Full report

The EU emissions trading scheme (ETS) was originally intended to cover CO2 emissions from all flights arriving and departing from EU airports. Amid fierce opposition and threats of a trade war, Europe temporarily amended the scheme for 2012 to only include flights within the EU, known as “Stop the Clock”. Sandbag’s latest report on the first year of aviation emissions trading reveals how the rhetoric is out of sync with reality, how the scheme cost much less than many initially claimed, and how the scheme can work in future to tackle aviation pollution.

**The Background**
To understand where we are, a brief overview is helpful. Global aviation is responsible for 2.5% of global carbon emissions, which increases to 4.9% of total anthropogenic climate effects if all radiative forcing is included. If the sector were a country, it would already be the 7th most polluting on the planet. Emissions from global aviation are growing at a rapid pace; the International Civil Aviation Organization (ICAO) forecasts that by 2036 emissions will increase between 155% and 300% compared to 2006 levels.
After more than a decade of international discussions struggling to find a global solution to cover aviation emissions, the European Union set out to create a system. From the 1st January 2012, the EU took the modest step of including the aviation sector into its carbon market.

**‘What happened during 2012?’**
Under the scheme in 2012, over one thousand airlines and operators were involved, and 84 million t/CO2 were emitted (covering about a third of all European aviation emissions). The majority of emissions, 89% (75 million t/CO2), came from EU airlines, with 11% (9 million t/CO2) of emissions from Non-EU airlines operating flights from one European airport to another. 71 million free allowances (‘EUAAs’) were issued, 81% (58 million EUAAs) to EU airlines, and the remaining 19% (13 million EUAAs) going to Non-EU airlines.
Despite a well-reported backlash from aviation officials in a range of countries, major airlines from countries considered part of the “coalition of the unwilling” complied with “Stop the Clock” in 2012, including: Cathay Pacific, Japan Airways, Asiana Airlines, Siberia Airlines (S7) and Delta. Furthermore some airlines from these countries even went beyond what was legally required, and included their international flights within the scheme, covering emissions outside the EU. Among those airlines are: Korean Air, Nippon Cargo, FedEx and Airbridge Cargo. EU airlines such as Lufthansa Cargo also chose not to return their free allowances, instead including their emissions outside the EU. The generous allocation of free allowances to Lufthansa Cargo meant they were left with a valuable surplus; the likely driving factor in their decision not to “Stop the Clock.”
The cost of compliance was also estimated to be lower than expected for those with a shortfall of free allowances. For example, Ryanair originally estimated including its flights in the ETS would cost €15-20 million in 2012. Consequently, the low-cost carrier imposed a €0.25 charge on all tickets to cover their costs. Yet average 2012 carbon prices would suggest compliance costs were lower, implying a cost to passengers of only €0.13 per flight, with Ryanair pocketing the difference, an estimated €8 million.

**‘The New Proposal’**
The EU Commission has now come forward with a new proposal for the scheme that would cover the percentage of flights within European Union airspace up until a review in 2016, dependent upon the International Civil Aviation Organisation’s progress towards a global scheme in 2020. Whilst this is extremely modest compared to what Sandbag believes is environmentally necessary, an airspace approach seems like a balanced compromise for now, keeping the pressure on ICAO, whilst not impinging on any other country’s airspace or discriminating between airlines and business models. Put frankly an EU airspace approach is the bare minimum needed, and further expansion in 2016 needs to be automatic if ICAO does not reach an agreement.

**Sandbag Policy Analyst Rob Elsworth** commented:
Despite non-EU airlines’ vociferous opposition to the EU ETS, the reality is that most of them are complying with the scheme, with some even going beyond what is legally required in order to make windfall profits. This utterly contradicts the position of those nay-saying airline officials and their governments. The EU must, as a bare minimum, control pollution in its own, sovereign airspace.

**Sandbag Research Assistant Phil MacDonald ** commented:
Until the international community can agree on a global measure for tackling aviation pollution, the scheme remains an important trailblazer. The EU must not back down any further if it wishes to retain international credibility. An airspace-only approach is a fair and workable compromise, for now, and is the best route towards global action on aviation and climate change.

Click here for the full report.