COMMISSION STAFF WORKING DOCUMENT EXECUTIVE SUMMARY OF THE IMPACT ASSESSMENT Accompanying the document PROPOSAL FOR A DIRECTIVE OFTHE EUROPEAN PARLIAMENT AND OF THE COUNCIL amending Directive 2003/87/EC establishing a scheme for greenhouse gas emission allowance trading within the Community in view of the implementation by 2020 of an international agreement applying a single global market-based measure to international aviation emissions
Date: 2013-10-16
Institutions: European Commission
Subjects: EU Emissions Trading Scheme, airline, civil aviation, greenhouse gas, international market, international negotiations, reduction of gas emissions













EUR-Lex - 52013SC0431 - EN











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52013SC0431

COMMISSION STAFF WORKING DOCUMENT EXECUTIVE SUMMARY OF THE IMPACT ASSESSMENT Accompanying the document PROPOSAL FOR A DIRECTIVE OFTHE EUROPEAN PARLIAMENT AND OF THE COUNCIL amending Directive 2003/87/EC establishing a scheme for greenhouse gas emission allowance trading within the Community in view of the implementation by 2020 of an international agreement applying a single global market-based measure to international aviation emissions /* SWD/2013/0431 final */









COMMISSION STAFF WORKING DOCUMENT
EXECUTIVE SUMMARY OF THE IMPACT ASSESSMENT
Accompanying the document
PROPOSAL FOR A DIRECTIVE OFTHE
EUROPEAN PARLIAMENT AND OF THE COUNCIL
amending Directive 2003/87/EC
establishing a scheme for greenhouse gas emission allowance trading within the
Community in view of the implementation by 2020 of an international agreement
applying a single global market-based measure to international aviation
emissions
1.           Problem definition
1.1.        Insufficient
uptake of market-based measures to address the strong emission growth in
international aviation
The EU is strongly committed to achieve the
climate objective of limiting global average temperature increase to less than
2 degrees Celsius above pre-industrial levels. To this end, one of the headline
targets of the Europe 2020 Strategy for smart, sustainable and inclusive growth
is to reduce greenhouse gas emissions by at least 20% compared to 1990 levels. The
limitation of greenhouse gas emissions from aviation is an essential contribution
in line with this commitment.
According to the International Energy
Agency, global CO2 emissions from civil aviation amount currently to
about 2.5% of total CO2 emissions. Looking forward, the
International Civil Aviation Organisation (ICAO) forecasts that by 2036
international aviation emissions will increase between 155% and 300% compared
to 2006, depending on the level of technological and operational improvements. The
international aviation’s share of total CO2 emissions is projected
to reach at least 4% by 2050 without any further mitigation measures.
As the potential for emissions reduction
from new technologies and operational practices is limited in the aviation
sector, it is necessary to use market-based measures (MBM) to ensure that
aviation contributes its fair share to global emission reductions. MBMs allow
the aviation sector to off-set its strong emission growth by funding emission
reductions in other sectors at lower abatement costs. 
The EU led the way in implementing MBMs by
including aviation activities in its Emission Trading System (EU ETS). Despite
its positive environmental effects at low economic costs, the implementation of
the EU ETS has had to face significant international opposition (see section 1.2.1).
A number of states have opposed the EU ETS alleging that it would cover a too
high share of international emissions and that the EU would have no competence
to oblige operators from 3rd countries to participate in the EU ETS.
These claims were, however, dismissed by the European Court of Justice (ECJ).
Irrespective of the international opposition, the EU ETS, as it only
covers about 50 % of international aviation emissions, will not be sufficient
to stop the strong global growth of aviation emissions ahead. Therefore, even
with the EU ETS in place, a global "gap" in coverage of international
aviation emissions remains because no other regions apart from the EU have
implemented MBMs. 
The insufficient uptake of MBMs and the
strong opposition against the EU ETS have been caused by the absence of a
global political agreement: It has neither been possible up to now to establish
a clear commitment to the development of global MBM at ICAO nor could an
agreement have been found on generally accepted principles for the
implementation of regional MBMs, such as the EU ETS. 
1.2.        EU action in a difficult international environment
1.2.1.     Integration
of aviation into EU Emission Trading System (EU ETS)
Directive 2008/101/EC amended the EU ETS
Directive 2003/87/EC to include aviation within the scope of the EU ETS: 
–                        
Participation of all Member states from the
European Economic Area (EEA) – including Iceland, Norway, and Liechtenstein. 
–                        
Coverage of total emissions from flights that
depart and arrive at EEA aerodromes (hereafter "intra-EEA
flights") and from flights that depart from EEA aerodromes to 3rd
countries or arrive at EEA aerodromes from 3rd countries
(hereafter referred to as "extra-EEA flights"). 
–                        
Emission cap at 95 % of average historic
aviation emissions from 2004 to 2006. 
–                        
Obligation for aircraft operators to start
emissions reporting in 2010 and full compliance – including surrendering of
allowances – from 2012 onwards.
However, the inclusion of flights to and
from 3rd countries in the EU ETS encountered strong international
opposition: 
–                        
The Air Transport Association of America (ATA)
and major US airlines challenged the legality of the EU ETS arguing, among
others, that it would be contrary to customary international law to apply the
EU ETS to those parts of a flight that took place outside the airspace of EEA
countries. The ECJ rejected those claims and confirmed that the EU had the
competence to extend the EU ETS to the full distance of flights which depart or
arrive at EU airports.
–                        
The so-called "coalition of the
unwilling" – including among others China, India, Russia, and USA – signed
two declarations opposing the EU ETS alleging that it would be contrary to
international law and should not apply to aircraft operators registered in
their countries.
–                        
Chinese mainland airlines and most Indian
airlines have since 2011 not complied with the EU ETS. 
–                        
In 2012, the US Congress passed the Emissions
Trading Scheme Prohibition Act ("Thune Bill") which would allow the
US Administration, following public consultation, to issue an order that
US-registered airlines should not comply with the EU ETS. No such order has
been proposed so far.
1.2.2.     Recent
developments in the run-up to the 2013 ICAO Assembly
The EU has a strong
history of multilateralism and has continuously sought to move forward the ICAO
action on MBMs. To facilitate the negotiations in the run-up to the 2013 ICAO
Assembly, the EU adopted the "stop-the-clock" decision No.
377/2013/EC to temporarily defer the enforcement of the EU ETS compliance
obligations for flights to and from most 3rd countries for 2012. 
This has created momentum for the 2013 ICAO
Assembly to move forward on the development of a global MBM and an agreement on
a framework for national and regional MBMs (hereafter "MBM
Framework") that would apply until a global MBM is implemented in 2020.
·                        
EU Proposal for roadmap to global MBM
EU Member States have proposed that the
2013 ICAO Assembly should decide on a binding roadmap for the development of a
global MBM. The work on the design elements for a global MBM should be completed
by the ICAO Assembly in 2016 and the global MBM should be implemented by 2020. 
The International Air Transport
Association's (IATA) Annual General Meeting on 3 June 2013 approved a
resolution with an overwhelming majority in favour of such a roadmap towards a
global MBM. 
·                        
Compromise on the geographic scope for a
regional or national MBM
The MBM Framework should provide guidance
to ensure the consistent application of national and regional MBMs. A key issue relates to the coverage of international
aviation emissions under a national or regional MBM. Many ICAO Member states
would prefer a MBM Framework to limit a regional MBM to emissions within the region
in question. In a spirit of compromise and provided the level of ambition on
the global MBM is high, the EU Member States expressed their openness to a
reduced geographic coverage for regional schemes in advance of the application
of the global MBM in 2020. 
1.2.3.     Outcome of the 2013 ICAO
Assembly
The ICAO Assembly adopted the proposed
roadmap to a global MBM in 2020. However, no compromise could finally be found
on guidance for regional MBMs to be applied in the meantime. The EU Member
States rejected – as in previous ICAO Assemblies – the claim by other States
that a regional MBM must be subject to the agreement of those States whose
airlines operate in the States applying an MBM. 
1.3.        Baseline scenario: Continuation of full-scope EU ETS
Even though the EU ETS only puts small
costs on the aircraft operators and the ECJ has unequivocally confirmed the legality
of the coverage of all departing and arriving flights, it cannot be expected
that international opposition would cease if the EU ETS were continued in its
full scope. An application of the EU ETS in its full scope from 2013 onwards
may therefore risk obstructing future ICAO negotiations on the development and
implementation of MBMs. 
2.           Objectives
The general objective – to ensure
the contribution of the aviation sector to reducing the
impacts of climate change – has not changed since the integration of
aviation into the EU ETS. Furthermore, as arguably strongest proponent of
multilateral action, the EU has put international cooperation and global
solution at the fore-front of its policy-making. 
The specific objectives are twofold:
–                        
Facilitation of the development and
implementation by 2020 of a global MBM covering all emissions from
international aviation;
–                        
Continuation of the EU ETS to cover emissions
from all flights departing or arriving in the EEA, pending the implementation
of a global MBM in 2020.
The results of the public consultation confirm
that all stakeholders – industry, public authorities, and NGOs – strongly agree
to the use of MBMs in the aviation sector.
The options for amendments of the EU ETS
after the 2013 ICAO Assembly should deliver on the following operational
objectives: 
–                        
Maintain environmental effectiveness 
–                        
Do not decrease competitiveness of aviation
sector 
–                        
Maintain level playing field in the internal
market for aviation
–                        
Limit additional administrative costs 
–                        
Ensure coherence with international law and with
non-binding ICAO Assembly resolutions, insofar as consistent with EU statements
on such resolutions.
The environmental effectiveness, low
administrative costs, and political acceptability are the main considerations
that stakeholders have put forward in the public consultation. 
3.           Policy
options
As stated in the "stop-the-clock"
decision (see section 1.2.2), the EU will consider after the 2013 ICAO Assembly
whether changes to the EU ETS are required to allow for an optimal interaction
between the EU ETS and the ICAO Assembly outcome. 
3.1.1.     Full-scope EU ETS
A continuation of the full-scope EU ETS
means that aircraft operators remain responsible for all emissions from flights
departing from or arriving at EEA airports.
3.1.2.     Hybrid option 
Based on the proposal for a MBM Framework
that was supported by major aviation countries in the run-up to the 2013 ICAO
Assembly but eventually not agreed at the Assembly, a regional MBM should be
based on the following geographical scope:
–                        
Full coverage of emissions from all flights that
arrive and depart within a group of States, plus
–                        
A proportion of the emissions from flights that
arrive from or depart to 3rd countries outside the group of States,
in relation to the total distance travelled across areas associated with the
group of States (e.g. for a flight between Paris and Beijing, the EU ETS would
cover the distance over EEA states to and from the border with a 3rd
country, in this case Russia).
If the EU ETS is aligned to this scope it will
be possible to maintain the full coverage of emissions from intra-EEA flights
but the coverage of emissions from extra-EEA flights will be cut back in
proportion to the distance travelled within the EEA (hereafter "hybrid
option"). Various approaches exist with regard to the coverage of
distances travelled over the sea (e.g. territorial sea, which extends up to 12
nautical miles (nm) from the coast, or Exclusive Economic Zone (EEZ), which
extends up to 200 nm from the coast). 
3.1.3.     Alternative options
Besides the hybrid option, the following alternative
options have been considered: 
–                        
Departing-flights option: All intra-EEA flights
are covered but only the departing flights to non-EEA countries. This approach
was the EU's initial proposition for the geographic scope of the MBM Framework
but rejected by a large number of ICAO Member states.
–                        
50/50 option: As shown by the public
consultations, the majority of environmental NGOs are in favour of limiting the
EU ETS coverage to 50 % of the departing and arriving flights for extra-EEA
flights. However, this option has never been discussed at ICAO. 
–                        
A general exemption of extra-EEA flights
(similar to the "stop-the-clock" decision) would only leave intra-EEA
flights covered.
–                        
Upstream option: A switch to an upstream system
would make fuel suppliers the compliance entity instead of aircraft operators.
This option would have similar emission coverage to the departing-flights
option because fuel suppliers would surrender allowances corresponding to fuel
sold to EEA airports. To avoid windfall profits for fuel suppliers, no free
allowances would be given out but all allowances will be auctioned.
4.           Assessment
of impacts
4.1.        Environmental impact
The hybrid and alternative options reduce
the emission coverage to a range of 25 % to 62 % compared to the emission
coverage under the full-scope EU ETS (see Table 1). 
4.2.        Economic impact
4.2.1.     Competitiveness
The hybrid and alternative options – with
the exception of the upstream option – improve the overall competitiveness of
the aviation sector compared to the full-scope EU ETS because the reduced
coverage leads to lower prices for extra-EEA flights. Due to the cancellation
of free allowances, the upstream option would lead to higher prices for
intra-EEA flights. 
4.2.2.     Level-playing
field for competition
All policy options maintain a level-playing
field on the relevant city-pair markets because all operators are treated the
same, regardless of nationality or any other characteristics. In case that
non-stop services are also in competition with services that stop over at a
non-EEA hub (e.g. on a route from London to Singapore with a possible stop-over
in Dubai), the hybrid option avoids potential distortion risks because one-stop
and non-stop services will be equally covered. However,
at current carbon prices, the likelihood of distortions is negligible with all
options. 
4.3.        Impact
on administrative effort and feasibility
The hybrid option can be implemented based
on the current MRV system. The lower coverage of extra-EEA flights will be
reflected by taking a proportionally reduced percentage of the total fuel
consumption (as currently reported for the whole flight). The departing flights, 50/50, and "stop-the-clock" options
do not require any changes to the current MRV system. A move to the upstream option would involve
significant changes because fuel suppliers would become responsible entities.
Significant delays in its implementation would have to be expected.
4.4.        Impact
on consistency with international aviation law and
ICAO policy
The ECJ dismissed the claim that the EU ETS
would violate the sovereignty of other states and confirmed the competence of
the EU to apply the ETS to the total emissions of flights that arrive and
depart at aerodromes situated in in the territory of a Member State. As all options continue to apply to arriving and departing flights only and do not
include over-flights, they are in conformity with the respective principles of
customary international law, the Chicago Convention and Air Service Agreements.
Compared to the other options, the hybrid
option will have the advantage of greater international political acceptability
because it will effectively limit the coverage to emissions within the EEA. With regards to the upstream option, a legal risk exists that it
would be judged to constitute a fuel tax or charge under the Chicago Convention
and the Air Service Agreements. 
5.           Comparison
of options
In choosing between the different options, the
EU will have to balance the environmental effectiveness, possible changes in
the MRV system, and the consistency of the options with international law and
the (non-binding) ICAO Assembly resolutions. The economic impacts do not differ
so substantially between the options as to change the cost-benefit balance.
–                        
The hybrid option leads to a significantly lower
coverage of 39 to 47 % compared to the full-scope EU ETS (depending on the
defined coverage of 12 or 200 nm) and would entail some costs for changes in
the MRV system. On the benefit side, the more limited emission coverage provides
additional arguments to defend the EU ETS against claims about sovereignty
violations. It also reduces any potential distortions regarding one-stop
flights operating alongside direct flights.
–                        
The departing-flights and 50/50 options offer
coverage of 62 % of emissions compared to the full-scope EU ETS and do not
change the MRV system. However, as these options are not to be supported by the
2013 ICAO Assembly resolution, they will neither increase political
acceptability nor bring new legal arguments to defend the EU ETS.
–                        
As the "stop-the-clock" option only
covers 25 % of emissions, it will not be a viable long-term solution in view of
the EU's environmental objectives for the aviation sector. 
The upstream option achieves the same emission
coverage as the departing-flights option but has a negative impact on
competitiveness. Furthermore it would involve a complete change of MRV and risk
new legal challenges.
Table 1 Comparison of options
   || Full-scope EU ETS || Hybrid option || Departing-flights option; 50/50 option || "Stop-the-clock" option || Upstream option 
 Environmental effectiveness || 100% || 39 to 47 % || 62% || 25% || 62% 
 Competitiveness || Minor impact on costs and demand || + || + || + || - 
 Level-playing field for competition || No distortions at current carbon prices || ++ || = || + || = 
 Effort and accuracy of MRV || Based on fuel consumption || - || = || = || -- 
 Coherence with international aviation law || Legality confirmed by ECJ || = || = || = || - 
 International political acceptability || Strong international opposition || ++ || = || ++ || = 
+              positive
impact compared to full-scope EU ETS
-               negative
impact compared to full-scope EU ETS
=              unchanged
compared to full-scope EU ETS
6.           Monitoring
and evaluation
Depending on
the outcome of the 2016 ICAO Assembly, further adjustments to the EU ETS may
become necessary to ensure a transition to a global MBM in 2020. It is
therefore suggested that any changes to the EU ETS are only temporary and that,
following the 2016 ICAO Assembly, the Commission shall report to the Parliament
and the Council on the actions to implement the global MBM to apply from 2021.