ENVIRONMENT REPORT

Aerlines

Airlines and Global Warming:

All Passenger Flight s to be Covered
by the EU Emissions Trading Scheme
Under a recent European Directive1, greenhouse gas emissions
from passenger flights are being brought within the EU Emissions
Trading Scheme – the EU’s ‘flagship’ climate change measure. It is
a wide-ranging proposal covering all flights arriving at or departing
from an aerodrome situated in the territory of a Member State.
This article will examine the scope of the Directive. Before doing so
it will provide a broad overview of the wider EU Emissions Trading
Scheme, since it is this structure into which control of aviation
sector emissions is being incorporated. The article will then look
at those aspects of the new Directive that are of practical import
to airlines (including what aviation activities will be covered and the
timelines applying to the various lead-in steps). The article will also
examine some of the important technical aspects of the regime,
such as the methodology for calculating and allocating airline emis-
sion allowances to individual airlines. How the measure attempts
to address the concerns of the aviation sector will also be looked
at. There will then be some concluding analysis and assessment.
by: Conor Linehan that aviation is making to global warming and climate change –
through increasing releases of carbon dioxide, nitrogen oxides,
Introduction water vapor, sulphate and particles. It also has a major concern
Up to now, greenhouse gas emissions from the aviation sector around contrails and the cirrus cloud effect. Aviation emissions
have not been subject to direct climate change regulation or are one of the fastest growing emission sources. While the EU’s
control. When the EU Emissions Trading Scheme (EU ETS) total greenhouse gas emissions fell by 3 per cent from 1990 to
commenced in 2005, aviation was omitted, partly in the interests 2002, emissions from international aviation increased by almost
of concluding an otherwise wide-ranging scheme at that stage. 70 per cent. There is a concern that if aviation emissions are not
The priority in 2005 was to get an acceptable emissions trading controlled they will significantly undermine progress achieved
scheme up and running in order to show leadership internationally in other sectors. The aviation sector points to the ostensibly low
in meeting the EU’s Kyoto Protocol commitments.2 The 1997 emission figures from aviation - accounting for approximately 3
Kyoto Protocol did not impose on contracting states any specific per cent of EU greenhouse gas emissions.5
targets or obligations in relation to aviation emissions but, rather,
encouraged them to reduce emissions of greenhouse gases from The new Directive placing aviation within the EU ETS formally
aviation by working through the International Civil Aviation came into operation in February 2009, and while formal
Organization (ICAO).3 regulatory control of the aviation sector’s GHG emissions will
only commence on January 1st, 2012, the Directive will already
The EU considers that insufficient progress has been made at be of considerable interest and concern to airlines. Already
ICAO level.4 The EU is increasingly concerned at the contribution important decisions are being taken that affect individual aircraft

e-zine edition 45 1
operators (such as what body in what Member State will be the
administering authority for a particular airline). Very soon,
airlines will have to commence the process of providing to those
authorities their historic flight and emissions data with a view
to substantiating their formal applications for admission to the
regulatory regime and their claims for allocations of aviation
emission allowances, the tradable currency of the Scheme. Some
Member States have already undertaken their own consultation
processes and initial steps towards transposition of the directive.6
The Existing EU Emissions Trading Scheme – The EU’s
‘flagship’ Climate Change Measure
The EU ETS, by creating an EU-wide ‘market’ in carbon (or,
more precisely, in the allowances to emit carbon dioxide) aims to
reduce industry-generated emissions of this gas at the least cost.
It is a ‘cap-and-trade’ scheme and is part of the EU program for
compliance with the Kyoto Protocol. The scheme is currently in
its ‘Kyoto phase’, running from 2008 to 2012 to coincide with
the commitment period of the
Kyoto Protocol. Approximately
10,000 industrial installations
“...All flights departing from or ar-
across the EU are covered, riving at an aerodrome situated in
drawn from a range of carbon-
intensive sectors including an EU Member State are covered...”
fossil-fuel-based energy
production, oil refining, metal production, cement, glass and
ceramic production and pulp and paper manufacture. Each
installation is issued with a quantity of allowances. Each allowance
is, in effect, an allowance or permit to emit one metric tonne of
carbon dioxide. The quantity of allowances issued is somewhat
lower than historic emission levels so as to create scarcity and
room for trade. Most allowances are issued free of charge while
some are auctioned. Allowances must be surrendered annually
to match reported and verified CO2 emission levels. Where
installations generate extra emissions they can purchase extra
allowances in the market to match those extra emissions.
Already the EU ETS operates under quite a complex of legal
measures. In addition to the ‘parent’ EU ETS Directive, dating
from 2003,7 the EU ETS has been amended in a number of
important ways to reflect the evolving climate change agenda.
The ‘Linking Directive’8 allowed for exchangeability, in certain
circumstances, between EU ETS carbon allowances and Kyoto
protocol carbon credits (essentially units representing carbon
emissions avoided). More recently, in a Directive agreed as part
of the EU’s ‘Climate-Energy Package’, fundamental changes
are being effected to the way the overall EU-ETS will operate
in the period 2013 to 2020, with new ground-based sectors and
gases being added from then; greater emphasis on auctioning of
allowances; the principle of no free allocation for the powergen
sector; as well as a proposed EC-wide set of harmonized
allocation rules rather than differentiated Members States’ rules.
Also to be considered part of the legal and structural framework
of the EU ETS are the detailed sets of EU Regulations covering
the monitoring, reporting and verification of installations’
emissions, and covering the maintenance and operation of the
‘Registries’ (the interconnected system of central database hubs
or accounting systems maintained by the various Member States
to track and account for the allocation, transfer and surrender of
allowances under the trading scheme).
It is this legal and regulatory system – this ‘cap-and-trade’ scheme
for limiting carbon emissions - into which it is now proposed to
include aviation and aviation emissions.
Aviation in the EU ETS – Critical Design Issues
The transboundary nature of air travel raised important issues of
jurisdiction and geographic coverage in adapting the EU ETS to
airline emissions.
The outcome of much debate on these elements is a scheme
that is wide-ranging in scope - all flights departing from or
arriving at an aerodrome situated in an EU Member State are
covered.9 The EU viewed this as a necessity, having regard to
the need to achieve real reductions in airline sector emissions
in EU territory and airspace, while at the same time respecting
the non-discrimination principle under applicable international
airlines law.10
There is a range of exemptions, including for ‘commercial air
transport operators’ that have performed fewer than 243 flights
per period for three consecutive four-month periods or flights
with total annual emissions lower than 10,000 tonnes per year.
Diplomatic and public service
flights and military and training
flights are also excluded,
as are flights performed by
certain small aircraft. The
Commission has developed
guidelines for interpreting the
Directive’s description of ‘aviation activities’ and of the various
categories of excepted activities.11
A number of critical considerations underlie the Scheme’s
design: ensuring the Scheme would be effective environmentally;
avoiding distortions in competition; and ensuring that emissions
trading in aviation would be consistent with the system already
in place for industrial emissions.
These considerations in turn determined the resolution of key
practical and technical issues such as the overall cap or limit to
be applied to emissions from the aviation sector (determining
this figure would determine the level of environmental gain);
the appropriate balance (within that cap) between the proportion
of allowances to be allocated for free and the proportion to be
auctioned (striking a fair balance here was considered key to not
making the scheme unduly financially burdensome to operators
at the outset whilst ensuring enough liquidity and all while
achieving sufficient scarcity to create the incentive for trade).
The design had to take account of existing regulatory
arrangements and technological and market developments
within the aviation industry itself. The system of international
airlines registration and licensing meant that the design has to
accommodate issues such as what countries would regulate what
airlines’ participation. Recent and anticipated aviation activity
levels and technological advances were factored into settling
such issues as the baseline year(s) (for establishing airlines’
historic emission levels); and the level of reserve/set-aside (for
expected new entrants and increased activity in the future).
Creating, at once, millions of new carbon allowances specifically
for aviation raised the issue of protecting the integrity of Member
States’ existing GHG inventories under the Kyoto Protocol. The
extent to which the new aviation emission allowances would be
tradable and exchangeable with allowances/credits issued under
the existing EU ETS, and under the Kyoto Protocol’s flexible
mechanisms, were therefore important considerations.
2
The remaining sections of this article will look at what has
emerged in terms of the key elements of aviation’s inclusions in
the EU ETS.
The ‘Cap’
As far as the EU ETS has operated to date for existing (non-
aviation) sectors, those sectors’ emissions ‘caps’ – for the
purpose of ‘cap-and-trade’ – have been generally based on recent
historical emissions within those sectors. Typically a recent past,
multi-year average is taken.
This is also the approach taken with aviation emissions. The new
Directive’s starting point for assessing the cap for the aviation
sector is the concept of ‘Historical Aviation Emissions.’ These
are defined as “the mean average of the annual emissions in the
calendar years 2004, 2005 and 2006 from aircraft [departing
from or arriving in a Member State].”12
The cap will be set initially at a level amounting to 97 per cent of
these ‘Historical Aviation Emissions.’13 The Commission will
compute historical aviation emissions based on “best available
data, including estimates based on actual traffic information.”
This obviously is going to be an extraordinarily complex task,
and it is anticipated that the Commission will commence on
this exercise immediately in order to ascertain the final figure
well ahead of the 2012 commencement date. It is important to
remember that this computation of “97 per cent of historical
aviation emissions”, while based fundamentally on emission
levels from 2004-2006, is designed to fix the overall collective
pool (of emission allowances) for all airlines – it does not follow
that the Scheme intends that individual airline operators will
be required to revert to 2004 or 2005 operating levels when the
Scheme commences in 2012.
Once the size of the pool comprising “97 per cent of historical
aviation emissions” is clear in CO2 tonnage terms, aviation
emissions allowances will then be generated with each aviation
emission allowance matching (being equivalent to) one metric
ton of aviation CO2. From this overall pool of aviation emission
allowances allocations to individual airline operators will then
be undertaken in three broad ways - allocation by auction,
allocation out of a special reserve (for new entrants) and
allocation of allowances for free. Each of these is now looked
at briefly.
Auctioning of Allowances
At present, the proposal is to set aside 15 per cent of
the overall (EU 27-wide) cap or pool of allowances
for the purpose of auctioning.14 Within that 15 per
cent, the proportion to be auctioned by each Member
shall be proportionate to that Member State’s share
of the total attributed aviation emissions for all
Member States in certain reference years.15 It is
proposed that a Regulation setting out detailed
provisions for auctioning will be passed in due
course. Auction revenues are to be used for purposes
related to tackling climate change, in particular
through research and development in the fields of
aeronautics and air transport.
Special Reserve
The ‘Special Reserve’ mechanism will apply from 1
January 2013, when the second ‘period’ of aviation’s
inclusion in the EU ETS commences.16 For this
period, and for subsequent periods, 3 per cent of the total quantity
of allowances available shall be set aside into a special reserve
to ensure that new entrants will be catered for and that airlines
have scope to increase their operations while having access to a
pool of allowances to meet increased emissions. In summary, the
reserve will benefit those airline operators:
ñ that start performing after 2010; or
ñ whose level of activity (measured by reference to ‘tonnes-
kilometres data’)17 increases by an average of 18 per cent
annually between 2010 and 2014.
Free Allocations of Allowances - How are these Calculated?
Deciding the quantity of emission allowances that each
individual airline operator will receive is the central plank in the
Directive.18 This process is already underway and will involve
ongoing liaison between operators, competent authorities and the
European Commission over the next few years. For simplicity,
the process can be viewed as involving three steps:
ñ Firstly, settling the EU-wide quantity of free allowances
(from within the wider pool available for overall allocation
through auctioning, set-aside and free allocation);
ñ secondly, fixing a common ‘benchmark’ as the basis for
deciding on individual allocations out of that pool of free
allocation allowances;
ñ thirdly, calculating final allocations to individual airlines in
accordance with that benchmark.
Each of these steps is examined briefly.
As regards firstly, the number of allowances to be allocated
free of charge across the entire EU-27, this will be based on a
combination of the European Commission’s own research and
on individual aircraft operators’ applications. In very general
terms the figure here will be the overall aviation ‘cap’ figure of
“97 per cent of historical aviation emissions,’ less the total of (a)
the 15 per cent of that cap to be dedicated to auctioning and (b)
the 3 per cent special reserve set aside.
The Directive requires that, by September 30th, 2011, the
European Commission will have made and published these
calculations in the form of a formal allocation Decision.
The second step in the process of calculating what each
individual aircraft operator will receive involves settling on a
‘benchmark.’ Given that each airline’s allocation is likely to
3
involve a reduction below business as usual emission levels,
the purpose of the benchmark is to ensure there is a common,
equitable approach to settling the level of that reduction.19 The
Commission calculates the benchmark/reduction factor that is
to be applied by dividing the total pool of allowances for free
allocation by the sum of the ‘ton-kilometer data’ of all of the
allowance applications submitted to the Commission by Member
States on behalf of aircraft operators.20

The third step, arrived at once the Commission has settled on the
benchmark, involves Member States’ competent authorities then
proceeding to calculate and publish the number of allowances to
be allocated to each aircraft operator that has applied to it for an
allocation. Each individual allocation is calculated by multiplying
the benchmark by the verified tons-kilometers data21 included in
that aircraft operator’s application. As already indicated, the use
of this common benchmark is intended to determine, on a fair,
equitable and pro-rata basis, the reduced quantity of allowances
that each aircraft operator will be allocated.

There are some important points to note about this three-stage

process of settling individual airline operators’ free allocations.
Contrary to some airlines’ criticisms of the design, it is not a
methodology that by any means ties or consigns airlines’ free
allocations to 2004-2006 activity levels. While it is the case
that the overall pool of allowances for allocation in EU-27 is
based on 2004-2006 activity levels, when it comes to calculating
individual airline allocations much more recent activity levels
are recognized in that, for the period commencing January 1st,
2012, airlines will make their applications based on verified
‘tons-kilometers data’ for the monitoring year 2010.22 This
approach represents a significant mitigation of the 2004-2006
starting point for the overall methodology.

Furthermore, the use of this common, harmonized, EU-wide

benchmark by all Member States’ competent authorities
represents, in effect, a lesson learned from experiences to date
in the EU ETS. The current EU ETS has been criticized for
allowing Member States to allocate under their own National
Allocation Plans (NAPs) for Phase 1 (2005-2008) and for Phase
2 (2008-2012) of the EU ETS, an approach that has resulted in
wide divergences between Member States in terms of generosity
of allocation, with inevitable market distorting effects.23

How is the Integrity and Accuracy of the ‘Cap-and-Trade’

Scheme Provided for?
It is vital – not least for market and investor confidence - that
there be a regular accounting and auditing as between actual
emissions of GHGs from aviation and the number of aviation
emission allowances issued and in circulation.

The Scheme provides that airline operators will have to report by

March 31st each year to their relevant competent authorities on
their emissions during the preceding calendar year. Each aircraft
operator’s emission report must be independently verified
by an independent verifier.24 An unverified or an improperly
verified report of emissions will mean that the relevant aircraft
operator’s ability to transfer allowances will be suspended. By
April 30th each year aircraft operators must surrender a quantity
of allowances equal to its total of emissions (as reported and
verified) during the preceding calendar year.25 Excess emissions
(those over and above the level of emission allowances issued to
an operator) are only permissible as long as they are matched
by the surrender of an equivalent number of extra allowances

4
(allowances may be transferred between aircraft operators under
the ‘trade’ part of the cap-and-trade scheme). Emissions that
are unmatched with surrendered allowances will result in the
aircraft operator in question being subject to an excess emissions
penalty (at present the level of this is set at €100 per ton of
excess greenhouse gas emissions).26 Paying these fines will not
relieve the aircraft operator of the obligation of acquiring and
surrendering extra allowances to match the excess emissions –
there is thus a double penalty attaching to non-compliance.
These sanctions are designed to ensure that the overall cap on
aviation emissions is maintained and for incentivizing individual
aircraft operators to look at ways to reduce emissions in the most
cost-effective way.
While aviation is being included in the EU ETS it is important
to note that allowances issued to the aviation sector can, for the
present, only be used to meet aircraft operators’ compliance
obligations. They are not exchangeable with the allowances
issued to ground-based industries (including the powergen
sector) that are already in the EU ETS. The reason for this is
to protect the integrity of the databases and accounting systems
maintained under the Kyoto Protocol and the EU ETS for
greenhouse gas emissions and their corresponding allowances.27
There will, however, be fungibility between aviation emission
allowances and carbon credits issued under the Kyoto Protocol’s
‘flexible mechanisms.’28 For the first ‘period’ of the aviation
sector’s inclusion in the EU ETS (the calendar year 2012) up to
15 per cent of the allowances that aircraft operators are required
to surrender may be made up of Kyoto Protocol credits.
‘Administering Member State’
Effective logistical arrangements and accurate information
flow between individual aircraft operators, Member States
and the European Commission are critical to the success of
the Scheme. Many airlines will operate in multiple Member
States and so, in order to minimize aircraft operators’ overall
administrative burden, it is intended that each operator will have
only one ‘Administering Member State’. Each Administering
Member State will be responsible for processing aircraft
operators’ applications for allocations of allowances and for
accepting surrenders of allowances and for interacting with the
Commission. An Airline Operator’s Administering Member
State will be the Member State that granted its operating
license.29 There are provisions on selecting a new Administering
Member State where an aircraft operator ceases operating in
the initial Administering Member State. The Commission has
already published a list of aircraft operators that have operated
in the Community after January 1st, 2006 and their respective
Administering Member States.30
The inclusion of aviation in the EU ETS will also require
informational and logistical co-operation with the airline
navigation control organizations and, in that regard, the Directive
provides for the Commission to liaise with Eurocontrol.31
Third Country Cooperation
The Directive provides for cooperation with third countries
that are demonstrably adopting measures to reduce the climate
change impact of flights departing from those countries and that
land in the Community.32 The Commission will have the power
to consider exempting such flights from the EU ETS. These
measures are designed to ensure the Scheme is as proportionate
as possible and to ‘give credit’ where it can be shown that the
environmental effects of EU-related aviation are being addressed
outside the EU, and also to avoid duplication of regulation or
control in respect of the same flights. These measures are also
designed to encourage third countries to bring forward measures
to reduce the climate change impact of flights.
Conclusion and Assessment
This Scheme represents a major development for, and presents
very significant challenges to, individual airline operators and
it will undoubtedly impact on them in a variety of ways: by
increasing the cost base, by increasing the regulatory burden
and through the possible creation of market effects. Also,
commercial arrangements and risk management within aviation
will undoubtedly be impacted and will have to take account of
this new regulatory regime - as one example, aircraft leasing
arrangements will, in future, have to reflect the simple fact that,
in the Directive, ‘Aircraft Operator’ is widely defined so as
to include not just ‘Operator’ but, in some circumstances, the
aircraft owner.33 The January 1st, 2012 formal commencement
date is liable to prove deceptive and to induce complacency.
Working back from that date, the Commission’s allocation
Decision (settling the EU-wide quantity of allowances for free
allocation) is due by September 30th, 2011; however, this will
reflect information to be submitted by the Administering Member
States to the Commission by June 30th, 2011, in turn based
on applications by individual airlines to those Administering
Member States, the deadline for which the deadline is March
31st, 2011. This trajectory and timescale therefore means
that airlines now have just over eighteen months in which to
engage with this new regulatory regime; to collate and have
verified detailed historical data on which their applications will
be based; and to prepare and submit those applications to their
administering Member States.
Most airlines have strongly opposed the extension of the EU
ETS to aviation. The European Low Fares Airline Association
(ELFAA) has expressed concerns with the design of the Scheme.
While elements within the aviation sector have welcomed some
last minute changes and compromises there remains strong
opposition in principle.34
5
The Scheme’s supporters reject such criticisms. While
acknowledging that passengers will pay more, they argue that
that is the very logic of the Scheme – the pricing in of the cost of
carbon thereby ensuring that the ultimate polluter, the passenger,
pays more when choosing to travel by air, as against which the
Scheme’s opponents stress the huge economic and other benefits
deriving from airline travel.
Supporters of the Scheme describe as misconceived claims
that that it will operate penally and that it will effectively tie
operators to long-past operating levels. They say the Scheme has
specifically addressed that concern and they point to its design
which, while basing the overall ‘pool’ of available allowances on
average airline emissions back in the 2004 to 2006 period, will,
nevertheless, allow individual airlines’ allocations of allowances
to reflect their levels of operations in 2010 (again, the Scheme
kicks off in 2012).
Even within the airline sector, opposition has not been universally
strong. There are relatively few ways for aviation to effectively
mitigate its climate change impact very quickly. For some
airlines major and rapid overhaul of aging fleets involves huge
upfront capital investment. Kerosene is very likely to remain the
fuel for the aviation sector into the future. Technology changes
are slow. There is a sense on the part of some elements in the
industry that some imposed curbs of emissions are inevitable.
Against all of that background there is a certain view that the
flexibility of emissions trading may be preferable to carbon taxes
or to strict regulation in the form of absolute limits on emissions
from aircraft.
What Observations can be Added to these Competing
Arguments and Counter-Arguments?
Firstly, the introduction of the Scheme is undoubtedly timely.
Important lessons have been learned from the EU ETS’s operation
to date (without aviation). These include the fact that Member
State-designed allocation methodologies have tended to serve
national interests, and have caused market distortions, as well as
other problems such as delay - some Member States inevitably
failed to meet National Allocation Plan deadlines). Lessons
learned here will help to address the Aviation sectors greatest
concern about inclusion in the EU ETS – that few sectors are as
sensitive or exposed to competition effects as international air
travel. Also the harmonized allocation methodology for aviation
allowances will avoid or at least minimize market effects from
the Scheme. Aviation will benefit in other ways from previous
experience – in the six years (to date) of operation of the EU ETS
without aviation, many problems with monitoring and reporting
and verification (MRV) of emissions have emerged but the new
MRV Regulations is designed to address these and will make for
a vigorous scheme overall.
It should be acknowledged that this is an enormously ambitious
and complex Scheme. In legal terms, adding aviation to the list
of activities currently regulated within the EU ETS was “the easy
part.” The legal scheme also involves numerous consequential
legislative amendments (to the Parent EU ETS Directive)
designed to address the particular challenge of applying a cap-
and-trade scheme to non-stationary sources such as aircraft. But
it has been achieved both in design terms, and on paper, and
aviation is now unique within the EU ETS, as being the only
sector where the controlled “installations” are not fixed-ground
based but, rather, transboundary and mobile in the truest sense.
This has important symbolic value in the struggle to devise a
coherent and effective response to global warming where many
of the most pressing policy tools that are needed for combating
climate change face opposition precisely because of perceived
design or logistical problems. In this regard, getting to this stage
with aviation in the EU ETS provides hope that greenhouse gas
emissions from other mobile or transbundary sources such as
marine shipping and road transport can be effectively regulated
in the future.
As has been explained in this article, the Scheme has sought,
as it obviously should, to reflect and anticipate as much of
an understanding of the reality of aviation activity and of the
aviation world as possible, as well as of its operating and control
structures. As has been seen with the pre-aviation EU ETS though,
there are definite limits to what can be anticipated – ultimately
specific economic sectors operate within, and are prisoners of,
the wider economy and of its peaks and troughs. The absolute
price collapse of EU ETS allowances during 2009 is surely
attributable in significant measure to the failure to sufficiently
‘recession-proof’ that Scheme. An overgenerous allocation (in
an economic boom) to begin with became worthless in a time
of drastically reduced production levels. Emission allowances
for aviation will equally be market instruments and will have
their own supply and demand matrix that will include aviation
specific factors but ,also, wider economic factors. There can be
no perfect Directive or no perfect scheme design that will predict
the full range of these.
Encouragingly though, and as proof that the Scheme for aviation
in the EU ETS displays modesty as well as ambition, a very
thorough and prompt review is provided for. While the Scheme
commences on January 1st, 2012, as early as December 1st,
2014 the Commission must have reviewed the entire functioning
of the EU ETS in relation to aviation activity. All aspects must
be covered under this review, including:
ñ the impacts of the inclusion of aviation for the overall
functioning of the EU ETS;
ñ assessing how the aviation allowance market (in effect a
sub-market within the EU ETS) is operating, in particular with
regard to possible market disturbance;
ñ the impact of the Scheme on the aviation sector, including
on issues of competitiveness, taking into account in particular
the effect of climate change policies implemented for aviation
outside the EU;
ñ the impact of the Scheme on the peripheral and outermost
regions of the Community;
ñ whether a gateway system should be included to facilitate
trading of allowances between aircraft operators and operators
of stationary installations already in the EU ETS (this element
comes with a clear warning that any transactions between an
aviation operator and a ground-based installation must not result
in a net transfer of allowances to the ground installation - again
in order to ensure that the integrity of the accounting systems of
the EU ETS and of the Kyoto Protocol is maintained);
ñ advances in the efficiency of aviation, and in the reduction
in aviation fuel consumption, and in scientific understandings of
the climate change impacts of contrails and cirrus clouds.
About the Author
Conor Linehan is a Solicitor, holding a law degree from UCC and an MSc
(Environmental Sociology) from the University of Kent at Canterbury.
He also holds the degree of Barrister-at-Law from Kings Inns, Dublin.
He is a former Vice-Chairman of the Employment Appeals Tribunal.
Conor Linehan is a Partner and heads the Environmental Law practice
at William Fry, Dublin.
6

Endnotes
1 Directive 2008/101/EC of 19 November 2008 amending Directive
2003/87/EC so as to include aviation activities in the scheme for
greenhouse gas emission allowance trading within the Community. OJ
L 8/3, 13.1.2009.
2 At present, those CO2 emission sources covered by the EU ETS are all
fixed, ground-based installations. In 2005 considerable additional delay
would have ensued from waiting to resolve certain aviation-specific
issues such as the precise scope of any trading scheme designed to
include aviation (whether to include only intra-EU flights or all flights
in and out of the EU internationally i.e. intercontinental flights). These
issues are only now being resolved.
3 While the EC is not a contracting party to the Convention on
International Civil Aviation of 1944 (“the Chicago Convention”), all EC
Member States are contracting parties and are members of the ICAO.
4 Essentially, from 2002 onwards the European Parliament and Council
have been calling on the ICAO to propose effective action to reduce
the climate change impact from international air transport. The ICAO,
in the view of the EU, has not moved quickly or decisively enough on
the issue. Emissions trading for aviation was discussed at the ICAO
but no legal instruments emerged. In 2004 the ICAO endorsed the
idea of incorporating emissions from international aviation into States’
emissions trading schemes, but in 2007 it urged Contracting States not to
impose an emissions trading system on other Contracting States’ aircraft
operators except on the basis of mutual agreement between those States.
5 Others counter-claims that this ignores the much higher global
warming potential of aviation emissions (over and above the global
warming potential of emissions from stationary, ground-based sources).
6 Ireland’s Department of the Environment Heritage and Local
Government invited comments, up to July 3rd, 2009, on the Directive
and on draft Aviation Regulations relating to the Directive.
7 Directive 2003/87/EC of 13 October 2003 establishing a scheme for
greenhouse gas emission allowance trading within the Community. OJ
L 275, 25.10.2003. p.32.
8 Directive 2004/101/EC.
9 Annex to Directive 2008/101/EC.
10 The Scheme will cover all flights into Europe. At one point the US
threatened a legal challenge to the imposition of a carbon trading scheme
on its airlines. The EU, though, stresses that its Scheme is consistent
with the relevant public international law – in the form of the Convention
on International Civil Aviation of 1944 (“the Chicago Convention”) –
because it is non-discriminatory in that it proposes to cover all flights
into EU-27 territory from wherever they originate.
11 Draft Commission Decision of the detailed interpretation of the
aviation activities listed in Annex I to Directive 2003/87/EC. The
Guidelines also provide interpretive assistance on important concepts
such as “flights” and “aerodromes” The Guidelines were approved by
the Climate Change Committee on 3 April 2009. At the time of writing
they have been transmitted to the European Parliament for scrutiny.
12 Article 1(3) of the Directive 2008/101/EC.
13 Under Article 1(4) of Directive 2008/101/EC the cap shall be 97 per
cent for the first “period” of aviation’s inclusion in the EU ETS i.e. for
the period 1 January 2012 to 31 December 2012. For the next period,
commencing on 1 January 2013 it is envisaged that the cap will reduce
by a few percentage points.
14 Article 1(4) of Directive 2008/101/EC
15 For the first year of the Scheme, 2012, the reference year is 2010.
16 The special reserve provisions are contained in Article 1(4) of
Directive 2008/101/EC.
17 See Note 20 infra.
18 Article 1(4) of Directive 2008/101/EC.
19 It should be noted that an aircraft operator will not receive a level of
allowances corresponding exactly to its level of emissions disclosed in
its application. Rather, it will receive a quantity of allowances reduced
somewhat below its recent historical level of emissions. This reduction is
necessary to create a level of scarcity and room for trade in allowances.
20 When each aircraft operator comes, in due course, to apply for its
free allocation of allowances to its ‘Administering Member State’ it
submits verified ‘ton-kilometer data.’ ‘Ton-kilometer data’ is furnished
by reference to a relevant ‘monitoring year’ (for each ‘period’ of the
aviation sector’s inclusion in the EU ETS there is a ‘monitoring year’).
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For the first period (the calendar year 2012) the monitoring year in
respect of which tonne kilometre data must be furnished is 2010.
21 See note 20 supra.
22 In respect of each ‘period’ of the aviation sector’s inclusion in the
EU ETS there is a ‘monitoring year.’ For the first period (the calendar
year 2012) the monitoring year is 2010. When each aircraft operator
comes in due course to apply for its free allocation of allowances to its
‘Administering Member State’ it submits verified ‘ton-kilometer data’
for the relevant monitoring year.
23 Separate from the Directive under discussion that proposes to
include aviation within the EU ETS, another Directive (part of the EU’s
“climate-energy package” of measures), generally overhauls and amends
the EU ETS Directive effective from 2013 and one of the amendments
involves abolition of the approach whereby individual Member States’
make National Allocation Plans. From 1st January 2013 there will be one
centralised, harmonised EU-wide allocation Decision.
24 Article 1(13) of Directive 2008/101/EC envisages the Commission
adopting “detailed provisions for the verification of reports submitted by
aircraft operators.
25 Article 1(10)(b) of Directive 2008/101/EC.
26 Article 1(14) of Directive 2008/101/EC.
27 Emissions from international aviation were omitted from the 1997
Kyoto Protocol (the Protocol left aviation emissions to be resolved
through the ICAO). In turn this meant that aviation emissions were not
integrated into EU Member States’ commitments under the Protocol, nor
into Member States’ overall inventories of greenhouse gas emissions.
Keeping aviation emission allowances non-fungible with other EU ETS
emission allowances is, therefore, necessary to maintain the integrity
of the EU ETS accounting system and of its linkage with the Kyoto
structures.
28 Kyoto Protocol carbon credits such as Certified Emission Reductions
(CERs) and Emission Reduction Units (ERUs) represent emissions
saved or avoided (through sustainable emissions reducing projects)
in, respectively, developing and developed countries. The ability for
aircraft operators to purchase quantities of these credits and to surrender
them against a proportion of their CO² emissions for the purpose of
compliance with their obligations under the EU ETS affords greater
flexibility and cost effectiveness in meeting overall EU ETS obligations.
29 Under Council Regulation (EEC) No. 2407/92 on the Licensing of Air
Carriers. In all other cases it will be the Member State with the greatest
estimated attributed aviation emissions from flights performed by an
airline operator in the base year. The “base year” for these purposes is
the calendar year starting 1 January 2006 but, in the case of an aircraft
operator that commenced operations in the Community after that date,
the “base year” will be the first calendar year of operation.
30 This list, a preliminary list [C(2009) 866, 1.02.09], was published
pursuant to Article 15 of Directive 2008/101/EC. The list will be updated
annually before 1 February each year to include new aircraft operators
and to reflect any changes in administering Member State necessitated
by changes in operators’ activities.
31 Provision for liaison with Eurocontrol - the European Organisation
for the Safety of Air Navigation – is contained in Article 15 of Directive
2008/101/EC
32 Article 18 of Directive 2008/101/EC
33 Article 1 of Directive 2008/101/EC.
34 To take the example of one Member State – Ireland – its two main
Airlines, the private, low-cost flier, Ryanair, which has EU-wide
operations, and the national “flag carrier” Aer Lingus, both took a
common stance of strong opposition. They argued that it would be a
disastrous development for the Irish tourism industry given how reliant
Irish tourism is on international air travel. They predict that it will lead
to an increased cost for airline seats (according to Ryanair it will add,
on average, up to €50 to the cost of booking a seat). Ryanair argues
its operations will be issued with an inadequate number of allowances
because the Scheme fails, according to Ryanair, to take account of
its significantly increased operations in recent years. Ryanair also
complains that the Scheme’s design does not take account of Ryanair’s
improved environmental performance through having more modern
aircraft and through its practice of flying to regional airports to avoid
delays involved in waiting for a clear runway at major airports.
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