EU finance ministers call for a global carbon market for aviation and shipping to help raise climate financing
Thu 19 May 2011 – EU finance ministers have called for a global carbon market for international aviation and maritime that would contribute finance towards a UN fund to help developing countries deal with climate change. In an ECOFIN statement, the ministers said carbon pricing is not only a potential source of revenues but would also generate the price signal necessary to efficiently achieve emissions reductions from the two sectors. They ask the International Civil Aviation Organisation (ICAO) and the International Maritime Agency (IMO), both UN bodies, to develop “without delay” a global policy framework that avoids competitive distortions or carbon leakage. The statement had the unusual outcome of being welcomed by representatives from both the aviation industry and environmentalists. A UN advisory group has identified aviation and shipping as a source for generating up to a potential $24 billion worldwide per year towards the $100 billion by 2020 target.
The Green Climate Fund was approved at last December’s COP16 climate negotiations in Cancun, Mexico, to help developing countries mitigate the impact of climate change. A report published prior to the event by the UN Secretary-General’s High-level Advisory Group on Climate Change Financing (AGF) set out to identify potential finance from a mix of public, private and carbon market sources. The AGF said revenues could be raised from the aviation sector from a tax on passenger tickets, a levy on aviation fuel or through a carbon market. A passenger tax was largely discounted as it would not incentivise more efficient fuel use or result in a reduction in emissions. From the statement, EU ministers would appear to have backed the carbon market option.
A question to be answered would be whether a global carbon market that included aviation would encompass both international and domestic aviation emissions and also emissions on flights to, from or between airports in developing countries. Members of the AGF came to the conclusion that if a price was to be placed on emissions then it should apply uniformly to all emissions from the sector. Differentiation between emissions, for example based on excluding particular routes or destinations from the scope of the measure, would lead to the distortions highlighted by the EU ministers. By returning revenues from the global scheme to developing countries, there is the suggestion that the UNFCCC principle of common but differentiated responsibilities (CBDR) is respected.
Last month, Climate Action Commissioner Connie Hedegaard said the EU would be pushing for shipping and aviation to be covered at the next UNFCCC COP17 in Durban later this year and to be included in any successor deal to the Kyoto Protocol, which expires in 2012. The two sectors were excluded from the Kyoto agreement and talks within the UNFCCC process on how to deal with CO2 emissions from them have made little progress. The European Commission has also grown frustrated with slow progress at the IMO on CO2 reduction efforts and is actively looking to add the shipping sector to the EU Emissions Trading Scheme (EU ETS), which is due to include aviation from next year.
The EU has long made clear its preferred option for a global carbon trading system, which largely has the support of both the aviation industry and environmental groups. The statement from the EU finance ministers has therefore received the rare accolade of broad approval from both sides.
Paul Steele, Executive Director of the Air Transport Action Group (ATAG), which represents the aviation industry on environmental and climate change issues, told GreenAir Online: “We welcome the EU finance ministers’ statement about seeking a global sectoral approach for dealing with aviation carbon emissions through ICAO that avoids competitive distortions and carbon leakage.
“This is the most appropriate way to both incentivise emissions reductions and ensure that any revenues would be spent on greenhouse gas mitigation – including research and technology to reduce aviation emissions – and climate adaptation, rather than be used to prop up national treasuries. The industry has been advocating this exact approach for many years now and it is pleasing to see the ministers coming to the same conclusion.
“It will be interesting to see how this position impacts on the EU ETS and national taxes that are diametrically opposed to the ministers’ recommendations of avoiding distortion and carbon leakage.”
Bill Hemmings of European environmental pressure group Transport & Environment also welcomed the statement, telling GreenAir: “It’s long overdue. But we think the EU needs to be putting more pressure on ICAO. IMO is further along on market-based measures (MBMs) and may well vote on fuel efficiency standards in July. ICAO is procrastinating on the former and seems to be making no progress whatsoever on the latter.
“What the EU ministers have correctly identified is that the key here is global application of measures but with a distribution of revenues that ensures no extra financial burden on developing countries. ICAO and IMO have both wasted years using the excuse of ‘equal treatment for all’ to block progress, but climate policy since Kyoto has recognised that the burden must fall on developed countries first.”
The EU request for ICAO to come up with a framework for a global carbon market for the sector “without delay” is, however, likely to fall on deaf ears for now. ICAO has been studying MBMs for controlling international aviation emissions for many years but member states from the developing countries have shown little appetite for their application, holding fast to the CBDR principle.
Efforts to find a consensus on the issue during ICAO’s triennial Assembly last October ended in fractious disagreement, to the extent that further action to find a way forward has been put off under an imposed moratorium, possibly up to a year, by the ICAO Council. It is understood the Secretariat was due to contract out studies on MBMs and more ambitious carbon reduction targets.
The industry has expressed concern over the ‘cooling off’ period. An IATA spokesman told GreenAir: “We and the aviation industry believe that the work on market-based measures should continue at ICAO, as loss of momentum will create an unwelcome policy vacuum that some governments will want to fill with unilateral measures. IATA has said that it is available to assist ICAO in whatever way we can to help them with this important work.”
Europe’s share of the $100 billion package could amount to third, although this will be dependent on climate actions taken in developing countries as well as further progress in the ongoing international negotiations. EU member states have already mobilised €2.34 billion in fast start finance as part of a broader commitment to provide €7.2 billion cumulatively over the 2010-2012 period. Further work is being undertaken within a Commission working group to establish the funding sources for the 2013-20 period in order to prepare the EU position for COP17 starting in late November.
The Commission has already identified auction revenues from the EU ETS as having the potential to deliver more than €20 billion by 2020. According to the ETS Directive, EU member states should spend at least half these amounts on activities related to climate change, energy and low-emission transport, including in developing countries. With the exception of a few, most states have refused to ‘ring fence’ auction revenues for such activities.