Inclusion Date of Long-Haul Flight Under the EU-ETS Postponed Until 2017

As mentioned in the March 20, 2014 post, a deal to exempt intercontinental flights from regulation under the European Union's Emissions Trading System (EU-ETS) until the end of 2016 failed in the European Parliament's Environment Committee. Many in the industry thought that this could be an indication of whether the proposed exemption could pass the full EU Parliament. Instead, the Parliament voted 458-120 to postpone the date of application of the EU-ETS to long-haul flights originating or arriving in the EU until 2017. As discussed in an earlier post on October 17, 2013, by 2017 the International Civil Aviation Organization (ICAO) hopes to develop a market-based approach to reduce greenhouse gas emissions from the aviation industry through the use of technology, the adoption of carbon standards, and the utilization of sustainable alternatives to jet fuel.

It appears that this controversial issue is over and in the hands of ICAO, for now. As this issue progresses, please check back to this blog for future posts.

ICAO Considering Global Carbon Emissions Offset Program that Requires Funding Emissions Reducing Projects

Late last month, executives gathered in London for the Aviation Carbon 2013 summit. A few themes developed from this summit.  Among the themes was that  any adopted carbon emissions offset program must show a verifiable difference to the health of the environment, and that any carbon emissions offset program must be simple to join.  Discussion also concentrated on the International Civil Aviation Organization's (“ICAO”) meeting in September 2013.  As we reported earlier in this blog, in November 2012 the European Union suspended the inclusion of the non-EU aircraft industry in the EU Emissions Trading Scheme (“EU-ETS”) for one year until ICAO had an opportunity to develop a global consensus on a plan to reduce emissions.  The September meeting of ICAO's High-Level Group on International Aviation and Climate Change is that opportunity. 

The working group is reviewing at least three market-based mechanisms:  (No. 1) a carbon emissions offset program that requires the funding of projects that reduce carbon emissions; (No. 2) a carbon emissions offset program similar to that proposed in No. 1, but with an additional revenue mechanism, most likely a tax; and (No. 3) a global carbon emissions cap-and-trade system.  It has been reported by news outlets after the Aviation Carbon 2013 summit that the mechanism showing the most promise is No. 1, which will require participants to engage in carbon offset projects such as those that support renewable energy, promote reforestation, avoid deforestation, and boost energy efficiency.  If the working group fails to come to a consensus, then we could see a stand-off again between the EU and the non-EU aircraft industry on this controversial measure.

As this issue progresses, please check back to this blog for future posts.

Aviation Industry Considers the Use of More Biofuels to Cut Emissions and Reduce Costs

As reported in earlier posts, non-European Union airlines may soon be subject to the EU Emissions Trading System (“ETS”). As airlines face pressure to reduce carbon emissions and to cut their $200 billion annual fuel bill, many are weighing the advantages of using more aviation biofuels, in addition to employing improved fuel efficient designs and materials. Yesterday, United Airlines made the first domestic commercial flight from Houston, Texas to Chicago, Illinois powered by a biofuel blend from San-Francisco based Solazyme, Inc., which is 60 percent traditional jet fuel and 40 percent algae-based biofuel. In addition, on Wednesday, Alaska Airlines plans to begin 75 regular passenger flights from Seattle, Washington to Portland, Oregon and to Washington, D.C. fueled by a 20 percent biofuel blend made from used cooking oil. (Chicago Tribune)  

Last month, another airline announced its plans to fly its passengers on a waste gas-based fuel by 2014, thus cutting its carbon footprint in half. Virgin Atlantic Airways plans to be the first airline to use waste gas from industrial steel production to move well beyond its initial pledge of a 30 percent carbon reduction per passenger by 2020. Virgin is a pioneer in this area, flying a Boeing 747 from London to Amsterdam in 2008 on a mixture of babassu oil and coconut oil and stands to be a leader moving forward. (Environmental Leader)   

Biofuels, however, are not without critics, as biofuels often are produced from first-generation edible crops or from plants that consume arable land that would have otherwise been used for edible crops. To solve this dilemma, the aviation industry is turning to other plant sources that grow in arid conditions as well as municipal organic waste to convert into aviation fuel.

Commercial airlines are certainly moving toward taking advantage of biofuels. It is only a matter of time before business and corporate aircrafts follow. As this issue progresses please check back to this blog for future posts.

Inclusion of Non-European Union Aviation Sector in Emissions Trading System Does Not Violate International Law

As noted in earlier posts, beginning January 1, 2012, the European Union ("EU") plans to include the aviation sector as the second largest industry in its carbon Emissions Trading System ("ETS"). The plan requires all airlines, including airlines operated out of non-EU countries, to use emissions allowances for flights to or from European airports. The international community has spoken out against this measure, with more than 20 countries, including the United States, China, India, Japan, and Russia, signing a declaration vowing to challenge the EU's plan. The Air Transport Association of America, American Airlines, Continental Airlines, and United Airlines took further steps, filing an action in the High Court of Justice of England and Wales arguing that inclusion in the ETS would place them under U.K. authority. Air Transport Ass'n of America v. Secretary of State for Energy and Climate Change, EU Court of Justice, No. C-366/10. The High Court referred the case to the EU Court of Justice for an interpretation of EU law.

On Thursday, October 6, 2011, Advocate General Juliane Kokott wrote an advisory opinion on behalf of the EU Court of Justice finding that the EU's inclusion of the entire airline sector does not infringe on the sovereignty of other states or international agreements, including the U.S.-EU Open Skies Agreement, the Kyoto Protocol, or the Chicago Convention on International Aviation.  Although the opinion is non-binding, the advocate general's opinion normally predicts the final judgment of the case, which is expected in early 2012. For more details, please see the BNA Daily Reporter article or LAW360 article. As this issue progresses, please check back to this blog for future posts. 

European Commission Confirms that Aviation Sector will Become Second Largest Industry in Carbon Trading System

Special thanks to Sullivan & Worcester's Van Hilderbrand and Ari Hoffman, environmental intern, for preparing this post.

As a follow-up to our October 20, 2010 post entitled “Climate Change: International Regulation of GHG Emissions From Aircraft,” on June 6, 2011 the European Commission (“EC”) confirmed its earlier March 2011 announcement that the aviation sector will become the second-largest industry in Europe’s carbon Emissions Trading System (“ETS”), behind only power generation. The aviation sector is set to join the market on January 1, 2012, giving airlines an initial 213 million metric ton carbon dioxide (“CO2”) limit in 2012 and a 208.5 million metric ton limit in 2013. European Union (“EU”) climate commissioner, Connie Hedegaard, states the reason for the aviation sector’s inclusion is that “emissions from aviation are growing faster than from any other sector, and all forecasts indicate they will continue to do so under business as usual conditions.” 

The EU’s carbon cap-and-trade system is the world’s largest, allowing businesses that exceed their CO2 allowance levels to buy spare permits from companies that do not reach the limit, or else pay a fine. The fine for exceeding the CO2 allowance level for the aviation sector will be 100 euros for every ton of CO2 emitted above the limit. The EU is presenting the ETS as a “pollution ceiling” not a tax, stating that “airlines have the choice to reduce emissions or buy allowances.” Either way, the cost will be passed on to passengers. Lufthansa airlines has estimated that joining the carbon market will cost 350 million euros annually. The EC has estimated a rise in airline fares within Europe between 1.80 euros and 9 euros. In addition, the airline industry has estimated that the inclusion in the ETS will increase the cost of a roundtrip flight from New York to Brussels by 15 euros.

 

Last month, Steve Ridgway, Chairman of the Association of European Airline and chief executive of Virgin Atlantic along with Tom Enders, chief executive of commercial aircraft manufacturer Airbus warned that including the aviation industry in the emissions trading system would create a trade conflict with the world’s major economic and political players. International Airlines Group (“IAG”) chief executive Willie Walsh has voiced fears that Chinese, American and Russian governments will retaliate if forced to participate in the ETS starting next year. The ETS is already being challenged by the American Air Transport Association (“ATA”) in the European courts and Mr. Walsh fears more conflicts are to come. In response to the latest EC move, the head of the China Air Transport Association (“CATA”), Wei Zhenzhong, said: “I believe we have to take legal action.”

Despite the possible competitive disadvantage created for European airlines and harsh criticism from non-European airlines, the EU’s governing bodies “do not intend to back down” and insist that their plan to include the aviation industry in the ETS is entirely consistent with International Law. As this issue progresses, please check back to this blog for future posts.

Climate Change: International Regulation of GHG Emissions from Aircraft

The Kyoto Protocol and the United Nations Framework Convention on Climate Change specifically exclude international emissions from aviation transport from developed countries’ national targets. Instead, Kyoto calls on the International Civil Aviation Organization (ICAO) to tackle the issue. Until recently, however, the ICAO had not been able to reach agreement on substantive binding actions aimed at limiting greenhouse gas (GHG) emissions.

On October 8, 2010, the 190 members of the ICAO approved a resolution in which they agreed to improve fuel economy and strive to limit GHG emissions from aircraft. Per the resolution, the ICAO set a goal to improve fuel efficiency 2 percent per year through 2050, cap GHG emissions at 2020 levels, develop a global framework for the use of alternative fuels, and propose a GHG emission standard for aircraft engines by 2013.

The ICAO also agreed to develop a framework for market-based measures (MBMs) and issued 15 guiding principles for the design and implementation of MBMs for international aviation. These principles are intended to minimize market distortions, ensure that aviation is treated fairly relative to other sectors, guarantee that aviation’s emissions are counted only once, and recognize past and future efforts of carriers to minimize emissions. Member states are encouraged, but not required, to submit action plans to the ICAO by the end of June 2012, outlining their plans for reducing and reporting their international aviation GHG emissions.

The European Commission (EC) entered an objection over sections of the resolution that refer to guiding principles that may conflict with the European Union (EU) emissions trading system (ETS), which will include aviation beginning in 2012. Beginning in 2012, the EU ETS will require non-commercial operators and most commercial operators who conduct flights that arrive or depart from airports located in the EU to reduce GHG emissions. Commercial operators that emit less than 10,000 metric tons of carbon per year or operate fewer than 243 flights per period for three consecutive four-month periods are exempted.

In the first year, the EU ETS aviation cap will be set at 3% below the established baseline, which is set at the sector’s emissions between 2004 and 2006. The cap will then be reduced to 5% below the baseline. It is expected that operators will be required to reduce their emissions by more than 200 million tons of carbon equivalent. Operators will be awarded free allowances based on a formula called revenue per ton per kilometer (RTK), which measures weight and distance traveled, but initially will be required to purchase 15% of their necessary allowances. The International Air Transport Association estimates that compliance with the EU ETS will cost the industry at least 2.4 billion euros, or about $3 billion, a year.

Business aviation operators have complained that the EU ETS favors commercial airlines to the disadvantage of smaller, private operators. For example, as noted above, certain commercial operators are exempted from the system, but these exemptions do not apply to non-commercial operators. In addition, business aviation operators will be required to purchase a greater percentage of allowances because the RTK formula will award more free allowances to scheduled airlines and freight companies, which carry far more payload weight than business aviation flights. Moreover, business aviation operators will incur substantial transaction costs complying with the system, especially considering the relatively small number of credits a typical business aviation operator will be required to purchase.

In December 2009, American Airlines, Continental Airlines and United Airlines, backed by the Air Transport Association, filed for judicial review in the British courts, challenging their inclusion in the EU ETS. The airlines are arguing that the EU lacks jurisdiction to regulate flights to and from the United States. On January 20, 2010, the UK Government referred the matter to the European Court of Justice. The suit is pending.

The EC plans to go forward with implementation of the EU ETS as it relates to aviation emissions. In fact, the EC believes that the ICAO has tacitly approved its plan, since the EU ETS is consistent with all 15 principles for MBMs and the ICAO members declined to include language that would have required the agreement of other states before application of the EU ETS to their airlines.