EU Commissioner for Climate Action Connie Hedegaard announced that the European Union Emissions Trading System (EU ETS) would 'stop the clock' on the regulation of emissions from the aviation sector by the EU ETS as it applies to flights in and out of Europe. It is important to note that this does not apply to flights within the EU.
Ms. Hedegaard said the decision was 'a gesture of good faith' taken in response to last Friday’s ICAO council meeting (the International Civil Aviation Organization). The decision came after the ICAO Council announced an initiative to conduct a high-level political review with the aim of reducing the three current options, to one agreed single market-based mechanism (MBM). The choice of a MBM approach highlighted the fact that the ICAO would not be considering any other options to reduce emissions, like performance and technology standards, or proposing laws requiring an increase in government research and development for low-carbon technologies.
Ms. Hedegaard also said 'Let me be very clear: if this exercise does not deliver – and I hope it does, then needless to say we are back to where we are today with the EU ETS. Automatically.' She also encouraged parties impacted by this regulation to get involved in the opportunity to participate in the ICAO review from the onset, and to take advantage of the goodwill.
Even with this chance to negotiate a new approach that could result in a more commercially viable solution to regulating emissions in the aviation sector, there is concern over whether or not it is actually feasible for countries to adapt and implement an ICAO proposed plan.
What could this mean to you or your client…
No obligation to surrender emissions credits in April 2013 for emissions resulting from flights to and from the EU during the period including the whole of 2012, and no obligation to monitor or report for that period.
The possibility to devote more time to getting involved in the process as a means to influence the regulatory outcome.
From a market perspective, it signals weakness and political instability from the EU Commission, but it is predicted that the suspension will only have negligible effects on the demand for carbon in the market.
It creates questions for airlines around what happens to allowances that they have already been issued, but no longer need because the flights are excluded.
Long term, it calls into question the early mover advantage approach often used in the EU ETS or with a MBM, as it sends many early movers to a weak market, which may force them to sell carbon credits at loss.
A chance to re-evaluate emissions compliance activities and strategies in light of this move by the European Commission.
For more information on this move by the EU ETS and how it applies to your aviation activities, or for general inquiries regarding emissions regulations and carbon transactions please contact Michael Barlow.