Wed 1 June 2016 – The recent High-level Meeting (HLM) of ICAO member states to consider a draft proposal on a global market-based measure (GMBM) scheme to address fast-growing carbon emissions from international aviation was seen by some as being marred by deep divisions. But those close to the negotiations are now more confident an agreement will be reached. Reporting significant progress during the talks on finding areas of common agreement, ICAO Council President Dr Olumuyiwa Benard Aliu acknowledged though there was “still work to be done” on key elements of the scheme before it is presented for consideration by ICAO’s 191 member states at their 39th Assembly in late September. This article attempts to unpick the draft Assembly Resolution text, which aims to lay out the ground rules for what would be the first-ever global sectoral carbon scheme, resulting from the ICAO meeting.

Firstly, some background. Following a resolution adopted at the last Assembly in 2013 (A38-18), ICAO’s governing Council, to be supported by member states, was tasked with developing a GMBM scheme and for a decision to be made on implementation at the forthcoming Assembly. An Environment Advisory Group (EAG) composed of 17 Council members and an industry representative was then set up to oversee the development of the scheme, with technical support from ICAO’s Committee on Aviation Environmental Protection (CAEP). A basic ‘Strawman’ proposal for a scheme based on carbon offsetting was drawn up by the ICAO Secretariat for consideration by the EAG with a view to generating discussion and analyses on the advantages and disadvantages of the scheme’s design elements.

The EAG held 15 meetings between March 2014 and January 2016, the last of which considered a draft Assembly Resolution text on the scheme based on the progress achieved and views expressed during previous EAG deliberations. The EAG/15 meeting recommended the establishment of an 18-state High-level Group (HLG) on a Global MBM Scheme to further converge views and finalise the draft text for consideration by the Council.  Taking into account feedback from a series of Global Aviation Dialogues (GLADs) with states and other stakeholders, plus informal consultations with small groups of states, two meetings of the HLG resulted in clarifications and proposed changes to a number of provisions in the eventual draft text presented at the High-level Meeting attended by 65 states.

Differing views and ideas that arose during the HLG discussions were aired by major aviation states and regions, as well as input from industry and civil society representatives, in papers presented to the HLM and posted on the HLM website. The purpose of the HLM was to go through the preamble and each of the 20 paragraphs of the draft Assembly Resolution text to try and reach a convergence on the scheme’s design details and make recommendations to the ICAO Council during its Session now in progress, its last before the Assembly. The draft text under discussion was the revised version presented to the Council on April 20 and contained in the Appendix to a paper presented by the Secretariat on developments on the GMBM scheme since the last Assembly.

Substantive disagreements

Papers presented at the HLM by the Russian Federation and China point to some substantive disagreements with the GMBM proposal but are consistent with past statements.

The Russian paper called into question the notion of carbon offsetting and whether the intended goal of the GMBM scheme – carbon-neutral growth from 2020 – was actually achievable as currently proposed. It said the meetings of the EAG and HLG, together with the GLADs, had failed to conciliate different views on how a carbon offsetting scheme should work. Russia predicted it would produce market distortions and put an excessive cost burden on the aviation sector that could lead to widespread airline bankruptcies in developing countries should the scheme go ahead in its present draft form. The proposed scheme was also in conflict with the spirit of the Paris Agreement and 13 of the 17 UN Sustainable Development goals, it added, and also failed to fully take into account the UN climate principle of common but differentiated principles (CBDR).

As an alternative to the global offsetting scheme, Russia instead proposed a ‘Clean Development Mechanism for Aviation (ACDM)’ in which states contributed voluntarily to an ‘ICAO ecological budget’ based on fuel use by international flights. This, it argued, would be simple and cost-effective to administer and could raise around $300 million a year for projects in developing countries if each tonne of jet fuel carried a surcharge of one US dollar. The ACDM would also recognise efforts of early-mover airlines that had already invested in improving the fuel efficiency of their aircraft fleet. It also pointed out the current offsetting scheme proposal would encourage airlines to increase their emissions as far as possible before the 2020 baseline year kicked in to relieve their “tax burden” after that date.

“It is important to note that the proposed two-stage approach to GMBM implementation excludes [the] possibility of achieving the global goal of carbon neutrality after the year 2020 (CNG2020) even at the imaginary level,” argued the paper.

Russia mentions in the paper it had presented its ACDM proposal to the 11th meeting of the EAG in May 2014 with the support of India and China. However, not only did the proposal fail to find favour with other states attending the HLM, China presented its own paper that accepted the establishment of a global carbon offsetting scheme but instead proposed a number of far-reaching changes to the draft Assembly Resolution text that would, in its view, better reflect the provisions of the Paris Agreement and the CBDR principle.

The paper noted that there were different views among member states on the aspirational CNG2020 goal and that the draft proposal “may impose inappropriate economic burden on developing countries, where the international aviation market is still maturing.” During the HLM, China argued that CNG2020 should not be a goal as it would imply the GMBM was a primary rather than a complementary element of ICAO’s ‘basket of measures” to tackle emissions.

Developed countries, emphasised China, should take the lead in the post-2020 period, “by committing and implementing more ambitious, absolute quantified aviation emission reduction targets while developing countries will enhance their different types of efforts to grow sustainable aviation.” It noted “with concern”, developed countries had been reluctant to dramatically reduce their international aviation emissions to leave room for the growth of developing countries. However, Europe’s attempts to take the lead by including aviation in its EU Emissions Trading Scheme was criticised, without direct mention, as being unilateral and without global consensus, and “would hamper the international collaboration to limit and reduce aviation emissions.”

The real differences of opinion that China had during the HLM, though, proved not to be with Europe but with the United States, and to further reinforce the principles outlined in its paper took the step of issuing a joint statement with allies Argentina, Brazil, India, Russia and Saudi Arabia during the talks.

During the course of the HLM, two revised drafts of the Assembly Resolution text – called Flimsy 1 and Flimsy 2 – were published to reflect changes and amendments suggested by states where there was some degree of convergence and were used as the basis for further discussion. Flimsy 2 was presented on the final morning of the HLM and represents the latest published version of the draft text. The amount of red ink in the text demonstrates the considerable number of suggested amendments to the original draft put forward by the states taking part.

Let’s now take an in-depth look at the text as it stood by the end of the HLM.

Preamble:

The wording in the preamble to the draft Assembly Resolution text, which sets out the basis and reasoning for the resolution, has been amended to recognise the new Paris Agreement and striking out references to the Kyoto Protocol that ends in 2020. It also emphasises ICAO is the appropriate forum to address international aviation emissions and reaffirms concerns among ICAO states that international aviation could be used as a source of climate finance, although one participant pointed out that buying UN-approved offsets under the GMBM scheme was in itself a form of climate finance for other sectors.

While welcoming the adoption of the Paris accord, the preamble also states the implementation of the scheme “should support the achievement of the long-term temperature goals” of the Agreement. Although there was opposition from some states to the inclusion of this wording, it will be applauded by civil society and environmental NGOs, which are represented at ICAO by the International Coalition for Sustainable Aviation (ICSA). In its paper to the HLM, ICSA said it was essential the GMBM resolution ensured CNG2020 was a binding target and that there was also a roadmap for increased ambition in line with the temperature goals of the Paris Agreement. ICSA members recently launched a campaign called FlightPath 1.5 to put pressure on industry and states to comply with the aspirational Paris climate goal of limiting the global temperature increase to 1.5 degrees C above pre-industrial levels. Pursuing this goal requires global emissions to peak and then decline sharply, said the ICSA paper, and although CNG2020 was a necessary first step, it was an insufficient contribution. A later paragraph (16) in the draft Resolution, which allows for a review of the scheme every three years from 2022 to assess progress towards the ICAO goal, now adds and “consideration of improvements necessary to support the temperature goals of the Paris Agreement.”

Paragraphs 1-6:

Paragraphs 1 to 3 are worded to emphasise the GMBM is just one element of a basket of measures designed to address international aviation emissions and the importance of other measures – for example, aircraft technology and operational improvements, plus the development and use of sustainable alternative fuels – should not be overlooked. The three paragraphs were left largely untouched from the original draft under consideration although the role of the GMBM as “an emissions gap filler” was changed to “a temporary instrument”, leaving the interpretation open as to how long “temporary” actually meant.

Paragraph 4 was the subject of wider discussion as it introduces a name for the GMBM scheme. The title used in the initial proposal was International Aviation Global Offsetting (IAGOF), which was subsequently changed to Carbon Offsetting Scheme for International Aviation (COSIA) and remains so in the latest Flimsy 2 draft. There were calls from some states to use the word “reduction” in the title although the GMBM is not designed to reduce emissions, merely to neutralise their growth, but those states argued that it would recognise the other elements of the basket and also the offsets would result in emission reductions elsewhere, even if in other sectors. (Update: Now called Carbon Offsetting and Reduction Scheme for International Civil Aviation – CORSIA).

In the first revised draft (Flimsy 1) presented on the second day a new sub-paragraph (4bis) was introduced that stated the ICAO GMBM scheme was to be the “exclusive” MBM for emissions from international flights, adding in Flimsy 2 “unless agreed otherwise between affected states”. This unexpected inclusion was clearly aimed at the potential application of the EU ETS to international flights post-2020 and threatened to cross a red line for European states. A European Commission official told GreenAir at the HLM that if the intent was to ensure there was no duplication of emissions coverage from international aviation then there would be no objection but if it was designed to prevent states or regions from taking market-based measures of their own then this would have sovereignty implications. There was debate between states on whether “exclusive” should be replaced by “single” or “appropriate”, or even both. There was little support for “unless agreed …” and 4bis could be dropped altogether.

To encourage and incentivise aircraft operators in the scheme to use sustainable alternative fuels, an addition was made to Paragraph 5 that calls for a methodology to be developed so that the use of such fuels by an operator would reduce its offset requirement obligations. No changes were suggested for the provisions in Paragraph 6 that recognises different treatment should be applied to certain states, particularly developing states, depending on special circumstances and respective capabilities (SC&RC), ICAO’s lighter-touch version of the UN CBDR climate principle.

Paragraphs 7-9:

Paragraphs 7 and 9 form the basis of the whole scheme and around which much of the conflict between states exists, with discussions taking up a considerable portion of the HLM’s three days.

The aim of Paragraph 7 is to determine which states are included in the GMBM scheme and from when they join. To take into account SC&RC, the draft Resolution proposes a phased implementation approach in which states either join the scheme from the start in 2021 or later in a second phase from 2026, with permanent exemptions from the scheme applying to those classified as Least Developing Countries, Small Island Developing States or Landlocked Developing Countries.

To calculate which countries should join when, the proposal under consideration by the HLM had two methodologies, one based on a state’s individual share of international Revenue Tonne Kilometres (RTKs) and the other based on a state’s gross national income (GNI) per capita as calculated by the World Bank. A state would join the appropriate phase based on whether they satisfied either the RTK or the GNI criteria.

On GNI, states classified as ‘high income’ in 2018 would join in phase one and those classified as ‘upper-middle income’ would enter from phase two. In one of the few shows of unanimity on what proved, perhaps unsurprisingly, to be the most contentious paragraph, most states proposed GNI be dropped as the alternative metric to RTKs. While some states believed RTKs should be the sole criterion, others wanted to retain an economic criterion and the new text in Flimsy 3 suggests other possible criteria such as a developed/developing country split or ICAO’s own Scales of Assessment, a complex formula based on national economic and traffic criteria used to assess a member state’s financial contribution to the running of the Organization.

A problem with the developed/developing country criterion is that the Annex I/non-Annex I split applied under the Kyoto Protocol should cease to exist after 2020 and there is no official UN definition of a developing country. The World Bank itself has just announced it will no longer be distinguishing between developed and developing countries when presenting data.

Although there was consensus that RTKs for the year 2018 was a correct criterion, states argued on the definition for calculating them. The ICAO method is to apportion international RTKs to states based on flights by aircraft operators holding an Air Operators Certificate (AOC) issued by that state. An AOC authorises an operator to carry out commercial air transport activities so, for example, business jet operators are not included in the ICAO RTK figures. A number of countries, such as Uruguay, have no international RTKs apportioned to them at all by ICAO as they do not have national airlines undertaking international flights.

A paper submitted by IATA said using AOC significantly reduced the environmental integrity of the scheme as analysis it had carried out showed the share of CO2 emissions to be offset would be reduced from 80% to 69% in the first phase and from 93% to 88% in the second compared to using RTKs based on departing/arriving flights. Some states backed the use of departing flights for the calculation of RTKs, others suggested using State of Registration, under which all civil aircraft operators are required to have an operating certificate.

Those states that are excluded or exempted under the phased implementation approach are encouraged in the original draft to volunteer to participate in the scheme but the wording was altered in the HLM drafts to “strongly” encouraged. A suggestion from the United States was made that instead of states choosing to voluntarily opt in to the scheme, all states should be considered to be in the scheme but those states identified by the RTK or other criteria as being allowed to opt out of the scheme could choose to do so. Another suggestion was to bring the five-year phase-in period (2021-2025) into line with the three-year cycle for operators to reconcile their offsetting requirements – the first phase runs from 2021 to 2023 (Paragraph 14).

However, alternative approaches to the phased-in concept were proposed by some states, including a pre-implementation phase. In its paper to the HLM, China put forward a proposal that developed states and other states with an RTK share in 2018 above 0.5% of the total should submit ‘nationally determined contributions’ (NDCs) – the amount of CO2 emissions to be offset by aircraft operators registered in the country – by 30 June 2020 for the period 2021-2025, with exempted states “encouraged” to participate. By implication, this would bring the scheme more into line with the voluntary ‘intended nationally determined contributions’ (INDCs) pledges made by countries in the lead up to the climate summit in Paris. By contrast, the European HLM paper says the concept of NDCs would not be an appropriate measure for the ICAO scheme as it would not guarantee to reach the CNG2020 climate objective.

Depending on the experiences gained and progress made under the Paris Agreement, the Chinese paper said the ICAO Assembly in 2025 would then decide on whether to implement the first phase of the GMBM scheme, from 2026 to 2030, to include developed states and those with a share of RTKs in 2025 above 1% of the total, with remaining countries with a share above 0.5% of the total joining in 2031. China also proposed that aircraft operators in developed states should have the emissions they are required to offset from 2026 have a higher multiplier applied than those from developing states.

A delay in full implementation was not welcomed by a number of states and it was reported a UNFCCC observer at the HLM warned that delaying the scheme past 2020 would send the wrong signal to the UN climate community.

Singapore put forward a late conciliatory proposal for a pre-implementation or pilot phase for MRV testing from 1 January 2018, with some major developed states agreeing to consider the implications after the HLM. States will now look at whether there is time and resources to implement and complete such a phase before the scheme’s intended start on 1 January 2020.

Paragraph 8 stipulates that in order to avoid market distortion, the scheme is applied to all operators on routes where both states are included but where one state is exempted, or both states are exempted, then all flights between the two states are excluded from offsetting requirements, while retaining simplified reporting requirements. This was passed largely without comment.

Discussions over paragraph 9 centred round the so-called ‘100% sectoral’ approach contained in previous draft texts and a proposal from the United States in its HLM paper for a ‘dynamic’ approach. Under the former, the carbon offsetting requirements of all aircraft operators during the entirety of the scheme are based on the sector’s overall growth rate rather than on an individual operator’s emissions performance. This is designed so that faster growing operators from developing countries are not penalised at the expense of slower-growth airlines in more mature aviation markets. While some see this as lacking benefit for airlines to, for example, invest in new, more fuel-efficient fleets, the approach has backing from most states, including those in Europe.

The US paper though argues the approach “places an undue burden on slow-growing carriers, including those based in developing countries, and it does not provide an added incentive for individual operators to reduce their own emissions.”

Under the US proposal, which was backed by a few developed countries, the dynamic approach would initially be weighted in favour of the sectoral growth rate and then transition in three-year periods over the course of the scheme towards an individual growth rate.

To deal with the very different approaches proposed by the United States and China in paragraph 9, together with the many issues raised by states in paragraph 7, the Chairperson of the HLM, Ellen Burack of Transport Canada, published a document (Flimsy 3) detailing the serious proposals for consideration by the ICAO Council and further discussion.

Paragraphs 10-16:

Unopposed, Paragraphs 10 and 11 exempt a new entrant from the scheme for three years or until the year in which its emissions exceed 0.1% of total emissions in 2020, whichever occurs earlier; operators emitting less than 10,000 tonnes of CO2 emissions from international flights; aircraft with less than 5,700kg of Maximum Take-Off Mass; and humanitarian, medical and firefighting operations.

Paragraph 12 decides that those emissions not covered by the scheme as a result of the phased implementation and exemptions are not redistributed as offsetting requirements by those operators included in the scheme. If left unaddressed, this emissions gap puts at risk the CNG2020 climate objective, said the European paper. However, reports suggest that states showed no enthusiasm to discuss this and the original draft text remains intact for now.

Paragraph 13 notes the work of ICAO’s Committee on Aviation Environmental Protection (CAEP) on monitoring, reporting and verification (MRV), emissions unit criteria (EUC) and registries to enable the scheme to start in 2020. Wording was added during the HLM to the effect that EUC took into account developments at the UNFCCC following the Paris Agreement and called for work on the three issues to be completed as soon as possible. Following a call from a number of least developed states, wording was also added to include capacity building and assistance.

The three-year compliance period noted in Paragraph 14 for aircraft operators to reconcile their offsetting requirements (the first cycle from 2021 to 2023) while they reported required data to a single state authority every year, was unopposed. New wording to Paragraph 15 concerning cost safeguards to the industry in the event of “excessive pricing of emissions units or restrictions to carbon market access” calls on the Council to decide on the basis for applying such criteria and then identify possible means to address them.

Paragraph 16 covers the review of the effectiveness of the scheme every three years from 2022 and new text spells out in more detail what that review should cover. It includes assessment of the scheme’s progress towards achieving ICAO’s climate aspirational goal (not stated but presumably CNG2020); the market and cost impact on operators; and the functioning and possible improvements of the scheme’s design elements. As previously noted in the preambular text, consideration should also be made in the review of “improvements necessary to support the temperature goals of the Paris Agreement.” Environmental NGOs will be expecting the reviews to ratchet up the stringency of the scheme to bring international aviation into line with the Agreement’s well below 2 degree C global climate goal and efforts towards limiting the global average temperature increase to 1.5 degree C.

New text changes to the paragraph also removes reference to the scheme’s design elements coming to an end in 2035 and instead calls for a special review before the end of 2032 to consider an extension or termination of the scheme after 2035, taking into account the contribution of other elements of the basket of measures in reaching ICAO’s environmental objectives.

Paragraphs 17-20:

These last four paragraphs of the draft Assembly Resolution cover in more detail the establishment of the major mechanisms of the scheme: MRV, EUC, registries and governance. Key issues concerning MRV and EUC will only be determined during the 2017-2019 ICAO triennium so, for example, a decision on which type of offsets will be eligible under the scheme may not be adopted until 2018. However, an important revision to the new text is the application of an ICAO standard (SARP) to EUC, which will help satisfy concerns over offset quality under the scheme. An EUC standing technical advisory body is to be established to make recommendations on eligibility.

Paragraph 17 also looks at the implementation of the MRV system and requests the Council and CAEP to develop SARPs and guidance material for adoption by the Council by June 2017.

The paragraph provides for guidance material for the establishment of registries be adopted by 2018 and a consolidated central registry under ICAO auspices be operational no later than 1 January 2021, with states or groups of states to develop in time the necessary arrangements for the establishment of their own registries or group registries.

Paragraph 17 also notes that the Council is to oversee the scheme with support from the standing technical advisory body and CAEP, including the review of the design elements of the scheme. Member states are also required to ensure the necessary national regulatory framework be established for compliance and enforcement of the scheme by 2020.

Paragraph 18 reinforces the requirement for providing capacity building and assistance for the implementation of the scheme from 2020, particularly regarding the implementation of the MRV system and establishment of registries. This is to include the organisation of seminars and training in all regions from 2017 and the facilitation of financial support where needed.

Paragraph 19 requests the Council to promote emission units that benefit developing states, including those from the Clean Development Mechanism and its UNFCCC post-2020 successor, and encourages states to develop domestic aviation-related projects. Final paragraph 20 requests the Council to explore further development of aviation-related methodologies for use in offsetting programmes under the UNFCCC.

Down to the wire

The draft presented at the beginning of the third day (Flimsy 2) will be updated to reflect final day discussions and some ‘tidying-up’. So far, the drafting process has avoided the use of square brackets, favoured within the UNFCCC, to indicate where differences exist. Together with the document outlining the outstanding issues relating to Paragraphs 7 and 9, the revised draft Assembly Resolution will be presented during the current 208th Session of the ICAO Council and will be discussed at a meeting in mid-June. Bilateral and multilateral talks are also expected to continue between states to bridge the remaining gaps.

Despite the differences, those close to the negotiations are optimistic an agreement will be reached, although former Council President Roberto Kobeh González told GreenAir that he expected it would go down to the wire at the Assembly. With long experience of dealing with clashes at previous Assemblies on the climate protection issue, Kobeh has chaired the two meetings of the GMBM High-level Group and was a member of the Mexico delegation at the HLM. In an interview with GreenAir immediately after the HLM, his successor, Dr Aliu, said the HLM had been very productive and states now had a better understanding of each other’s position, interests and opinions. “There is still some work to do, there is no doubt, but we have a number of proposals that we can work on that can lead to compromise and an even better consensus,” he said.

Leaders from the wealthiest industrial nations at the G7 Summit in Japan last week added their weight to those calling for an agreement. A statement (page 28) issued afterwards said: “Recognizing the urgent need for effective efforts in the field of international aviation, we express our strong commitment to work together for the adoption of a Global Market-Based Measure in order to enable carbon neutral growth from 2020, through engaging constructive dialogue, by reaching a decision at the 39th session of ICAO Assembly. We encourage all world leaders to join us in supporting a decision later this year.”

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