their applications based on verified ‘tons-kilometers data’ for the monitoring year 2010.22 This approach represents a significant mitigation of the 2004-2006 starting point for the overall methodology. Furthermore, the use of this common, harmonized, EU-wide benchmark by all Member States’ competent authorities represents, in effect, a lesson learned from experiences to date in the EU ETS. The current EU ETS has been criticized for allowing Member States to allocate under their own National Allocation Plans (NAPs) for Phase 1 (2005-2008) and for Phase 2 (2008-2012) of the EU ETS, an approach that has resulted in wide divergences between Member States in terms of generosity of allocation, with inevitable market distorting effects.23 How is the Integrity and Accuracy of the ‘Cap-and-Trade’ Scheme Provided for? It is vital – not least for market and investor confidence - that there be a regular accounting and auditing as between actual emissions of GHGs from aviation and the number of aviation emission allowances issued and in circulation. The Scheme provides that airline operators will have to report by March 31st each year to their relevant competent authorities on their emissions during the preceding calendar year. Each aircraft operator’s emission report must be independently verified by an independent verifier.24 An unverified or an improperly verified report of emissions will mean that the relevant aircraft operator’s ability to transfer allowances will be suspended. By April 30th each year aircraft operators must surrender a quantity of allowances equal to its total of emissions (as reported and verified) during the preceding calendar year.25 Excess emissions (those over and above the level of emission allowances issued to an operator) are only permissible as long as they are matched by the surrender of an equivalent number of extra allowances

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(allowances may be transferred between aircraft operators under the ‘trade’ part of the cap-and-trade scheme). Emissions that are unmatched with surrendered allowances will result in the aircraft operator in question being subject to an excess emissions penalty (at present the level of this is set at €100 per ton of excess greenhouse gas emissions).26 Paying these fines will not relieve the aircraft operator of the obligation of acquiring and surrendering extra allowances to match the excess emissions – there is thus a double penalty attaching to non-compliance. These sanctions are designed to ensure that the overall cap on aviation emissions is maintained and for incentivizing individual aircraft operators to look at ways to reduce emissions in the most cost-effective way. While aviation is being included in the EU ETS it is important to note that allowances issued to the aviation sector can, for the present, only be used to meet aircraft operators’ compliance obligations. They are not exchangeable with the allowances issued to ground-based industries (including the powergen sector) that are already in the EU ETS. The reason for this is to protect the integrity of the databases and accounting systems maintained under the Kyoto Protocol and the EU ETS for greenhouse gas emissions and their corresponding allowances.27 There will, however, be fungibility between aviation emission allowances and carbon credits issued under the Kyoto Protocol’s ‘flexible mechanisms.’28 For the first ‘period’ of the aviation sector’s inclusion in the EU ETS (the calendar year 2012) up to 15 per cent of the allowances that aircraft operators are required to surrender may be made up of Kyoto Protocol credits. ‘Administering Member State’ Effective logistical arrangements and accurate information flow between individual aircraft operators, Member States and the European Commission are critical to the success of the Scheme. Many airlines will operate in multiple Member States and so, in order to minimize aircraft operators’ overall administrative burden, it is intended that each operator will have only one ‘Administering Member State’. Each Administering Member State will be responsible for processing aircraft operators’ applications for allocations of allowances and for accepting surrenders of allowances and for interacting with the Commission. An Airline Operator’s Administering Member State will be the Member State that granted its operating license.29 There are provisions on selecting a new Administering Member State where an aircraft operator ceases operating in the initial Administering Member State. The Commission has already published a list of aircraft operators that have operated in the Community after January 1st, 2006 and their respective Administering Member States.30

environmental effects of EU-related aviation are being addressed outside the EU, and also to avoid duplication of regulation or control in respect of the same flights. These measures are also designed to encourage third countries to bring forward measures to reduce the climate change impact of flights. Conclusion and Assessment This Scheme represents a major development for, and presents very significant challenges to, individual airline operators and it will undoubtedly impact on them in a variety of ways: by increasing the cost base, by increasing the regulatory burden and through the possible creation of market effects. Also, commercial arrangements and risk management within aviation will undoubtedly be impacted and will have to take account of this new regulatory regime - as one example, aircraft leasing arrangements will, in future, have to reflect the simple fact that, in the Directive, ‘Aircraft Operator’ is widely defined so as to include not just ‘Operator’ but, in some circumstances, the aircraft owner.33 The January 1st, 2012 formal commencement date is liable to prove deceptive and to induce complacency. Working back from that date, the Commission’s allocation Decision (settling the EU-wide quantity of allowances for free allocation) is due by September 30th, 2011; however, this will reflect information to be submitted by the Administering Member States to the Commission by June 30th, 2011, in turn based on applications by individual airlines to those Administering Member States, the deadline for which the deadline is March 31st, 2011. This trajectory and timescale therefore means that airlines now have just over eighteen months in which to engage with this new regulatory regime; to collate and have verified detailed historical data on which their applications will be based; and to prepare and submit those applications to their administering Member States. Most airlines have strongly opposed the extension of the EU ETS to aviation. The European Low Fares Airline Association (ELFAA) has expressed concerns with the design of the Scheme. While elements within the aviation sector have welcomed some last minute changes and compromises there remains strong opposition in principle.34

The inclusion of aviation in the EU ETS will also require informational and logistical co-operation with the airline navigation control organizations and, in that regard, the Directive provides for the Commission to liaise with Eurocontrol.31 Third Country Cooperation The Directive provides for cooperation with third countries that are demonstrably adopting measures to reduce the climate change impact of flights departing from those countries and that land in the Community.32 The Commission will have the power to consider exempting such flights from the EU ETS. These measures are designed to ensure the Scheme is as proportionate as possible and to ‘give credit’ where it can be shown that the

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The Scheme’s supporters reject such criticisms. While acknowledging that passengers will pay more, they argue that that is the very logic of the Scheme – the pricing in of the cost of carbon thereby ensuring that the ultimate polluter, the passenger, pays more when choosing to travel by air, as against which the Scheme’s opponents stress the huge economic and other benefits deriving from airline travel. Supporters of the Scheme describe as misconceived claims that that it will operate penally and that it will effectively tie operators to long-past operating levels. They say the Scheme has specifically addressed that concern and they point to its design which, while basing the overall ‘pool’ of available allowances on average airline emissions back in the 2004 to 2006 period, will, nevertheless, allow individual airlines’ allocations of allowances to reflect their levels of operations in 2010 (again, the Scheme kicks off in 2012). Even within the airline sector, opposition has not been universally strong. There are relatively few ways for aviation to effectively mitigate its climate change impact very quickly. For some airlines major and rapid overhaul of aging fleets involves huge upfront capital investment. Kerosene is very likely to remain the fuel for the aviation sector into the future. Technology changes are slow. There is a sense on the part of some elements in the industry that some imposed curbs of emissions are inevitable. Against all of that background there is a certain view that the flexibility of emissions trading may be preferable to carbon taxes or to strict regulation in the form of absolute limits on emissions from aircraft. What Observations can be Added to these Competing Arguments and Counter-Arguments? Firstly, the introduction of the Scheme is undoubtedly timely. Important lessons have been learned from the EU ETS’s operation to date (without aviation). These include the fact that Member State-designed allocation methodologies have tended to serve national interests, and have caused market distortions, as well as other problems such as delay - some Member States inevitably failed to meet National Allocation Plan deadlines). Lessons learned here will help to address the Aviation sectors greatest concern about inclusion in the EU ETS – that few sectors are as sensitive or exposed to competition effects as international air travel. Also the harmonized allocation methodology for aviation allowances will avoid or at least minimize market effects from the Scheme. Aviation will benefit in other ways from previous experience – in the six years (to date) of operation of the EU ETS without aviation, many problems with monitoring and reporting and verification (MRV) of emissions have emerged but the new MRV Regulations is designed to address these and will make for a vigorous scheme overall. It should be acknowledged that this is an enormously ambitious and complex Scheme. In legal terms, adding aviation to the list of activities currently regulated within the EU ETS was “the easy part.” The legal scheme also involves numerous consequential legislative amendments (to the Parent EU ETS Directive) designed to address the particular challenge of applying a capand-trade scheme to non-stationary sources such as aircraft. But it has been achieved both in design terms, and on paper, and aviation is now unique within the EU ETS, as being the only sector where the controlled “installations” are not fixed-ground based but, rather, transboundary and mobile in the truest sense. This has important symbolic value in the struggle to devise a

coherent and effective response to global warming where many of the most pressing policy tools that are needed for combating climate change face opposition precisely because of perceived design or logistical problems. In this regard, getting to this stage with aviation in the EU ETS provides hope that greenhouse gas emissions from other mobile or transbundary sources such as marine shipping and road transport can be effectively regulated in the future. As has been explained in this article, the Scheme has sought, as it obviously should, to reflect and anticipate as much of an understanding of the reality of aviation activity and of the aviation world as possible, as well as of its operating and control structures. As has been seen with the pre-aviation EU ETS though, there are definite limits to what can be anticipated – ultimately specific economic sectors operate within, and are prisoners of, the wider economy and of its peaks and troughs. The absolute price collapse of EU ETS allowances during 2009 is surely attributable in significant measure to the failure to sufficiently ‘recession-proof’ that Scheme. An overgenerous allocation (in an economic boom) to begin with became worthless in a time of drastically reduced production levels. Emission allowances for aviation will equally be market instruments and will have their own supply and demand matrix that will include aviation specific factors but ,also, wider economic factors. There can be no perfect Directive or no perfect scheme design that will predict the full range of these. Encouragingly though, and as proof that the Scheme for aviation in the EU ETS displays modesty as well as ambition, a very thorough and prompt review is provided for. While the Scheme commences on January 1st, 2012, as early as December 1st, 2014 the Commission must have reviewed the entire functioning of the EU ETS in relation to aviation activity. All aspects must be covered under this review, including: ñ the impacts of the inclusion of aviation for the overall functioning of the EU ETS; ñ assessing how the aviation allowance market (in effect a sub-market within the EU ETS) is operating, in particular with regard to possible market disturbance; ñ the impact of the Scheme on the aviation sector, including on issues of competitiveness, taking into account in particular the effect of climate change policies implemented for aviation outside the EU; ñ the impact of the Scheme on the peripheral and outermost regions of the Community; ñ whether a gateway system should be included to facilitate trading of allowances between aircraft operators and operators of stationary installations already in the EU ETS (this element comes with a clear warning that any transactions between an aviation operator and a ground-based installation must not result in a net transfer of allowances to the ground installation - again in order to ensure that the integrity of the accounting systems of the EU ETS and of the Kyoto Protocol is maintained); ñ advances in the efficiency of aviation, and in the reduction in aviation fuel consumption, and in scientific understandings of the climate change impacts of contrails and cirrus clouds. About the Author

Conor Linehan is a Solicitor, holding a law degree from UCC and an MSc (Environmental Sociology) from the University of Kent at Canterbury. He also holds the degree of Barrister-at-Law from Kings Inns, Dublin. He is a former Vice-Chairman of the Employment Appeals Tribunal. Conor Linehan is a Partner and heads the Environmental Law practice at William Fry, Dublin.

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1 Directive 2008/101/EC of 19 November 2008 amending Directive 2003/87/EC so as to include aviation activities in the scheme for greenhouse gas emission allowance trading within the Community. OJ L 8/3, 13.1.2009. 2 At present, those CO2 emission sources covered by the EU ETS are all fixed, ground-based installations. In 2005 considerable additional delay would have ensued from waiting to resolve certain aviation-specific issues such as the precise scope of any trading scheme designed to include aviation (whether to include only intra-EU flights or all flights in and out of the EU internationally i.e. intercontinental flights). These issues are only now being resolved. 3 While the EC is not a contracting party to the Convention on International Civil Aviation of 1944 (“the Chicago Convention”), all EC Member States are contracting parties and are members of the ICAO. 4 Essentially, from 2002 onwards the European Parliament and Council have been calling on the ICAO to propose effective action to reduce the climate change impact from international air transport. The ICAO, in the view of the EU, has not moved quickly or decisively enough on the issue. Emissions trading for aviation was discussed at the ICAO but no legal instruments emerged. In 2004 the ICAO endorsed the idea of incorporating emissions from international aviation into States’ emissions trading schemes, but in 2007 it urged Contracting States not to impose an emissions trading system on other Contracting States’ aircraft operators except on the basis of mutual agreement between those States. 5 Others counter-claims that this ignores the much higher global warming potential of aviation emissions (over and above the global warming potential of emissions from stationary, ground-based sources). 6 Ireland’s Department of the Environment Heritage and Local Government invited comments, up to July 3rd, 2009, on the Directive and on draft Aviation Regulations relating to the Directive. 7 Directive 2003/87/EC of 13 October 2003 establishing a scheme for greenhouse gas emission allowance trading within the Community. OJ L 275, 25.10.2003. p.32. 8 Directive 2004/101/EC. 9 Annex to Directive 2008/101/EC. 10 The Scheme will cover all flights into Europe. At one point the US threatened a legal challenge to the imposition of a carbon trading scheme on its airlines. The EU, though, stresses that its Scheme is consistent with the relevant public international law – in the form of the Convention on International Civil Aviation of 1944 (“the Chicago Convention”) – because it is non-discriminatory in that it proposes to cover all flights into EU-27 territory from wherever they originate. 11 Draft Commission Decision of the detailed interpretation of the aviation activities listed in Annex I to Directive 2003/87/EC. The Guidelines also provide interpretive assistance on important concepts such as “flights” and “aerodromes” The Guidelines were approved by the Climate Change Committee on 3 April 2009. At the time of writing they have been transmitted to the European Parliament for scrutiny. 12 Article 1(3) of the Directive 2008/101/EC. 13 Under Article 1(4) of Directive 2008/101/EC the cap shall be 97 per cent for the first “period” of aviation’s inclusion in the EU ETS i.e. for the period 1 January 2012 to 31 December 2012. For the next period, commencing on 1 January 2013 it is envisaged that the cap will reduce by a few percentage points. 14 Article 1(4) of Directive 2008/101/EC 15 For the first year of the Scheme, 2012, the reference year is 2010. 16 The special reserve provisions are contained in Article 1(4) of Directive 2008/101/EC. 17 See Note 20 infra. 18 Article 1(4) of Directive 2008/101/EC. 19 It should be noted that an aircraft operator will not receive a level of allowances corresponding exactly to its level of emissions disclosed in its application. Rather, it will receive a quantity of allowances reduced somewhat below its recent historical level of emissions. This reduction is necessary to create a level of scarcity and room for trade in allowances. 20 When each aircraft operator comes, in due course, to apply for its free allocation of allowances to its ‘Administering Member State’ it submits verified ‘ton-kilometer data.’ ‘Ton-kilometer data’ is furnished by reference to a relevant ‘monitoring year’ (for each ‘period’ of the aviation sector’s inclusion in the EU ETS there is a ‘monitoring year’).

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Endnotes

For the first period (the calendar year 2012) the monitoring year in respect of which tonne kilometre data must be furnished is 2010. 21 See note 20 supra. 22 In respect of each ‘period’ of the aviation sector’s inclusion in the EU ETS there is a ‘monitoring year.’ For the first period (the calendar year 2012) the monitoring year is 2010. When each aircraft operator comes in due course to apply for its free allocation of allowances to its ‘Administering Member State’ it submits verified ‘ton-kilometer data’ for the relevant monitoring year. 23 Separate from the Directive under discussion that proposes to include aviation within the EU ETS, another Directive (part of the EU’s “climate-energy package” of measures), generally overhauls and amends the EU ETS Directive effective from 2013 and one of the amendments involves abolition of the approach whereby individual Member States’ make National Allocation Plans. From 1st January 2013 there will be one centralised, harmonised EU-wide allocation Decision. 24 Article 1(13) of Directive 2008/101/EC envisages the Commission adopting “detailed provisions for the verification of reports submitted by aircraft operators. 25 Article 1(10)(b) of Directive 2008/101/EC. 26 Article 1(14) of Directive 2008/101/EC. 27 Emissions from international aviation were omitted from the 1997 Kyoto Protocol (the Protocol left aviation emissions to be resolved through the ICAO). In turn this meant that aviation emissions were not integrated into EU Member States’ commitments under the Protocol, nor into Member States’ overall inventories of greenhouse gas emissions. Keeping aviation emission allowances non-fungible with other EU ETS emission allowances is, therefore, necessary to maintain the integrity of the EU ETS accounting system and of its linkage with the Kyoto structures. 28 Kyoto Protocol carbon credits such as Certified Emission Reductions (CERs) and Emission Reduction Units (ERUs) represent emissions saved or avoided (through sustainable emissions reducing projects) in, respectively, developing and developed countries. The ability for aircraft operators to purchase quantities of these credits and to surrender them against a proportion of their CO² emissions for the purpose of compliance with their obligations under the EU ETS affords greater flexibility and cost effectiveness in meeting overall EU ETS obligations. 29 Under Council Regulation (EEC) No. 2407/92 on the Licensing of Air Carriers. In all other cases it will be the Member State with the greatest estimated attributed aviation emissions from flights performed by an airline operator in the base year. The “base year” for these purposes is the calendar year starting 1 January 2006 but, in the case of an aircraft operator that commenced operations in the Community after that date, the “base year” will be the first calendar year of operation. 30 This list, a preliminary list [C(2009) 866, 1.02.09], was published pursuant to Article 15 of Directive 2008/101/EC. The list will be updated annually before 1 February each year to include new aircraft operators and to reflect any changes in administering Member State necessitated by changes in operators’ activities. 31 Provision for liaison with Eurocontrol - the European Organisation for the Safety of Air Navigation – is contained in Article 15 of Directive 2008/101/EC 32 Article 18 of Directive 2008/101/EC 33 Article 1 of Directive 2008/101/EC. 34 To take the example of one Member State – Ireland – its two main Airlines, the private, low-cost flier, Ryanair, which has EU-wide operations, and the national “flag carrier” Aer Lingus, both took a common stance of strong opposition. They argued that it would be a disastrous development for the Irish tourism industry given how reliant Irish tourism is on international air travel. They predict that it will lead to an increased cost for airline seats (according to Ryanair it will add, on average, up to €50 to the cost of booking a seat). Ryanair argues its operations will be issued with an inadequate number of allowances because the Scheme fails, according to Ryanair, to take account of its significantly increased operations in recent years. Ryanair also complains that the Scheme’s design does not take account of Ryanair’s improved environmental performance through having more modern aircraft and through its practice of flying to regional airports to avoid delays involved in waiting for a clear runway at major airports.

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