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The EU's inclusion of aviation into the EU ETS gets the green light from European Court of Justice
posted by Damien on 20th Dec 2011

This morning in Brussels, MEPs in the Environment Committee approved essential proposals to reduce the supply of carbon permits under the EU Emissions Trading Scheme (ETS).

The proposals were passed as amendments to the draft Energy Efficiency Directive, which observers have eyed nervously for its potential overlap with the ETS. Reduced demand for EU carbon permits since the recession has seen prices languishing; however, in some models used by the Commission the Energy Efficiency Directive threatened to reduce the demand for carbon permits so far that the carbon price would crash down to zero. The dwindling carbon price not only provides a weak investment signal for companies looking to invest in clean energy, it has seen governments projected auction revenues steadily recede, and dedicated EU funding for carbon-capture-and-storage projects disappear.

But progressive policymakers in the EU parliament have seen this potential crisis for Europe’s flagship climate policy as an opportunity for its permanent reform. Today saw an amendment passed to set aside 1.4 billion permits from the 2013-2020 carbon budget that, if implemented, would bring much needed scarcity to the system. Even more promisingly, the committee passed an amendment which would steepen the trajectory of the EU ETS cap to align it with Europe’s stated 2050 climate goals – a move which could save 8.5 billion tonnes of pollution over the next 4 decades, roughly equivalent to 2 years worth of Europe’s emissions at current levels. An additional more modest amendment calling for a careful assessment of the impacts of the new directive on the EU ETS, and a removal of permits on that basis, was also passed.

The carbon price, which had fallen to a record low of €6.30 last week, immediately rallied above €8 following the news – a vindication of Deutsche Bank’s recent assessment that the integrity of the carbon price now almost entirely depends on a clear political intervention.

Going forward from here, the amendments will be revisited by the Industry, Research and Energy Committee on January 24th, before being put before the whole Parliament in April. January 24th will also see the Environment Committee revisit ETS reform in relation to the 2050 Low Carbon Roadmap.

The EU's inclusion of aviation into the EU ETS gets the green light from European Court of Justice

The European Court of Justice (ECJ) has ruled that the inclusion of the aviation emissions - from flight entering and leaving airports in the EU - into the EU emissions trading system (ETS) is fully compliant with international law. This ruling follows the opinion issued by the Advocate General who, in October 2011, determined that "EU legislation does not infringe the sovereignty of other states or the freedom of the high seas guaranteed under international law, and is compatible with the relevant international agreements".

Legals challenges had been filed against the EU by the Air Transport Association of America, United Continental and American Airlines. These airlines argued that their inclusion into the EU emissions trading system (ETS) contravenes the Chicago Convention, the Open Skies Agreement and the Kyoto Protocol.

The EU moved ahead in incorporating all airlines flying to and from EU airports into the EU ETS as plans by the industry body, the International Civil Aviation Organisation (ICAO), to regulate aviation emissions have as of yet failed to materialise. Their remains a clause in the legislation that will allow countries to avoid inclusion in the EU ETS, provided they implement 'equivalent measure'.

Form January 2012 all airlines will be required to surrender emissions permits equivalent to the emission produced during the flight. Based on a historical average, airlines will initially receive 85% of their emissions permits for free. The additional cost to customers depends on the degree to which the value of the free allowances are passed onto the passenger. The EU estimates that "the actual costs per ticket of a transatlantic flight would increase by less than 2 Euro, assuming that the value of the free allowances would not be passed to the passenger. If it were to be passed through, the ticked price could increase by around 12 Euro".

The inclusion of aviation emissions in the EU ETS is a seen as a victory against an industry which has, to date, avoided additional climate legislation. The aviation industry is notable for the fact that aviation fuel remains exempt from tax.

Aviation emissions continue to grow, the EU's aviation emissions alone have almost doubled since 1990.

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