Chapter 3.png
  • Fixing emissions trading to make aviation and shipping pay their way

    The EU’s Environment Council meets Tuesday to discuss Europe’s emissions trading system. The EU ETS is often described as the “flagship” of Europe’s climate policy and is currently the largest carbon market in the world. However it has been malfunctioning since a systematic oversupply of credits built up as a result of both Europe’s economic crisis and weak ambition in setting the cap when the ETS was first established.

    For Europe to defend its climate credibility, it needs to agree reforms to this system which will tighten the cap and ensure the system works to drive down emissions in line with the Paris agreement. Our colleagues at Climate Action Network have a long list of ways to improve EU ETS, and Europe’s climate ministers should support them.

    How a reformed EU ETS can cut shipping and aviation emissions

    When they meet on Tuesday, ministers should also consider the two big emitters, shipping and aviation, which are responsible for 7% of all European emissions. And these emissions are expected to grow – by 2030 they will potentially wipe out half of the emission savings anticipated from  road transport. The EU’s strategy to date – ie, outsourcing  effort to the UN’s respective aviation and shipping agencies, ICAO and IMO – has been a failure. ICAO is still working on a weak climate deal which, if ever implemented, will have little impact on the aviation sector, let alone bring it into line with what the Paris agreement requires. The IMO has recently committed to start a seven-year GHG work plan – with no commitment to act in 2023.

    Given the urgency of climate change, it makes sense that these sectors are placed in a reformed EU ETS.

    One-quarter of aviation emissions are, in fact, already in the EU ETS. It would have been all emissions, but Europe backtracked in the face of considerable pressure from industry and third countries led by the US. Only intra-Europe flights (ie, those within Europe) are included while the rest are exempt. It’s to be decided shortly whether this derogation should continue. However, even those covered emissions receive special treatment. The aviation sector is not subject to a declining cap, unlike all the other sectors covered – which  are expected to cut their emissions year on year. Aviation also receives generous free allowances, even though there is no proof of carbon leakage – meaning there is only a minor cost impact on the sector.

    We’ve worked out the numbers, and the 23 ministers flying to Brussels for the meeting (five of them, we presume, will travel by train!) will emit about 3.2 tonnes of CO2 in total. Due to low ETS prices and a generous allocation of free allowances, the total ETS cost for these flights will be €10.41. However, what’s known as the ‘carbon cost to society’ – the cost of the climate damage resulting from emitting one tonne of CO2 – is estimated to be €40 a tonne. If the EU ETS reflected this cost, ministers would pay closer to €133.04 to mitigate the climate impact of their flight – a cost many times what they pay at present. Such a carbon price would also make the EU ETS a far more effective tool in cutting emissions.

    For shipping the situation is worse – the sector has been left entirely out of any EU climate action to date. However, last week the European Parliament voted overwhelmingly to include shipping in the EU ETS, through the establishment of a special Maritime Climate Fund, but only if the IMO fails to act. Consider it an insurance policy against the very real risk that the IMO won’t deliver on the climate action that it has recently decided will take another seven years to develop.

    What ministers must do

    On Tuesday, ministers should signal not only that they’ll reform the EU ETS as a whole, but that they’ll fix the anomaly of two major emitters being left out, or only partly included, in climate action. That means lowering the cap and cutting free allowances for all aviation emissions, and signalling a wish to include shipping in ETS should the IMO fail to act.