UN plan could put EU in holding pattern on aircraft emissions

13 March 2017 | Markets

Participants in a United Nations effort to limit greenhouse gas emissions from aviation could end up paying even more for carbon permits than participants in the European Union’s main emissions reduction system, according to speakers at a European Parliament seminar.

If carbon offsets in the UN scheme turn out to be the same price as—or more expensive than—EU carbon permits, it could undermine the argument for continued exclusion of long-haul flights from the EU emissions trading system, speakers said. High offset prices could make it cheaper for airlines to reduce emissions by participating in the EU ETS and buying EU carbon permits instead.

Last October, the UN’s International Civil Aviation Organization agreed to the carbon offsetting and reduction scheme for international aviation (CORSIA) to make any worldwide growth in aviation emissions after 2020 carbon neutral. Airlines will purchase offsets to compensate for any emission rises beyond the 2019–2020 level. The program is voluntary through 2027.

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CORSIA was prompted in part by a 2008 EU law (Directive 2008/101/EC) that included aviation in the 28-nation bloc’s emissions trading system (ETS). Intercontinental flights were subsequently exempted from the EU ETS, however, after pressure from countries including China, India and the U.S. for aviation emissions to be covered by a single international scheme.

Peter Liese, a German center-right European Parliament lawmaker, said at the March 8 European Parliament seminar that it was not clear where high quality and verifiable offsets for purchase under CORSIA would come from, because there is likely to be high demand for offsets from countries that ramp up their greenhouse-gas reduction efforts after 2020 under the UN Paris Agreement on climate change.

The Paris Agreement, agreed to at the end of 2015, is the global umbrella agreement under which countries have pledged to decarbonize their economies to limit global warming to no more than 2 degrees Celsius (3.6 degrees Fahrenheit) above pre-industrial levels.

Starting Voluntary

About 60 countries have said they will participate in the CORSIA voluntary phase through 2027. CORSIA becomes mandatory thereafter for most countries, excluding the least-developed countries and those with minimal aviation activities.

Liese said CORSIA offsets should offer genuine emissions mitigation and be subject to clear monitoring, reporting and verification rules. Without such rules, it would be hard to justify the continued exclusion from the EU’s ETS of long-haul aviation when other sectors, such as steelmaking, are subject to a declining emissions cap, Liese added.

But if there are strict rules for CORSIA offsets, “I’m not sure who will offer the offsets,” Liese said.

Tight criteria for CORSIA offsets could mean a “dilemma” in relation to the EU carbon price, which is currently around 5.30 euros, Liese said.

Jasper Faber, an aviation specialist with environmental consultants CE Delft, told Bloomberg BNA March 8 that current demand for carbon offsets is “virtually going to zero,” and prices are consequently very low, but that could change after 2020.

For the voluntary phase of CORSIA through 2027 it was “relatively certain” that offset prices would remain low, but it was unclear if there would be a clear difference between offset prices and the carbon price thereafter, especially if countries further tighten their emission reduction pledges following reviews of the Paris Agreement, Faber said.

Exemption Extension

The European Commission—the EU’s executive—published a proposal in February under which intra-EU flights would continue to be covered by the ETS and intercontinental flights would continue to be exempted, though the exemption could end if CORSIA is seen to be failing.

The current exemption from the ETS for intercontinental flights is temporary and ends at the end of 2017. The commission proposed to make the exemption permanent, but said a review of the exemption would take place when the details of CORSIA become clear.

Laurence Graff, head of the commission’s unit on aviation and maritime emissions trading, speaking at the March 8 seminar, said that under CORSIA, participating countries would have to adopt legislation “to implement the rules and allow CORSIA to be operational.”

“Once we get clarity on the CORSIA implementation, then we would go for a review” of the ETS exemption for intercontinental flights, Graff said.

Liese said the European Parliament was “deeply disappointed” with the International Civil Aviation Organization because CORSIA does not include an emissions reduction target.

It was unrealistic to think that intercontinental flights would be fully reincorporated into the ETS, but “we need to work to improve CORSIA, to close the loopholes, to get more clarity,” Liese said.



Source: Bloomberg BNA