European ministers rubber stamp Council and Parliament agreement on aviation's entry into the EU ETS
Michele Alliot-Marie, French interior minister and current President of the Council, announces Council adoption of aviation ETS directive
Mon 27 Oct 2008 – The directive to include aviation into the European Union’s Emissions Trading Scheme from 2012 was formally adopted, without discussion, during a meeting of the Justice and Home Affairs Council meeting on Friday (October 24). EU Member States now have 12 months to transpose the directive into national law. Airlines have condemned the move just as the global financial crisis bites and with the European aviation sector already showing signs of a major slowdown.
The directive, which affects all flights within the EU as well as those to and from third countries, sets a cap in 2012 on overall aviation emissions of 97% of the sector’s average annual emissions between 2004 and 2006. In 2013, when the third phase of the ETS starts, the cap will be reduced to 95% of these emissions.
The controversial element is the allocation of emissions allowances to airlines. The industry had generally supported an initial proposal that would have granted it a higher level of allowances for free. However, after a compromise deal between the Council and the Parliament – the two co-legislators – the directive allows for 85% of the allowances be allocated free of charge and the remaining 15% to be auctioned. This is likely to be reduced still further to 80% free allocation from 2013, with Parliament advocating an annual reduction thereafter so that by 2020 there will be no free allocation and all allowances will have to be paid for by the airlines.
Airline representatives have, as a result, withdrawn their earlier support for the European cap-and-trade system, fearing crippling costs of joining the scheme just as the industry enters a financial downturn, caused initially by the high cost of jet fuel and now the global financial crisis and a possible worldwide economic recession. European airlines and airports have recently reported dramatic slowdowns in traffic growth.
“The time could not be worse,” said Ulrich Schulte-Strathaus, Secretary General of the Association of European Airlines (AEA), “to be hastily finalizing, without any impact assessment, the design elements of the looming Emissions Trading Scheme, which high auctioning levels have transformed into a barely disguised kerosene tax – and this on top of a proliferation of national taxes, making both airlines and their passengers pay for their carbon footprint several times over.”
“Crisis is not the time for rubber stamps,” responded Giovanni Bisignani, Director General and CEO of the International Air Transport Association (IATA) to the Council’s green light to the directive. “But that is exactly what the Council of Justice and Home Affairs Ministers used today – without a word of debate – to seal into law the €3.5 billion cost of bringing airlines into the European ETS. It’s Brussels acting in a bubble – even in the middle of a global economic crisis.”
However, there is little sign that the economic slowdown will stall the EU’s flagship policy to reduce carbon emissions. “The financial crisis is here one day and it is gone another day. But the climate crisis will be there always and we must face it,” said EU Environment Commissioner Stavros Dimas recently.
Bisignani criticized the current general ETS review which will further tighten the scheme from 2013. “Reviewing the effectiveness of emissions trading where programmes have been operational has value,” he said. “But what enlightened decisions can we expect from a review that will conclude even before today’s decision takes effect in 2012? Far better that we address this on the basis of experience than speculation.”
The European Low Fares Airline Association (ELFAA) registered its “extreme concern” over the ministers’ adoption of the directive, which it estimates will cost airlines €7 billion in the first two years of the scheme, rising to around €90 billion over 10 years by 2022 if the proposal by the Parliament’s Environment Committee (ENVI) for a progressive rise to 100% auctioning is accepted.
“Auctioning has turned a green initiative into a straight tax that has no environmental benefit whatsoever,” claims ELFAA.
ENVI had fought to limit the level of free allowances allocated to the aviation sector as it believes airlines would be able to pass on the costs to customers and make windfall profits. ELFAA recently published a report it had commissioned from Frontier Economics, which found that two earlier reports on aviation ETS policy by Vivid Economics for the UK Government were, in its view, flawed. The Frontier Economics report, says, ELFAA, disproves the case for auctioning allowances and had demonstrated there was no prospect that airlines could make windfall profits from the ETS.
“Evidence shows that airlines will not make windfall profits from free allocation of allowances,” said John Hanlon, ELFAA’s Secretary General. “Therefore, auctioning will simply act as a further tax on airlines and their customers.” Hanlon called for an immediate removal of auctioning.
A statement put out after the Council’s adoption of the directive said each Member State will determine the use to be made of its revenues from the auctioning of allowances. “These proceeds should [our italics] be used to tackle climate change in the EU and in third countries as well as for the research in the field of low-emissions transport, particularly in aeronautics and aviation,” it goes on. “Member States must report about the use of their revenues to the Commission.”
However, both the Netherlands and the UK have already let it be known that they will not hypothecate (ring-fence) revenues raised from the auctioning of allowances to the aviation sector.
“The treasuries of Member States will simply use the billions they will raise with this tax on airlines and their passengers to fund the bail-out of banks,” believes ELFAA’s John Hanlon.
The Council statement also said that the EU considers the directive only a first step towards its final goal of a global sectoral agreement on reducing aviation greenhouse gas emissions. The new legislation contains provisions that allow for its adjustment in case third countries adopt similar reduction measures.
IATA’s Giovanni Bisignani said there was a need for a “fair and effective” global approach. “In the most recent G8 declaration, Prime Minster Berlusconi, Prime Minister Brown, Chancellor Merkel and President Sarkozy supported ICAO’s [the International Civil Aviation Organization] leadership to deliver a global solution for aviation and the environment,” he commented. “Now we need to see some supporting action. The best way to a global solution is through ICAO’s Group on International Aviation and Climate Change (GIACC). Brussels must support the success of this process.”