Pricing aviation emissions

(Originally posted on 22 February 2013)

The world’s fastest growing source of greenhouse gas emissions is aviation. In order to mitigate these emissions, the EU is proposing to include foreign airlines in its cap and trade scheme known as the Emission Trading System (ETS). Launched in 2005, the EU ETS is the largest global emission trading scheme and is a major pillar of EU climate change policy.

The BASIC countries (Brazil, South Africa, India and China) are strongly opposed to including aviation in the EU ETS and issued a joint statement last week at the 14 BASIC Ministerial Meeting on Climate Change. Here, Ministers argued that instead of pursing mitigation policies unilaterally, the EU should make greater mitigation commitments as well as adhere to commitments on “common but differentiated responsibilities”.

Fly: The world’s fastest growing source of greenhouse gas emissions
Flying: The world’s fastest growing source of greenhouse gas emissions
Image: Christian Ghe, Flickr

Some key passages from the statement include the following (with my interpretation in italics):

8. Parties efforts should be undertaken on the basis of equity and common but differentiated responsibilities and respective capabilities.

This concept is central to climate change negotiations.

Common responsibility: the duty of States to equally share the burden of environmental protection for common resources.

Differentiated responsibility: this issue addresses substantive equality and thus includes unequal material, social and economic situations across States; different historical contributions to global environmental problems; and financial, technological and structural capacity to tackle those global problems.

9. Ministers underlined that the new market based mechanism under the Convention requires the enhancement of emission reduction commitments by developed countries given their current low levels of ambition.

This refers to developing countries wanting greater commitments by developed countries to reduce their own emissions.

15. (Ministers) rejected the unilateral approach of EU under the EU-ETS and reiterated the importance of adhering to multilateralism.

New market based mechanisms for reducing emissions that have a global impact (such as including foreign airlines in the EU scheme) should be negotiated with the UNFCCC, not unilaterally.

What would be the impact of including foreign airlines in the European ETS on developing country businesses? There is little in the way of research on this. However, here in Geneva, ICTSD published its assessment of the impact in 2009, in a study entitled The Inclusion of Aviation in the EU Emissions Trading System.

It concluded that:

  • The EU ETS will have a small impact on ticket prices and aviation demand.
  • Some changes in competitiveness may nevertheless occur. The competitiveness of hub airports just outside the EU, along with the non-EU airlines that serve these airports (including airlines from developing countries), may increase on some routes.
  • The impact on trade between Europe and developing countries (in agri-food products) is likely to be small because of the low increase in aviation costs; however impacts may vary between products and regions.The impact on tourism is likely to be limited on average because transport costs are a small share of total tourism expenditures.
  • There may also be some small positive impacts on developing countries…there is a large chance that at least part of revenues (from auctioning permits) will benefit developing countries, e.g. when they are spent on adaptation in developing countries.

It appears that including aviation in the EU ETS will not have a strong negative impact on developing country exports. However more research is needed.

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