European Commission invites feedback on revisions to the EU ETS ahead of a public consultation
Wed 8 July 2020 – The European Commission has opened an eight-week feedback period inviting comments on a revision of the Aviation EU ETS directive in order to implement the international CORSIA scheme consistent with the EU’s 2030 climate objectives and European Green Deal. The Commission is also proposing to reduce the amount of free allowances allocated to aircraft operators and will assess the geographical scope of the EU ETS after 2023 when the existing directive provides for automatic reversion to coverage of all flights to and from Europe as well as within Europe. An inception impact assessment has been published and feedback is encouraged from stakeholders and citizens by 28 August 2020 to help inform a public consultation planned for the third quarter. A regulatory proposal from the Commission is expected during the second quarter of 2021.
The EU ETS directive was last revised in 2017 to extend the intra-EEA geographical scope derogation until the end of 2023 to allow continuation towards implementation of ICAO’s CORSIA carbon offsetting scheme for international aviation following the ICAO Assembly agreement in 2016. In 2012, the EU first suspended the original scope of the EU ETS, which was to cover emissions from flights landing in and departing from airports in EU and EFTA States, following strong international opposition and pending the outcome of ongoing negotiations at ICAO.
The EU has also to examine whether CORSIA meets its own ‘environmental integrity’ tests before deciding on its next course of action. However, it has already shown support for the ICAO scheme and adopted legally-binding provisions for the purposes of implementing the monitoring, reporting and verification of emissions covered by CORSIA. EU states, with the exception of Sweden, agreed a controversial move to change the scheme’s baseline, at least during the three-year pilot phase starting next year, although this effectively removes offsetting obligations for aircraft operators during the period. The EU has also provided €20 million towards CORSIA capacity building in developing countries.
However, an amendment to the directive has to be adopted by the European Parliament and Council by December 2023 to prevent a return – although never implemented – to the full-scope provisions. The Commission has suggested six possible policy options should be assessed on how emissions from flights within the EU/EFTA zone, as well as to and from third countries, could be accommodated under the EU ETS and whether and how to implement CORSIA:
A return to full scope EU ETS in case no amendment is adopted by the Parliament and Council.
Maintaining the status quo so that the EU ETS would be applied exclusively and confined to the scope as currently applied, with operators surrendering allowances for intra-EU/EFTA flights.
Only CORSIA would be applied to international flights, non-domestic intra-EU/EFTA flights, flights to and from EU/EFTA States (including their outermost regions) and third countries.
A ‘clean cut’ scenario in which EU ETS would continue to apply to the current intra-EU/EFTA scope, as in option 2, and CORSIA would be introduced for extra-EU/EFTA flights. The EU ETS would therefore be applied as at present and CORSIA would be applied to all other applicable flights.
An ETS-CORSIA ‘mix’ in which the EU ETS would apply up to each operator’s 2020 emissions on non-domestic intra-EU/EFTA flights. CORSIA would apply above the 2020 emissions. Regarding flights between EU/EFTA States (including their outermost regions) and third countries, CORSIA would apply on emissions above 2020 levels. This option would also cover domestic flights.
An ETS-CORSIA ‘mix’ in which the EU ETS would apply to non-domestic intra-EU/EFTA flights operated by operators with licences issued by EU Member States. For operators with licences issued by third countries, only CORSIA would apply on those non-domestic intra-EU/EFTA flights and flights between EU/EFTA States (including their outermost regions) and third countries. This option would not cover domestic flights.
The EU ETS directive requires the Commission to study the ability of the aviation sector to pass on its carbon costs to customers in both the EU ETS and CORSIA, comparing this to other industries and the power sector, and with the intention to propose to increase the share of auctioning, currently 15%, compared to the free 85% allocation. Under the EU’s Green Deal ambitions, the Commission is proposing to reduce the share of free allowances to airlines and is revisiting the pass-through issue. Policy options under consideration are:
Status quo: The current 15% auctioning share is perpetuated until 2030.
Immediate phase-out: 100% auctioning from the entry into force of the revision.
Swift phase-out: Full auctioning by 2025, starting with an auctioning share of 60% in 2023, and a share of 80% in 2024.
Slow phase-out: A linear increase year-by-year to full auctioning by 2030, starting from 20% in 2023.
Slow reduction: A linear increase year-by-year starting with an auctioning share of 20% in 2023 and ending at 55% in 2030.
The Commission says each of these options also embodies different levels of revenues from auctioning and that stakeholder input would also be sought on potential use of these revenues to contribute to emissions reductions.
“Ensuring equal treatment and avoiding distortion of competition on routes shall be integral to each option,” says the inception impact assessment.
In 2018, 53% of verified aviation emissions were covered by allowances acquired from auctions or from other sectors, while free allowances were provided to operators for 45.5% of their emissions. The remaining 1.5% were covered through international offset credits, which cannot be used for EU ETS compliance after 2020.
The Commission is obliged to report to the Parliament and Council on an assessment of the ambition and overall environmental integrity of CORSIA, including its general ambition in relation to targets under the Paris Agreement, level of participation, enforceability, transparency, penalties for non-compliance, processes for public input, quality of offset credits, monitoring, reporting and verification of emissions, registries and accountability, as well as rules on the use of biofuels.
Another study by the Commission is examining the non-CO2 climate impacts of aviation.
Following the initial feedback process, the Commission’s public consultation will run for a minimum period of 12 weeks and will include a stakeholder meeting to present the main options under consideration.