Aviation in the EU Emissions Trading Scheme

Summary

In September 2005 the European Commission published a communication on Policy instruments to reduce the climate change impacts of aviation''. This MNP policy brief summarises the potential impacts of the proposal at EU and national Dutch levels.

Climate impact of aviation significant enough to be addressed

If aviation is not included in climate policy, it will be more difficult to meet the long-term EU, and Dutch, climate target. The number of flights in European airspace is expected to almost double in the next 25 years, and this will increase the share of national and international aviation in total CO₂ emissions in the EU15 from a current 3.5% to 5% by 2030. In the same period, CO₂ emissions from aviation in the Netherlands are projected to double, from 4% to 8% (i.e. from 8 to 17 Mton CO₂). The overall climate impact of aviation is estimated at a factor of 2 to 4 higher than the impact from CO₂ emissions alone. This is because NO_x emissions and the formation of cirrus clouds, for example, also play a role.

Aviation in the EU Emissions Trading Scheme: A step forward in climate policy

The European Commission’s proposal to include the aviation sector in the EU Emissions Trading Scheme (EU-ETS) can be seen as a step forward in including the aviation sector in climate policy. It will be cheaper to reach the Kyoto target. The proposed instrument, EU-ETS, fits well into current EU and Dutch climate policies. In the longer term (after 2012), EU-ETS has the potential to develop into an incentive to improve environmental performance. Considering the long lifetimes of aircraft and the generally considered high costs of efficiency improvements, reductions in fuel consumption and emission improvements might take a while to materialise. In the shorter term, the aviation sector is therefore expected to account for carbon emission reductions by purchasing CO₂ allowances from other sectors. This means that most of the emission reductions do not take place in the aviation sector itself but in other sectors.

Economic and environmental impacts could be limited

According to some scenario calculations based on certain assumptions with regard to design parameters, including aviation in the EU-ETS in the 2008-2012 period will somewhat increase both the demand (+1%) and price of CO₂ allowances. Increases in ticket prices could range from €0 to €20 for an average round trip. In the longer term, the climate objectives would require large reductions and could significantly limit the CO₂ emission allowances in the EU-ETS and lead to higher costs (irrespective of whether aviation is included in the EU-ETS or not). The environmental impacts of including aviation in the EU-ETS will depend fully on the design of the trading system, with particular emphasis on the total of CO₂ emission allowances to be determined. Economic and environmental impacts for the Netherlands are expected not to differ fundamentally from other countries.

ETS design parameters and possible flanking measures will determine environmental impact

The design for including aviation in EU-ETS will be crucial for the environmental impact of the system. Design parameters include the geographical scope of the system, accounting for non-CO₂ climate impacts, the methods to allocate emission allowances (e.g. grandfathering, auctioning) and the choice of trading entities, as well as the interplay with the Kyoto Protocol and the monitoring method. With regard to the geographical scope and the type of flights covered, inclusion of all flights departing from EU countries will lead to a higher environmental impact than including only flights between EU countries. To what extent the inclusion of all flights in ETS could affect future volumes and re-routing of trade passenger flows to and from the EU will require further research. Including only CO₂ in the EU-ETS will result in a simpler butless environmentally effective system, compared to accounting for the full climate impact of aviation. Flanking measures are then needed to address the non-CO₂ climate effects of aviation. An emission charge might then be practical and effective. Auctioning is the most cost-effective when it comes to chosing an allocation method.

Fuel tax and emissions charges worthwhile to consider as well, though politically sensitive

A kerosene tax and emission charging, with revenues earmarked for climate policy, are straightforward instruments for internalising external costs and for stimulating (fuel) efficiency improvements and CO₂ emission reduction from the aviation sector. A tax is in line with Europe’s goal to reduce distortions in competition between different energy products. A charge could also be used to address the non-CO₂ emissions, such as NO_x emissions, possibly complementing fuel taxes and/or CO₂ emissions trading.