European Parliament votes for reforms to the EU ETS from 2020 that would tighten aviation emissions cap

European Parliament votes for reforms to the EU ETS from 2020 that would tighten aviation emissions cap | Redshaw Advisors,International Emissions Trading Association,T&E

Wed 15 Feb 2017 – The European Parliament has voted to increase the ambition of the EU Emissions Trading System (EU ETS) for the next phase of the scheme starting in 2021, which includes tightening the emissions cap of the aviation sector. The sector should expect to receive 10% fewer allowances than its 2014-2016 average, say MEPs. Trilogue negotiations on the overall EU ETS reform package will now take place with the EU Council, which represents Member States, and the European Commission before a final decision is taken. Green lobby group Transport & Environment (T&E) welcomed the decision by MEPs as evidence that aircraft emissions will in future be treated on a par with other industries covered by the EU ETS. European airlines made clear their opposition last week to the sector’s continued inclusion in the EU scheme once the ICAO global CORSIA carbon offsetting scheme starts in 2021 (see article).


The Parliament voted 379-263 in favour of the draft measures proposed by its environment committee (ENVI), demonstrating significant opposition from many MEPs who either felt the package of reforms was not consistent with EU pledges made under the Paris Agreement or that it went too far in damaging European industry competitiveness. The EU ETS is the flagship of EU climate policy which is aiming for an overall reduction of greenhouse gas emissions of at least 40% by the end of the scheme’s Phase IV in 2030 compared with 1990 levels.


Aviation has been treated far more leniently under the EU ETS than the other sectors and in the face of continued growing emissions, MEPs have argued this is no longer sustainable and so must share the burden of meeting the EU reduction target.


Under the Parliament’s proposals, the total quantity of allocated allowances in 2021 would be 10% lower than the average allocation for the period from 1 January 2014 to 31 December 2016, and then decrease annually at the same rate of 2.2% – the so-called linear reduction factor – as that of the total cap for the EU ETS so as to bring the cap for the aviation sector more in line with the other sectors by 2030. Since its inclusion in 2012, no such annual reduction factor has been applied to aviation.


Proposed wording in the amended Directive also reads: “For aviation activities to and from aerodromes located in countries outside the EEA [European Economic Area], the quantity of allowances to be allocated from 2021 onwards may be adjusted taking into account the future of the global market-based mechanism agreed by ICAO at its 39th Assembly. By 2019, the [European] Commission shall present a legislative proposal to the European Parliament and the Council following the 40th Assembly of ICAO.”


Under current rules, 15% of allowances are auctioned but MEPs have agreed that the level should be raised to 50% from 1 January 2021.


The existing Directive says that it is for Member States to determine the use to be made of revenues generated from the auctioning of allowances, although such revenues should be used to tackle climate change in the EU and third countries. MEPs have agreed an amendment whereby all revenues shall be used to tackle climate change, including funding R&D to reduce emissions in aeronautics and air transport. The Parliament tried before to have similar wording inserted into the original Directive but failed due some States’ (notably the UK) refusal to ring-fence revenues.


Another amendment requires Member States to include in their annual report to the Commission on the application of the Directive a list of aircraft operators subject to the requirements of the scheme that have not opened a registry account. “While compliance by operators is generally high, there are a number of cases of non-compliance which have yet to be resolved. Publishing a list of non-compliant operators would expedite enforcement,” says the report submitted by the ENVI committee.


Additional text to the Directive has also been proposed to reflect the Paris Agreement outcome. It reads: “In accordance with the Agreement, all sectors of the economy have to contribute to the reduction of CO2 emissions. Targets and measures agreed at the international level, such as in the International Civil Aviation Organization (ICAO) and the International Maritime Organization (IMO), are welcomed if they achieve adequate emissions reductions.”


Shipping has so far escaped being included in the EU ETS but with the sector failing to substantially progress on measures to reduce international CO2 emissions, the Parliament is proposing emissions in EU ports and during voyages to and from them should be accounted for. MEPs wish to see ship owners buy EU ETS allowances from 2023 onwards or pay an equivalent amount into a ‘maritime climate fund’ set up to compensate for maritime emissions, improve energy efficiency, facilitate investment in innovative technologies and reduce CO2 emissions from the sector. This would only apply if IMO does not agree global action by 2023.


“If ICAO and IMO fail to deliver strong global market mechanisms to tackle emissions, the shipping and aviation sectors will be forced to comply with the EU ETS,” commented carbon risk management firm Redshaw Advisors, which predicts a significant upward revision to the price of EU allowances for the end of Phase III and beyond should the Parliament’s proposals be adopted by the Council.


Brussels-based T&E said the MEPs proposed reforms was a strong response to the recent proposal by the European Commission (see article) that called for flights that enter or exit Europe to be excluded from the EU ETS indefinitely. As a result of the Commission’s proposal, which is largely intended to address aviation’s inclusion in the EU ETS for the remainder of Phase III (up until 2020), T&E says a new legislative process has now begun that must go through the Parliament’s committees and plenary again, and then into trilogue negotiations.


“Parliament has sent a clear signal that stronger measures are needed to rein in aircraft emissions,” said T&E’s Bill Hemmings. “MEPs are standing by the basic principle that all sectors must make a fair contribution to tackling climate change. Their proposal should be the basis for discussions with EU governments and the Commission on aviation’s continued role in the ETS.”


The International Emissions Trading Association (IETA), which represents carbon market businesses, welcomed the EU ETS reform package adopted by MEPs in today’s plenary session in Strasbourg and urged a speedy agreement between the EU institutions so that a clear policy signal was delivered to the carbon market.


“If the EU ETS isn’t strengthened, Europe risks a proliferation of unilateral national measures that can add inefficiency and increase costs,” warned Julia Michalak, IETA’s EU Policy Director.




European Parliament – News release on EU ETS reforms vote

European Parliament – Amendments proposed to EU ETS Directive

European Parliament – Debate by plenary (from 18:56 to 20:18)






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