Europe Reopens Carbon Market/Compromises on Airline Carbon Emissions

June 9, 2014 | Energy, Natural Resources & Utilities


The European Union (“EU”) has determined that it will resume taxation of emissions on all intra-EU flights, and will reopen its carbon allowance auction for airlines. The carbon tax had been suspended in November 2012. Allowances will be available to meet 2012-2014 obligations, with the next compliance deadline of April 2015.

However, lawmakers continued the exemption under the Emissions Trading Scheme (“ETS”) for flights beginning or ending outside the EU until 2017. Several intercontinental carriers and their home-country governments had protested application of the ETS to international flights, and the program was suspended 11 months into its existence and prior to any compliance dates.

U.S. aviation trade groups have argued that the cap-and-trade program violates international law, infringes U.S. sovereignty, and undercuts airlines’ efforts to invest in fuel efficiency technology. The U.S. Congress passed a law, which President Obama promptly signed, prohibiting U.S. passenger airlines from participating in the scheme.

Under the ETS, aviation allowances are distinct from the generalized carbon permits that form the backbone of the EU’s cap-and-trade market.

Earlier, the International Civil Aviation Organization (“ICAO”) agreed to adopt a global market based measure on aviation greenhouse gas emissions in 2016, to be implemented by 2020. In setting the new deadline of 2017, the EU hopes to obtain agreement on a new emissions plan, with the EU’s ETS serving as a backstop in case the ICAO fails to act.

In a related development, the German government has fined 61 aircraft operators from countries including Russia and the U.S. for breaching the intra-EU provisions of the ETS. The penalties are the first since the EU included aviation in its carbon dioxide market in 2012. Penalties amounting to 2.7 million euros ($3.7 million) were assessed for failing to surrender the requisite number of emission allowances.

The German government has not revealed which airlines have been fined. EU member states have an obligation to issue fines of €100 ($140) for every metric ton of carbon dioxide an aircraft operator fails to submit an allowance to cover.

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