ICAO Council agrees to further narrow down MBM options as work towards a global emissions deal progresses
Mon 2 July 2012 – Last week’s meeting of the ICAO Council has resulted in the dropping of one of the four market-based measures under consideration by a special working group as the UN agency seeks to deliver a global agreement on limiting the growth of international aviation emissions. Originally six measures were under consideration but a global departure levy and a carbon levy were dropped as options at the previous Council meeting in March. A fourth option, an emissions trading baseline and credit system, has now also been discounted as it is seen as similar to one of the other options, a global mandatory offsetting scheme. Despite hopes being raised of an agreement being in place before the end of the year, there is still much work to be done by the group before a proposal can be agreed by the Council – which itself is far from unanimous on this controversial issue – and put forward to the ICAO Assembly in late 2013.
According to ICAO, CO2 emissions from international aviation in 2010 amounted to around 400 million tonnes (about 60% of total global aviation emissions) and are forecasted to grow to approximately 650 million tonnes in 2020, even allowing for the annual 2% fuel efficiency improvement target agreed at the ICAO Assembly in 2010.
With the growth in CO2 emissions from international aviation therefore outstripping the ability to limit them through technology and operational means, market-based measures (MBMs) have long been seen as the means to close the gap but agreement amongst ICAO’s 190 member states on their application has so far proved elusive. The issue centres around the conflict between the fundamental non-discriminatory principle underpinning ICAO, in which all aircraft operators are treated equally regardless of their country of origin, and the principle of common but differentiated responsibilities (CBDR) established at the UN climate change agency UNFCCC.
The resulting disagreement at ICAO over many years between the developed and developing member states has stymied an emissions reduction agreement binding on all states. This led to the European Union’s go-it-alone decision to include international aviation in its Emissions Trading System (EU ETS) from the beginning of this year, adding to the existing tensions at ICAO. Many countries, plus the aviation industry, have seen the EU move as hindering progress towards a global deal at ICAO, with the EU’s supporters arguing the EU ETS has instead spurred ICAO into speeding up the process.
Either way, the Council meetings in March and last week have highlighted the divisions that still need to be addressed, with emerging economic and aviation superpowers China and India, along with Latin American countries such as Brazil and Argentina, far from happy over MBMs. They argue the CBDR principle, in which the responsibility for mitigating international emissions rests with the developed nations, must be paramount when establishing any eventual MBM scheme. On the other hand, this is firmly resisted by others, particularly the United States, which although supporting and joining with countries like China and India in opposing the inclusion of their carriers into the EU ETS, rejects the application of CBDR within ICAO.
For now, there is a majority within the ICAO Council for the Ad-hoc Working Group (AWG) to continue its evaluation, although finding a solution to the CBDR conundrum remains fundamental to an agreement before it can be put before the 2013 Assembly.
As well as deciding on an MBM, major issues to be tackled include who should administer the chosen scheme, where the revenues should go, how a de minimis structure should be applied and consideration of economic impact assessments.
Other fundamental principles of an eventual global MBM scheme also need to be established such as registries, MRV (monitoring, reporting and verification of emissions), types and quality of allowances and credits eligible, access to carbon markets, legal instruments between states and the collection and distribution of revenues.
In the meantime, the AWG will continue to evaluate the three remaining options and work will also continue in parallel on drawing up an MBM framework document, which determines what an MBM scheme should achieve and its guiding principles, and will be considered at the next meeting in November. The MBM options are global mandatory offsetting (Option 1), global mandatory offsetting complemented by a revenue generation mechanism (Option 2) and a global emissions cap and trade system (Option 3).
Global mandatory offsetting (Option 1) is similar in concept to passenger voluntary offset schemes currently offered by many of the larger airlines. Under this option, international aviation emissions are offset through the surrender of eligible emissions allowances and credits, with offsetting set at a level above a specific baseline up to 100% of emissions. If a baseline is used, this requires a method to distribute the baseline amongst individual participants, known as benchmarking or grandfathering. The option requires a globally harmonised approach on benchmarking, MRV, enforcement, offset quality standards and registries to track transfers, surrender and cancellation of credits.
Option 2 is similar to Option 1 but the revenues determined differently. There are two broad approaches that can be used to deliver this option. In the first, emissions are offset by participants as per Option 1 but additional revenues are raised for further mitigation efforts, which would require a transaction fee to be fixed and applied, for example, to the surrender of offsets or per tonne of CO2. In the second approach, offset revenues are collected by a centralised entity or entities and are calculated by multiplying reported emissions by an agreed price fixed for each compliance period. The agreed price should sufficiently cover the cost of offsets and the revenue necessary for further mitigation purposes. However, the AWG is understood to have decided against this approach, largely because of the complexity involved.
Option 3, a global emissions cap and trade system, would be similar to the EU ETS in concept, in which an overall cap is set for all international aviation emissions for a specified compliance period, with the creation of allowances based on one allowance equivalent to one tonne of CO2. The issues of allowance allocation, access to the carbon markets and use of the revenues present added administrative complexity within a globally harmonised approach.
Under a global emissions trading baseline and credit system – the dropped Option 4 – a benchmark CO2 performance level is set and participants monitor, report and verify performance relative to the benchmark. Participants generate credits if their efficiency is above the benchmark and must submit credits, which can be traded with other participants, if their efficiency is below the level. A downside is that there is no absolute cap on emissions so would not give certainty of achieving a specific emissions reduction target, but could be used to achieve fuel efficiency goals. The AWG came to the conclusion that to achieve specific reduction targets then some offsetting is required and therefore the option came close to the global mandatory offsetting option.
Global emissions trading would undoubtedly be the preferred choice of the EU and its member states as it would more easily satisfy the EU’s promise to amend its ETS if a global scheme with similar ambition on reducing aviation emissions was adopted by ICAO. Choosing either Option 1 or 2 would provide Brussels with a dilemma.
However, for the moment, the EU is supportive of the work going on at ICAO to find an agreement. Commenting on the Council’s decision last week, Climate Commissioner Connie Hedegaard said: “By narrowing down the market-based options on the table, ICAO is making some progress towards the long-awaited global deal to curb aviation emissions. States supporting global solutions now have a unique opportunity to show how serious they are about it by choosing one of the three market-based measures in the coming months.”
She added the EU remained fully committed to help reach conclusions at the November ICAO Council meeting. However, a decision is much more likely at the following March 2013 meeting, or even perhaps in June 2013 – probably the last opportunity before the Assembly. Other ICAO environmental work also needs to be taken into consideration by the Council, including the adoption of a CO2 standard for new aircraft for which a decision on a metric is due soon.