Market-Based Measures

  • Market-based measures are instruments designed to address the climate impact of aviation, beyond what operational and technological measures or sustainable aviation fuels can achieve.
  • Between 2013 and 2020, an estimated net saving of 193.4 Mt CO2 (twice Belgium’s annual emissions) will be achieved by aviation via the EU ETS through funding of emissions reduction in other sectors.
  • In 2016, an agreement was reached at ICAO to set up the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA). As of November 2018, 76 States intend to volunteer to offset their emissions from 2021, representing 76% of the international aviation activity.
  • Emissions trading systems (e.g. ETS) and offsetting schemes (e.g. CORSIA) both address aviation emissions but differ in how they function. ETSs generally work towards economy-wide emission reduction targets, while offsetting schemes also compensate for emissions by reductions in other sectors but without the associated cap.
  • The environmental effectiveness of offsets depends on robust implementation to ensure that the emission reductions delivered would not have occurred in the absence of the scheme.

 

Market-based measures are part of the comprehensive approach needed to reduce aviation’s emissions, as technological and operational measures alone are currently not sufficient to tackle the growing impact of the aviation sector on climate change. Market-based measures, comprising both cap and trading as well as offsetting schemes are designed to mitigate climate change through in sector emission reductions or through incentivizing efforts outside of the aviation sector. This section provides an overview of the EU Emissions Trading System and ICAO’s Carbon Offsetting and Reduction Scheme for International Aviation, as well as a brief comparison of the two approaches.

The EU Emissions Trading System

The EU Emissions Trading System (EU ETS) [73] is the cornerstone of the EU’s policy to combat climate change. It is the EU’s key tool for reducing, in a cost-effective manner, greenhouse gas emissions from the power and heat, industry and aviation sectors. This means that emissions are cut where the costs are lowest. Working as a cap and trade system with an ambitious reduction of emissions over time, the EU ETS either incentivises CO2 mitigation within the sector, or through trading of allowances with other sectors of the economy where more options for reductions are available and abatement costs can be lower.

Aviation and the EU Emissions Trading System

In 2008, the EU decided to include aviation activities in the EU ETS [74]. Emissions from aviation are therefore subject to the EU’s domestic greenhouse gas emission reduction targets of 20% and 40% for 2020 and 2030 respectively, and are thereby part of the EU’s contribution to meeting the Paris Agreement objectives. In 2017, CO2 emissions from aviation accounted for 3.6% of the EU’s total CO2 emissions and 13.4% of the EU’s total transport greenhouse gas emissions [17].

The initial scope of the EU ETS covered all flights arriving at, and departing from, airports in the European Economic Area which includes the EU Member States, Norway, Iceland, Liechtenstein and closely related territories. However, flights to and from airports in non-European Economic Area countries have subsequently been excluded from the EU ETS until the end of 2023 through a temporary derogation. This exclusion, first resulting from the ‘stop the clock’ decision in 2013 [75], and subsequently extended [76], [77], was made to facilitate negotiation of a global market-based measure for international aviation emissions at the International Civil Aviation Organization (ICAO). ICAO decided on a roadmap for the development of a global market-based measure at its 2013 Assembly, and agreed on a resolution containing the main parameters of the measure at its 2016 Assembly. The implementation of the offsetting requirements is foreseen from 2021.

Therefore, at present only flights between airports located in the European Economic Area are included in the EU ETS. Flights to and from the outermost regions of the EU are covered only if they occur in the same outermost region. This temporary scope derogation until the end of 2023 may be reviewed in the light of developments in the international context, also in view of CORSIA.

EUROCONTROL works with the European Commission, States and aircraft operators to support the implementation of the aviation element of the EU ETS, in particular to harmonise data and reduce compliance costs. The ETS Support Facility provides 24 States with access to ETS-related data, and provides traffic and emissions data to over 300 aircraft operators. The ETS List, which allocates aircraft operators to their administering States, is developed by EUROCONTROL and published annually by the European Commission.

Aviation emissions under the ETS current phase (2013-2020)

The initial cap for aviation in the EU ETS was based on average historic aviation emissions between 2004 and 2006, representing 221.4 million tonnes (Mt) of CO2 per year for all participating countries. The cap for aviation activities set for the current phase of the ETS (2013-2020) was set to 95% of these historical aviation emissions, adjusted for the change in applicability scope related to the ‘stop the clock’ decision. While aircraft operators may use aviation allowances as well as EU Allowances (EUAs) from the stationary sectors, stationary installations are not permitted to use aviation allowances for compliance. In addition, some international credits can be used by aircraft operators for up to 15% of their verified emissions in 2012. Since 2013, each aircraft operator is entitled to use certain international credits up to a maximum of 1.5% of its verified emissions during the current phase, in addition to any residual entitlement from 2012. In 2017, 677 operators, which included more than 200 non-European carriers, operated under the scope of the system.

During the 2013-2017 phase, the total verified CO2 emissions from aviation covered by the EU ETS have increased from 53.5 Mt in 2013 to 64.3 Mt in 2017 [78]. This implies an average increase in CO2 emissions of 4.7% per year.

Since 2013, with the scope of intra-European Economic Area flights in the EU ETS, the amount of annual EU Aviation Allowances (EUAAs) issued is around 37.5 Mt. The EUAAs cover emissions under the EU ETS cap for aviation. About 15% of these allowances are auctioned, while 85% are allocated for free. For CO2 emissions exceeding the EU ETS aviation cap, aircraft operators have to purchase EU Allowances. The purchase of EU allowances by the aviation sector has gone up from 14.9 Mt in 2013 to 26.8 Mt in 2017. Over this period, there has been a total mitigation of over 100 Mt of CO2 emissions in the European Economic Area achieved by incentivising emission reductions in all sectors covered by the ETS (Figure 6.1).

EU ETS carbon prices varied between €4 and €6 per tonne of CO2 during the 2013-2017 period [79]. Consequently, total aircraft operator costs linked to purchasing EU Allowances (EUAs) have gone up from around €89 million in 2013 to €189 million in 2017. For 2017, it is estimated that these EUA costs represent about 0.3% of total operating costs for aircraft operators on flights within the scope of the EU ETS. As of September 2018, EU Allowances representing one tonne of CO2 were being traded at over €20, and consequently the fraction of operating costs is expected to be higher.

As shown in Figure 6.2, the total CO2 emissions are expected to increase to 69.7 Mt in 2020 (+8.5% relative to 2017) and the purchase of EUAs by the aviation sector increases from 28.4 Mt in 2018 to 31.5 Mt in 2020. Moreover there could be a relative demand reduction within the aviation sector over the years 2018-2020 of 2.3 Mt, resulting in an overall aviation related emission reduction of 92.2 Mt for this period. In total, the net reduction in aviation related emissions for the entire 2013-2020 phase is estimated to be 193.4 Mt of CO2 emissions.

Aviation emissions under the ETS fourth phase (2021-2030)

For the fourth phase of the EU ETS, from 2021 to 2030, the system will see a number of modifications that will also affect the aviation sector [77], [80]. The linear reduction factor of 2.2% per year will also be applied to the aviation cap. Emission reductions will have to be exclusively domestic; therefore only EU Aviation Allowances (EUAAs) and EU Allowances (EUAs) will be eligible for compliance, as will be the case for all other sectors under the EU ETS.

The 2017 revision to the EU ETS Directive [77] includes a mandate from the European Parliament and the Council to the Commission to consider ways for CORSIA to be implemented in the EU through a revision of the Directive, consistent with the EU 2030 climate objectives. To that end, the Commission will conduct a comprehensive assessment including all relevant aspects of CORSIA’s ambition and environmental integrity and, where appropriate, make a legislative proposal. Environmental integrity includes the need for proper mechanisms to prevent an offset from being counted twice.

Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA)

Background

In October 2016, the 39th General Assembly of ICAO Contracting States reconfirmed the 2013 objective of stabilising CO2 emissions from international aviation at 2020 levels. In addition, the States adopted Resolution A39-3 [81], aiming to introduce a global marketbased measure, namely the ‘Carbon Offsetting and Reduction Scheme for International Aviation’ (CORSIA), to offset international aviation’s CO2 emissions above 2020 levels through international credits. This major milestone, almost 20 years after the Kyoto Protocol to the UN Framework Convention on Climate Change, had called on States to work through ICAO to address international aviation emissions, and after the entry into force of the Paris Agreement, came as a result of the strong and sustained support by European States to address international emissions from aviation at a global level.

Since the end of 2016, international experts have been working in ICAO on the technical elements necessary for CORSIA’s implementation. In June 2018, the ICAO Council approved the associated Standards and Recommended Practices (SARPs). To date, work is continuing on the additional ‘Implementation Elements’, which notably include rules on eligible fuels and emission units that can be used to comply with CORSIA offsetting requirements. Participating States will have to adopt the necessary national law in order to implement the provisions of CORSIA.

Europe’s commitment towards CORSIA
On 3 September 2016, before the 2016 ICAO Assembly, the Directors General of Civil Aviation of EU Member States and the other Member States of the European Civil Aviation Conference (ECAC) signed the ‘Bratislava Declaration’. This signalled their intention to fully implement CORSIA from the start of the pilot phase, provided that certain conditions were met, notably on the environmental integrity of the scheme and global participation. The Bratislava Declaration illustrated the commitment of the EU and ECAC States to address the growth of CO2 emissions from international air transport and to achieving overall carbon neutral growth from 2020.

 

CORSIA scope and timeline

All aeroplane operators with international flights producing annual CO2 emissions greater than 10,000 tonnes from aeroplanes with a maximum take-off mass greater than 5,700 kg, regardless of whether their administering State is participating or not in the offsetting phases, will be required to monitor, verify and report their CO2 emissions during 2019 and 2020. Humanitarian, medical and firefighting operations are exempted. The average yearly CO2 emissions reported during that period will represent the baseline for carbon neutral growth from 2020. Beyond 2020, the aviation sector will be required to offset its international CO2 emissions above this level.

CORSIA comprises of three implementation phases: the pilot phase (2021-2023), a first phase (2024-2026) and a second phase (2027-2035). During the pilot phase and first phase, offsetting requirements will only be applicable to flights between States that have volunteered to participate. As of 5 November 2018, 76 States have officially notified ICAO that they intend to voluntarily participate in the pilot and first phase of CORSIA, representing approximately 76% of international aviation activity in terms of Revenue Tonne Kilometres (RTKs). States can notify their intentions for the year 2021 up until 30 June 2020, and thereafter on an annual basis during the voluntary period. The second phase will apply to all ICAO Member States within the agreed applicability scope, with certain exemptions:

  • States with an individual share of international aviation activities in RTKs in year 2018 below 0.5% of total RTKs;
  • States that are not part of the list of States that account for 90% of total RTKs when sorted from the highest to the lowest amount of individual RTKs; or
  • Least Developed Countries (LDCs), Small Island Developing States (SIDS) and Landlocked Developing Countries (LLDCs).

However, States covered by the exemption criteria above can volunteer to participate. The contribution of CORSIA to stabilise international aviation emissions at 2020 levels is to some extent reliant on the level of participation of States in CORSIA.

CORSIA operates on a route-based approach and applies to international flights, i.e. flights between two ICAO States. A route, defined by a pair of States, is covered by CORSIA offsetting obligations if both the State of departure and the State of destination are participating in the Scheme, and in this case the obligations are applicable to all aeroplane operators on the same route.

 

Figure 6.320

CORSIA in practice

Each international flight within the scope of CORSIA is attributed to an aeroplane operator, and each aeroplane operator is attributed to a State to which it has to submit an Emissions Monitoring Plan. Aeroplane operators monitor, verify and report their fuel use according to the approved plan, while their annual emissions offsetting requirements are calculated by the State. The monitoring of emissions applies to all flights, including those not subject to offsetting requirements. Offsetting requirements are calculated according to a dynamic approach to take into account the growth of the aviation sector and that of an individual aeroplane operator.

Aeroplane operators meet their offsetting requirements on a 3-year compliance period basis by purchasing and cancelling CORSIA eligible emissions units. Details on the cancellation of units, which must be verified by an independent verification body, are finally submitted by the aeroplane operator to its State. Aeroplane operators can reduce their offsetting requirements by using CORSIA eligible fuels that meet CORSIA sustainability criteria.

Capacity building activities

In 2013 the European Commission launched a project entitled “Capacity building for CO2 mitigation from international aviation”, with a total budget of €6.5 million covering 12 African States and 2 Caribbean States. This 4.5-year project, implemented by ICAO, improved the capability of less developed countries to measure, manage and reduce their aviation emissions in order to support their submission of ICAO State Action plans. The project contributed to international, regional and national efforts to address growing emissions from international aviation through a complementary set of activities.

Preceding the ICAO Assembly of October 2016, a declaration of intent was signed between Transport Commissioner Violeta Bulc and ICAO Secretary General Dr Fang Liu, announcing their intention to continue cooperation in addressing climate change, which included the implementation of CORSIA. Various EU international cooperation projects have subsequently been put in place during 2017 and 2018 to provide capacity building and technical assistance in the regions of China, South Asia, South East Asia, Africa and Latin America, including the Caribbean. While operating in different contexts each with their specificities, these projects all share the objective to pave the way for the practical implementation of CORSIA and the establishment, or further development, of effective State Action Plans targeting aviation emissions.

EASA and EUROCONTROL are also supporting the European Commission on the implementation of CORSIA both within Europe and internationally. This includes developing CORSIA functionality based upon the ETS Support Facility with a focus on collecting and harmonising data for monitoring, reporting and verification processes, and the execution of international cooperation programmes to continue capacity building that addresses aviation’s climate impact around the world.

What is the difference between the EU ETS and CORSIA?

The EU Emissions Trading System (ETS) is a cap-and-trade system, which sets a limit on the number of emissions allowances issued, and thereby constrains the total amount of emissions of the sectors covered by the system. In the EU ETS, these comprise operators of stationary installations (heat and power as well as industry) and aircraft operators. The total number of emissions allowances is limited (‘capped’) and decreases over time, thus ensuring that the objective of an absolute reduction of the level of CO2 emissions is met at the system level. In the case of the EU ETS, this is expected to lead to an economy-wide emissions reduction of 43% in 2030 compared to 2005 levels for the sectors covered by the ETS. The gradually more limited supply of allowances drives operators in need of additional allowances to buy them on the market from other sectors in the system – hence cap-andtrade. The need for additional allowances is determined by an operator’s free allocation of allowances and actual emissions. The supply and demand for allowances establishes their price under the ETS, and the higher the price, the stronger the incentive to reduce emissions. As of September 2018, EU Allowances for CO2 emissions were being traded at over €20 per tonne.

The Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) is an offsetting scheme. An offsetting scheme is a cost-effective solution for the aviation industry, as emissions reductions that cannot be achieved in the aviation sector can be compensated through emission reductions in other sectors where the potential for quicker reductions is greater and the associated costs are lower. This is based on the premise that greenhouse gas emission reductions benefit the climate irrespective of the sector in which they occur. The objective of CORSIA is to reach Carbon Neutral Growth 2020 - that is, to ensure that the emissions from international aviation do not exceed the 2020 levels. To that end, aeroplane operators will be required to purchase offset credits in order to compensate for emissions exceeding the 2019-2020 baseline. These offsets, also known as emission units, will be made eligible under CORSIA for purchase by aeroplane operators, provided that they comply with an established set of Emission Unit Criteria adopted at ICAO level. The eligible units contribute to achieving emissions reduction in various sectors of the economy, such as renewable energy or waste management. Each offset credit represents the certification that a tonne of CO2 has been reduced or avoided compared to a scenario without CORSIA, meaning that the reduction would not have occurred in the absence of the offset-generating activity.

It is worth noting that ETS allowances are not currently accepted under CORSIA, and international offset credits, including those deemed to be eligible under CORSIA, will not be accepted under the ETS as of 1 January 2021.


20 Based on the information from ICAO website on States that have communicated their intention to volunteer to participate in offsetting CO2 emissions from 2021 to 2026, accessed 5 November 2018, and latest 2016 ICAO data on States’ individual share of the total international RTKs.