UK government sets out plans for including aviation in its own emissions trading scheme from next year
(photo: Heathrow Airport)
Thu 11 June 2020 – The UK government has released details on how it intends to incorporate aviation into a UK Emissions Trading System (UK ETS) and link with those of the EU and Switzerland, as well as the global CORSIA offsetting scheme. Following the withdrawal of the UK from the EU and the transition period due to finish by the end of this year, the first 10-year phase of the UK ETS would start in 2021, with a review after three years. In the light of the UK’s commitment to reaching net-zero emissions by 2050, the government promises the scheme will show greater climate ambition than the EU ETS from the start by setting a lower cap on emissions. Proposed aviation routes to be covered include UK domestic flights, flights between the UK and Gibraltar, and flights from the UK to EEA states and to Switzerland if an agreement is reached. The government says it will begin a review on how a UK ETS could interact with CORSIA.
Following a public consultation, the UK government, along with the devolved administrations of Scotland, Wales and Northern Ireland, have set out the framework for a standalone UK ETS, due to launch in January 2021, in a policy document ‘The future of UK carbon pricing’.
Although the basic functions of a UK ETS are likely to be in line with the EU ETS, which enters Phase IV from next year, the government is keen for its scheme to be aligned with the UK’s net-zero ambition at an early stage. As such, the cap will initially be set 5% below the UK’s notional share of the EU ETS cap for Phase IV. Following advice from its Committee on Climate Change on a net-zero trajectory that is expected later in the year, the cap could be adjusted in 2023. The initial cap will be reduced annually, as is the case under Phase IV.
Auctioning will continue to be the primary means of introducing allowances into the market and the government plans to introduce a transitional Auction Reserve Price of £15 ($19) to ensure a minimum level of ambition and price continuity during the scheme’s initial years. This is intended to reduce the severity or possibility of a large difference between the EU ETS price and the price in a standalone UK ETS. A proportion of allowances will be allocated for free in an approach similar to the free allocation in Phase IV in order to ensure a smooth transition for participants in the 2021 launch.
Should a linking agreement be reached with the EU, the UK foresees mutual recognition of allowances, enabling use in either system. Allowances from the aviation and stationary sectors are proposed to be interchangeable, as is the case in Phase IV.
“International credits will not be permitted in a UK ETS at this time,” stresses the government. “This is without prejudice to ongoing reviews on how best to implement the UN global offsetting scheme, CORSIA, alongside a UK ETS.”
Given that the scope of the aviation component of the UK ETS is defined on a route basis rather than operator basis, the government says there is uncertainty over the number of aircraft operators that would fall within scope of the scheme. Currently there are around 140 UK regulated aircraft operators with verified emissions above zero in the EU ETS, it reports.
“However, in the UK ETS we expect the number of aircraft operators within scope to be greater than this depending on the number of EEA and third country (i.e. countries outside of the EEA) operators that perform flights in scope of the UK ETS,” it says.
The thresholds set in the EU ETS that exempt smaller aircraft operators from obligations would be mirrored in the UK ETS. If classed as a small emitter, an aircraft operator can use a simplified monitoring and reporting approach and would be eligible to use Eurocontrol’s Small Emitters Tool.
The government says it will ensure the UK ETS and EU ETS monitoring, reporting and verification (MRV) requirements are compatible, with verifiers being able to operate across both schemes “a preferred outcome”. The document notes that there are still some technical inconsistencies between the MRV rules of the EU ETS and CORSIA.
“We have raised these concerns with the EU and expect the Commission to address these inconsistencies with CORSIA, including the MRV rules for small emitters, as part of a 2020 review,” it says. “We have begun work to address these inconsistencies in the UK ETS and provide a full legislative basis for CORSIA MRV in 2021.
“In particular, we aim to include all five monitoring methods in UK ETS MRV (currently only two out of five methods are approved for use by both schemes) and also expand the MRV scope of a UK ETS to make flight reporting mandatory on all domestic and international flight routes for UK operators, enabling CORSIA compliance.”
To bring compliance cycles in line with CORSIA, the government considered whether to postpone the first UK ETS surrendering deadline for aircraft operators until 2025, “to make it clear that operators do not need to pay twice for the same tonne of CO2, while the rules of CORSIA-ETS interaction are still being agreed.” However, it has decided there would be no beneficial impact and will maintain an annual compliance cycle.
The government intends to keep current EU ETS arrangements on enforcement and penalties in the event of non-compliance by operators and will mirror proposed compliance changes in EU ETS Phase IV. The document details the establishment of a UK registry and how the rules may differ from the EU ETS registry regulations.
The 10-year aviation Phase I will be split into two sub-phases, with Phase I(a) running from 2021 to 2023, to mirror CORSIA’s pilot phase, and Phase I(b) from 2024 to 2030. The split phase structure will also mirror EU ETS aviation review periods.
“As the rules for CORSIA have now been set, we will make the necessary changes for a UK ETS to accommodate CORSIA by the end of Phase I(a) at the latest,” pledges the government. “We will ensure that by the start of Phase I(b) at the latest, participating aircraft operators will have clarity over the interaction of both carbon pricing scenarios.”
The overall UK ETS will be reviewed in 2028, with changes to be implemented in time for Phase II (2031-2040).
While committed to fully implementing CORSIA, the government says the UK has higher climate change ambitions than those set by ICAO. “We intend to go beyond participation in CORSIA by targeting further emissions reductions through the inclusion of aviation in a UK ETS,” it promises.
The government has begun a review on how a UK ETS could interact with CORSIA, which will examine how the UK can meet its national and international obligations “while ensuring aircraft operators will not have to submit both UK ETS allowances and offset credits for the same tonne of CO2 emissions.”