See how a reformed aviation ETS can work better

T&E’s ETS calculator shows how getting the right balance on aviation’s inclusion in the EU emissions trading system (ETS) can help solve two problems at once: the sector’s major and growing climate impact, and Europe’s need to raise climate finance. Decision-makers should seize this opportunity offered by the ongoing reform of aviation provisions in the EU ETS.

There are two big problems confronting Europe’s climate policy, and where a lot more action is needed. The first is aviation’s major and growing climate impact. The sector made up 1.5% of Europeans emissions in 1990 but accounted for 4.5% in 2015 – and its total emissions grew a further 8% in 2016! For all the talk of efficiency gains and operational improvements, the policy measures to rein in the sector’s incredible growth in emissions are not in place. Certainly not in comparison to the efficiency standards and carbon pricing in place for other sectors of Europe’s economy: measures which have successfully stalled or reversed emissions growth while allowing these sectors to prosper.

The other major climate issue is how to raise sufficient climate finance. The Paris agreement commits developed countries to raise at least US$100 billion a year to finance developing countries’ transition to clean growth. That target will be even harder to reach thanks to Trump, and EU member states should be looking at what is the most effective and fairest way to raise the needed cash.

Putting the EU ETS to work

Over the next few months, European decision-makers can take steps to solving both of these issues. The aviation provisions in Europe’s emissions trading system are currently being amended in response to last year’s deal to establish a global offsetting scheme from 2021 onwards. That deal, known as CORSIA (the Carbon Offsetting and Reduction Scheme for International Aviation) has many unknowns and uncertainties. And we’ve been very vocal on its shortcomings.

A legislative response to CORSIA is needed as otherwise the aviation ETS would return to covering all flights to and from Europe. (Since a mooted trade war in 2012, the scope was reduced to just flights within Europe.) We’d have no problem with it remaining ‘full scope’ – it would be an important form of pre-2020 ambition, and would substantially increase the emissions coverage of the measure. However the political consensus is that it would upset efforts the finalise the CORSIA.

Yet this amendment also offers an opportunity to improve the environmental effectiveness of the ETS, and it’s an opportunity decisionmakers should grasp. One way to do this is to look at the revenue that can be raised through auctioning allowances to the aviation sector.

One of the peculiarities of the aviation sector is that it pays zero tax on its fuel (and is generally exempt from VAT). This is the result of the air service agreements (essentially trade deals for the sector) which prohibit the imposition of tax on fuel sold for international flights. This means that the most carbon-intensive mode of transport, which is used most often by the wealthiest section of society, receives a massive tax exemption calculated at €60 billion a year on a global level.

The ETS is one way to recoup this lost revenue. As the aviation sector grows, it must purchase allowances to cover its emissions. Normally this would mean revenue for member states which auction these allowances. However, under the current system, airlines receive 85% of these allowances for free.

The ETS calculator

Now that this legislation is being reviewed, we have an opportunity to change this. By increasing the share of auctioning from 15% to 100%, we can raise an average of €1 billion each year from the sector over the period 2021-2030. A member state such as Italy could raise an additional €100-€120 million a year over this period. See below using our ETS calculator how different allowance prices and auctioning can raise different amounts of revenue. This can be used to fund research into clean technology or fund Europe’s climate finance commitments. Sustainable alternative fuels is an area where a lot of research is needed, and the aviation industry should pick up the bill for it.

Countries' projected revenues from aviation under a reformed ETS, 2021-2030:

Learn more about the ETS calculator

As you can see from the tool, this ETS cost is minor compared to a scenario where the fuel tax exemption was ended. For example, if Italy imposed 33c a litre tax on kerosene, as envisaged in the Energy Taxation Directive, it would raise €871 million to €1 billion a year. Or between €1.2 billion and €1.4 billion if the average fuel tax levied in petrol for road transport (48c a litre) was applied to aviation.

The EU ETS can function as an effective carbon pricing mechanism, raising much needed revenue from a sector which is well able to pay. MEPs and member states should grasp this opportunity.

Comments

Jan Fransen's picture

Comment: 

I see a big distorting problem in ETS: aviation will buy all the tons CO2 they need, and the numer of air passengers will not decrease as they will not fly less for 50 euro per ton CO2. But for internationally competing industries this price will be a big problem. So we need 2 seperated ETS systems: one for big industry and one for aviation.

For the short time a reasonable solution is accounting aviation for their whole climate effect, that means at least double the price per kg CO2 for aviation.

F.i. a price of 50 euro per ton CO2 in Europe is a lot for steel factories because of the sharp international competition , but no problem at all for aviation and the air passenger (traveling 1000 km by plane (150 g/km short distance small plane) accounts for 0,15 ton x 50 = €7,50; that has a very small regulating effect; accounting for the double climate effect the increase of the price of a ticket becomes 15 euro with perhaps some effect on behaviour of passengers (100 euro per ton CO2 is 3,5 ct per kg kero).

Add new comment

Filtered HTML

  • Web page addresses and e-mail addresses turn into links automatically.
  • Allowed HTML tags: <a> <em> <strong> <cite> <blockquote> <code> <ul> <ol> <li> <dl> <dt> <dd>
  • Lines and paragraphs break automatically.

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.
CAPTCHA
This question is for testing whether or not you are a human visitor and to prevent automated spam submissions.
By submitting this form, you accept the Mollom privacy policy.

About the author

Andrew Murphy's picture

Manager, Aviation

Share