Including aviation emissions in the EU’s much-feted Emissions Trading Scheme is a step in the right direction, but the terms aren’t tough enough -

With the UK Government failing to include the damaging climate emissions from aviation in its Climate Change Bill, Gordon Brown seems to think he’s covered his back with the European Union’s Emissions Trading Scheme (ETS) instead.

European ministers have voted to include aviation in the scheme, which is hailed as a centrepiece of EU climate strategy. But although emissions trading has the potential to play a role in reducing emissions from aviation and other industries alike, it is essential that the design is right. Unfortunately, as far as aviation is concerned, the signs are not promising - with the Council having agreed a common position in December which weakens the already disappointing Commission proposals.

As regards to the main ETS scheme, the current (second) phase runs until 2012, and it was always planned that a review would be undertaken to determine how it would work thereafter – from 2013. This is due to be published on 23 January, and is meant to build on lessons learned from its functioning to date.

According to leaked reports, a positive step forward will be the centralised allocation of emissions by the EU: Member States proved they couldn’t be trusted to do it during the first phase, allowing overly generous allocations to their industries and seriously compromising the scheme’s effectiveness. The Commission encouragingly clamped down on this for the second phase when assessing the so-called National Allocation Plans (NAPs), sending back many of them to be tightened up. We expect the review to do away with NAPs altogether, with the Commission centrally deciding the cap and national quotas. This at least creates the possibility for tougher, more effective limits - provided industry lobbying can be kept at bay.

Also to be applauded in the revised ETS plans that we have seen is the proposal to allow no free allocation for certain sectors (namely power companies, refineries and for carbon capture and storage). During the first phase it became clear that failing to make such sectors pay for their permits simply results in huge windfall profits at the consumer’s expense, defies the "polluter pays" principle, and takes away a large part of the incentivising potential to reduce emissions. It also looks like there will be a greater amount of auctioning for other sectors from the outset - albeit still not enough: 20% initially, reducing steadily to 0% by 2020, and a recognition that unlimited access to CDM/JI credits will not be conducive to meeting environmental objectives.

Calls have been growing for the EU to accept the benefits of border tax measures - in order to ensure that its own energy-intensive industries don’t lose out or worse, "leak carbon" by forcing production abroad where standards are lower. It’s therefore a shame that the Commission has shied away from actually proposing any such measures. It also continues to fail to confront the problem of shipping emissions, stubbornly refusing to include them in the ETS despite the sector being responsible for around 300 million tonnes of CO2 emissions per year.

And while the inclusion of aviation emissions is in principle an important step forward, the manner in which this is currently foreseen is thoroughly inadequate. We are midway through the legislative process, with the Parliament having completed its first reading in November last year and the Council having announced its common position on 20 December - and serious improvement is required during the remaining stages.

It doesn’t take a Nobel Prize winner to work out that the only way trading can possibly reduce aviation emissions is if there is a sufficiently rigorous initial allocation, combined with tough limits to the amount of additional permits aviation is allowed to buy from other sources (ie other industrial sectors, or projects abroad). Without such limits, airlines will simply pay their way out of trouble, continuing with their own damaging ‘business as usual’ at the expense of other industries.

Sadly, such provisions were conspicuous by their absence from the Commission’s proposal, and while a Green amendment to the Parliament’s report did place at least some restriction on the number of permits the aviation sector can buy from other sources, the Council is burying its head in the sand on this crucial concept.

The fact that these proposals still aren’t strong enough doesn’t stop the industry from complaining. A predictable array of airline representatives have criticised and condemned the long overdue inclusion for aviation in the ETS. "Let there be no doubt that the parliament’s punitive design of the ETS scheme would damage the aviation sector beyond repair," said Sylviane Lust, director-general of the International Air Carrier Association.

Strangely, she didn’t mention that aviation has been quietly omitted from the world’s first climate change bill. Nor that the world’s airlines currently enjoy a complex array of tax breaks and hidden subsidies - worth more than £9bn in the UK alone - which are long outdated and totally incompatible with global climate goals.

So we shouldn’t think that we can solve the problem just by including aviation in the ETS. Unless we manage to comprehensively tighten up the design of the inclusion during the second reading, there is a real danger that it will be thoroughly ineffective in tackling aviation emissions and worse, compromise the functioning of the scheme for other sectors.

While the Commission’s leaked proposals show encouraging signs, there is every danger that, by the time of publication on 23rd January, industry interests will once again see them watered down and that the ETS will prove a lot of hot air in the fight against climate change.

The Parliament Magazine