Airlines and Emissions Trading:
How do We Get Out of This Mess?
© Enerhope.com 2012
February 1, 2012
The European Union has launched its new Emissions Trading System for greenhouse gas emissions by airlines.
This ETS covers emissions over Europe, and also emissions over other continents and oceans, by airlines arriving at or departing from EU airports
Other countries (in particular, the USA and China) and their airlines refuse to participate in the EU airline ETS.
A trade war and travel disruptions are highly possible.
How do we get out of this mess?
(For Enerhope’s recommendations, skip to the end of this article.)
On January 1st, the European Union placed “under the cap” of the European Union greenhouse gas emissions trading system all airline flights arriving at and departing from European airports.
This EU ETS for airlines covers not only greenhouse gases emitted in EU airspace, but also greenhouse gases emitted over oceans and other continents,
e.g. an airline flying from Mumbai to Heathrow must report all of its emissions, including greenhouse gases emitted over Asia. At the end of 2012, the airline must retire allowances equal to all the emissions from this flight.
For 2012, the EU will allocate for free enough allowances to cover what it considers to be 85% of the emissions for European flights. The other 15% will be sold by auction.
In future years, the total number of allowances will decrease. The percent free allocation will also decrease.
The start of the EU airlines ETS has produced furious opposition from international airlines, but some acceptance by IATA, the International Air Transport Association.
On July 5th, the Air Transport Association of America, American Airlines, and United Continental first appeared before the European Court of Justice, seeking an exemption from the EU ET scheme for US airlines flying in and out of Europe.
In the court case, ATA and the U.S. airlines claimed that Europe's ET scheme violates international law.
As reported in the New York Times on July 5th, the Convention on International Civil Aviation or "Chicago Convention," states that countries have authority over airlines in their own airspace. Therefore, the ETS can't regulate flights to and from Europe when they're not over Europe, the U.S. airlines argue.
On December 21st, the European Court of Justice denied the USA airlines’ exemption.
“In a final ruling , the European Court of Justice in Luxembourg affirmed an opinion issued in October by its advocate general, who had rejected the USA claim.
“The court confirms the validity of the directive that integrates aviation activities in the system for trading emissions quotas,” the ruling said, adding that the plan “infringes neither the principles of customary international law at issue, nor the ‘Open Skies’ agreement” concluded with the United States in 2007.”
However, in the aviation industry journal Aviation Week (January 2nd), Robert Wall and Jens Flottau warn that the dispute may be far from settled:
“The European legal ruling is unlikely to be the final word on the issue. The U.S. airline lobby group, Airlines for America, suggests it may pursue the case in the English High Court, where the legal challenge was first brought before that court passed it on to the EU judicial body. One reason that matters is that the European Court of Justice, in rejecting the verdict, notes that while the EU is not a signatory to the Chicago Convention, its member states are. In that respect a British court may render a different legal interpretation.
“But the real battle is likely to play out in the political realm. Immediately after the verdict, Beijing restated its opposition to the policy. India may ask its airlines not to comply with the ETS, taking the strongest step yet to express its dismay at the EU policy. And the U.S. government, on the eve of the verdict, already emphasized its concern in a letter cosigned by Secretary of State Hillary Rodham Clinton and Transportation Secretary Ray LaHood. “We urge the EU and its member states . . . to return to working with, rather than against, the international community in the appropriate multilateral forum—the ICAO [International Civil Aviation Organization]—to address the important challenge of reducing aviation emissions.” The U.S. is also warning of appropriate retaliatory actions, without disclosing them. The transportation secretary already has discretionary powers to impose penalties on EU carriers, and the U.S. Congress is working on legislation barring U.S. airlines from complying.”
China Daily reported on June 8th that Chinese airlines felt "angry" about the EU's plan that all airlines flying to its member states be included in its ET scheme. The report hinted at the possibility of trade repercussions in China’s major purchase of European Airbus airliners.
The battle rages on!
“EU schemes begins but no abating emissions row “
(Flight Global), January 25th
“U.K. Lawmakers Threaten to Ground Non-Carbon Compliant Planes” (Bloomberg, January 26th)
On January 30th, the European Union’s executive arm said it partially activated a single regional database for carbon transactions, to enable the transfer of free allowances to airlines.
“From today onwards, aircraft operators can open accounts in the Union registry,” the European Commission said in a statement in Brussels.
IATA, the International Air Transport Association
Airline opposition to the EU ET scheme is somewhat compromised. According to Reuters (July 1st), in 2007, IATA approved the concept of an emissions trading scheme for EU aviation greenhouse gases.
However, IATA now objects to the imposition of the ET system on foreign carriers, flying in and out of Europe.
Here is a section from the IATA website, Emissions Policy Options (2011):
“Emissions Trading Preferable to Taxes and Charges
“Emissions trading (and similar mechanisms such as Joint Implementation and Clean Development Mechanisms) allow pre-determined greenhouse gas reduction targets to be met in the most cost-effective manner.
“Emissions trading allows those with the greatest potential to reduce their emissions to trade their surplus allowances with companies requiring more. The overall emissions reduction is guaranteed, regardless of who makes the reduction, due to a limitation on the total emissions.
“Any emissions trading schemes applied to aviation must incorporate a number of fundamental elements, including preserving ICAO's global leadership, minimising competitive distortions and having open access to trading markets.
“ICAO (International Civil Aviation Organization) has adopted universal guidance on open emissions trading for aviation. IATA fully supports this guidance.”
The EU Emissions Trading System for Airlines
Since 2003, the European Union (EU) has been planning to require airlines using European airports to participate in EU emissions trading (ET) for greenhouse gases (GHGs).
From the start of 2012, emissions from all domestic and international flights that arrive at or depart from an EU airport will be covered by the EU ET System. The operator of any flight of a large or medium-sized airliner using any airport within the EU must report the airline’s total annual GHG emissions for all flights taking-off or landing at any EU airport, and must retire one EU-approved allowance for each tonne of CO2e emitted during the year.
This requirement to participate in ET applies to flights within the EU and also to international flights to and from EU airports, e.g. from Mumbai to London.
A good starting point for exploring the EU aviation ET scheme is the EU’s own Questions and Answers document,
The 2008 Directive of the European Parliament that established the GHG ET system for airlines can be read at:
The EU intends to create 212.9 megatonnes of EU GHG aviation ET allowances in 2012. This number represents 97% of the average annual emissions by the airlines in EU service between 2004 and 2006. From 2013 onwards, the total will be reduced to 208.5 megatonnes.
In 2012, 85% of the CO2e allowances will be allocated for free to participating aircraft operators, and 15% will be allocated by auctioning.
The free allowances will be allocated according to a “benchmarking” process, which measured the activity of each operator in 2010 in terms of the number of passengers and freight that it carried, and the total distance travelled. The 2012 benchmarks for all 4,000 operators are published in Allocation of aviation allowances in an EEA-wide Emissions Trading System (September, 2011)
This document specifies that in 2012, the EU ETS will allocate a benchmark of 0.6797 allowances to each airline for each 1,000 tonne-kilometres of carried freight.
In 2013, this benchmark will decrease to 0.6422.
How many allowances per passenger-kilometre? The document doesn’t answer this question. An IATA document explains that the EU assumes that one passenger plus baggage weighs 100 kg.
Airlines and GHG Emissions
Why did the EU decide to include airlines in its ET system for GHGs?
Airline emissions are a small but fast-growing fraction of total EU GHG emissions.
Between 1990 and 2003, the EU's total GHG emissions from all sectors fell by 5.5%. However, during the same period, CO2 emissions alone from international aviation of the 25 Member States of the EU increased by 73%
GHG emissions by the airlines targeted by the EU ET scheme represent about 4% of the EU’s total 2008 GHG emissions total.
The EU estimates that airline GHG emissions per passenger, flying from Brussels to New York and return in economy class, are in the order of 800 kg of CO2.
The inclusion of airline emissions in the EU ET system is necessary to reduce total airline emissions, despite increasing numbers of flights and passengers.
Effect on Ticket Prices
Let’s calculate the effect of the EU ET scheme on the ticket price for a passenger flying in 2012 from Brussels to New York and return, economy class. According to the EU (cited above), the carbon footprint of this passenger’s journey would be 800 kg of CO2. At the end of the year, the airline would be required to report the 800 kg emission from this passenger’s round-trip flight. Then, the airline would be required to retire 800 kg of EU-approved allowances or offsets. If the airline’s emissions and efficiency were the same in 2012 as in the baseline year, the EU would already have allocated to the airline 85% of its allowances for free, and the airline would need to purchase the additional 15% of its allowances on the allowance market, at a typical price of about 8 € per tonne of CO2e allowances. The total emissions trading cost to the airline of this passenger’s round-trip flight would be:
0.15 x 800/1000 x 8 = 0.96 €
This cost would increase to 6.4 €, if the free-allocation of allowances were replaced by allocation by auction (assuming an allowance price of 8 € per tonne).
Keep in mind that the purpose of the EU ET system is to pressure emitters (like airlines) to reduce their emissions, not to place all their faith in purchase of additional allowances.
Can Airlines Reduce Their Emissions?
Yes, they can, and have done so for decades!
In the past five decades, airline fuel efficiency has improved enormously. Since 1958, aircraft fuel efficiency per seat-mile has improved by 82%, according to the Beginner’s Guide to Aviation Efficiency,
The Wall Street Journal published, on August 12th, 2010, a summary of the fuel efficiency of US airlines. The major US airline with the best fuel efficiency was Alaska Airlines (75.9 seat-miles per gallon) (70 g CO2 per passenger-km)(new aircraft, short distances, uncluttered flight paths). The major US airline with the worst fuel efficiency was Delta Airlines (60.4 seat-miles per gallon) (88 g CO2/passenger-km) (older aircraft, long trans-ocean flights, congested airports).
Boeing claims that a 737-900, with 180 passengers, flying 1,000 air miles, will produce a fuel economy of almost 99 air miles per gallon per passenger. (53.5 g CO2/passenger-km)
According to the Beginner’s Guide to Aviation Efficiency, cited above, airlines will become more and more fuel efficient, through a combination of new technology, improved operational practices, infrastructure improvements, and, yes, positive economic measures. The increasing price of fuel provides a powerful economic incentive for greater efficiency.
Several positive developments in airline efficiency:
• More efficient engines
• Lighter weight airframes
• Higher occupancy rates
• Improved air traffic control
• More efficient on-the-ground practices
• Biofuels for aviation
IATA itself has published its own
Aviation and Climate Change
Pathway to carbon-neutral growth in 2020
In this document, IATA claims that the average emission per passenger-km could be reduced by 30%, through a combination of fleet renewal, operations, infrastructure, engine retrofits and airframe technology, and biofuels. The document expresses support for emissions trading, with offsets.
While these environmental activities are happening, some airlines are wasting fuel and creating unnecessary emissions through practices that should be stopped. Enerhope’s “Golden Wings of Lead” trophy goes to Emirates Airways for equipping each A380 with not one but two showers for first-class passengers.
Marble counter tops, on an airliner?
Is this really necessary on an airliner? Think of the wasted weight, fuel, and emissions! Couldn’t the first class passengers use the showers at the airport? Why not remove the showers, reduce weight, add more seats, and present each first class passenger at the beginning of the flight with a box of baby wipes and a plastic bag, in a really fancy package?
Showers on an airliner is a good example of a wasteful practice that could be eliminated by the pressure exerted by emissions trading. In the next few years, Emirates Airways will need to decide whether to eliminate the showers, or make reductions elsewhere, or buy additional allowances, at increasing prices, for retirement. Notice that emissions trading gives the airline many options for its operations, while the overall goal of emission reductions will be achieved.
A Good Policy?
Does the new EU ETS for airlines pass the five criteria of good policy?
The new EU aviation ET system:
must achieve its objective.
A well-designed, well-administered ET system for airlines can achieve significant emission reductions at minimum cost to the economy.
must send a clear message.
The EU should improve its efforts to inform the public and the airline industry about the mechanics of emissions trading. Most media descriptions of the EU ETS refer to the system as a “carbon tax.” The document which explains the “benchmark” for allocation of allowances to airlines does not explain how many allowances will be allocated per passenger-kilometre.
must not hurt vulnerable people.
Costs can be minimized through intelligent emission reductions. The most vulnerable people are usually not affected heavily by airline costs.
must be easy to administer.
Airline flights, passenger lists, freight manifests and fuel use are already centralized and recorded at government-owned airports, which have absolute authority over take-offs and landings.
must be compatible with existing jurisdictions, laws and regulations.
The EU ETS for airlines does not meet this criterion. Although the European Court of Justice has struck down American challenges to the ETS, the EU has not succeeded in imposing its ETS on foreign airlines.
A Way Out of this Mess
The EU ETS for airlines must be changed, and will be changed. The economic pressure from disgruntled trade partners will force changes on the EU ETS. Can the system be changed without compromising the EU’s environmental goals?
Here is Enerhope’s proposal to change the EU ET system for airlines:
The EU should not require airlines to retire allowances for GHG emitted over other continents.
For airline GHG emissions over an ocean between Europe and another continent, divide the jurisdiction over those emissions equally between the EU and the other continent.
Do not auction any allowances.
Auctioning of allowances adds to the price air travel, and is perceived as an unfair tax by opponents of cap-and-trade. Air travelers must pay the price of transportation, plus the price of emission reductions, plus the auction price, plus the price of speculation by investors.
Allowance auction prices have already caused a small but unpopular increase in ticket prices. The Irish Examiner (January 12th) reported a scathing attack on the EU ETS by Irish discount carrier Ryanair:
Governments must realize that emissions trading is an environmental measure, not a tax opportunity, and not a playground for speculative investors.
The mechanics of auction create the need for secrecy, which contradicts the need for transparency in the cap-and-trade system.
Proponents of allowance auctions reply that the nation’s revenue from allowance auctions is used to finance emission reduction projects. However, in some states, allowance auction revenues have been used to finance the budget deficit.
By cancelling the auctions, the EU ETS can provide more allowances for free allocation.
An Easy Cap, Becoming More and More “Hard”
Start in 2012 with a free allocation of 0.776 allowances per 1000 tonne-km. (This is equivalent to 0.776 allowances per 10,000 passenger-km.) This easy cap would require a reduction of only 3% in the average emissions per passenger-km in 2012. Then, reduce the free allocation per tonne-km by 2% per year for the next 10 years. The airline industry would have sufficient time to introduce new technologies and more efficient practices.
An Airbus 340-600 with 380 passengers flies 5,555 km from JFK to LHR in 2012.
During this trip, the Airbus emits 163 tonnes of CO2.
15% of the total trip is over EU territory; 31% is over North America, and 54% is over ocean.
(a) How many tonnes of these emissions must be reported to the EU ET system?
(b) (b) How many free allowances will the EU ETS allocate for free to the airline for this flight?
(c) (c) How many allowances must the airline retire at the end of the year, for this flight?
EXISTING EU ETS
(a) For the above trip, ALL of these 163 tonnes of CO2 must be reported.
(b) The EU ETS will free allocate
0.6797 x (380/10) x (5555/1000) = 143 tonnes of allowances.
(c) At the end of 2012, the airline must retire all reported emissions:
163 tonnes of allowances.
At the end of 2012, the airline must retire 20 more allowances than its free allocation for this flight.
(EU’s free allocation benchmark for 2012 is 0.6797 allowances per 1000 tonne-km, or 0.6797 allowances per 10,000 passenger-km.)
ENERHOPE’S PROPOSED ETS
(a) For the above trip, the airline must report all the emissions over EU territory plus half of the emissions over oceans:
((15/100) + ((54/2)/100)) x 163 = 68.5 tonnes CO2
(b) The EU ETS will free allocate
((15/100) + ((54/2)/100)) x (0.776 x (380/10) x (5555/1000))
= 68.5 tonnes of allowances
(c) At the end of 2012, the airline must retire all reported emissions:
68.5 tonnes of allowances
In the proposed ETS, the airline would have enough free allocated allowances in 2012 to retire to equal the emissions of this 2012 flight.
However, from year-to-year, the free allocation benchmark (allowances per thousand tonne-km) would decrease, from 0.776 in 2012 to 0.637 in 2022.
In 2022, for the same flight, the airline would receive only 56 allowances from free allocation. During the 10 years, the airline would need to implement new technologies and more efficient practices, to reduce its emissions per passenger-km.
A Lively Offset System
Allow airlines to offset their emissions by retiring supervised, high-quality offsets as well as allowances. This idea was promoted by IATA in Aviation and Climate Change: Pathway to carbon-neutral growth in 2020 .
Much Better Education and Information
Many news media are reporting the new EU ETS for airlines as a “carbon tax.” Many airlines claim that they can do nothing to reduce their emissions. It is obvious that most observers to not understand the mechanics of emissions trading, or the opportunities for emission reductions. The EU must work with IATA and with major partners to educate the aviation sector and the media.
The Need for Large-Scale Policies and Planning
The EU should not depend solely on ET to reduce emissions from air travel.
In the EU ETS, airlines may find that the restrictive environment of the highly-regulated airline industry prevents individual airlines from implementing the innovative emission reduction measures favoured by ET systems.
e.g. What would happen if a certain airline decided to reduce its fuel consumption by towing each flight from the terminal building to the runway, behind a vehicle? Fuel savings and emission reductions would be significant.
Would the airport allow that airline to tow each flight from the terminal building to the runway? The towing would be a change from established procedures for all airliners at that airport. In the restrictive airport environment of regulations, codes and standard practices, the airport may forbid the airline from towing its aircraft.
Thus, an airline which attempts to implement an innovative technology or activity to reduce its emissions may be blocked by regulations or codes or standard practices. Major improvements, e.g. replacing the old, radar-based air traffic control system with a new, satellite navigation-based system, cannot be implemented by one airline alone, and must be implemented across all airlines and all nations at the same time. The EU authorities must realize that broad-based policies including codes and standards, command and control are still necessary to reduce airline emissions.
The EU must examine all modes of transportation, when attempting to reduce airline emissions. A policy to promote high-speed rail travel for short and medium distances would achieve much greater emission reductions than an emissions trading system for airlines. Some business travel could be eliminated by increasingly powerful internet technology, through investment in internet infrastructure.
In Aviation and Climate Change: Pathway to carbon-neutral growth in 2020 , IATA makes an impassioned plea for a coordinated approach by governments, to improve the efficiency of airline transportation:
The airline industry calls on governments to make the necessary investments to modernize air traffic management and improve airport infrastructure. They must also establish the right legal and fiscal frameworks to facilitate and increase investment in new aircraft fleets, low carbon sustainable alternative jet fuels, as well as the potential use of cost-effective economic measures and full and unrestricted access to all available abatement measures outside the sector (offsets). “
Other nations must match Europe’s efforts to reduce GHG emissions from airlines.