Up in the air – the suspension of the aviation EU ETS for non-EU airlines: UPDATE

by Reed Smith

[authors: Peter Zaman, Nicholas Rock, Shariq Gilani]

Since our client alert last week (click here to access), the European Commission has published a draft Decision1 and ‘Questions and Answers’2 (“Q&As”), elaborating on its proposal to ‘stop the clock’ on the international aviation elements of the EU Emissions Trading System (“EU ETS”) while the ICAO attempts to broker a global settlement.

In general terms there are no surprises or major changes in the draft Decision compared to last week’s announcements. However, certain important issues have become clearer.

The first key point is that the clock is stopped until 1 January 2014 only for 2012 emissions and only in respect of flights to or from aerodromes in countries outside the EU/EFTA region (“non all-EU flights”). Operators of intra-EU flights must continue to comply in full in respect of their 2012 emissions from such flights.

In order to benefit from the Commission’s Decision, aircraft operators will have to have returned an amount of allowances corresponding to any free emissions allowances issued to them in 2012 in respect of non all-EU flights. Thus aircraft operators wishing to take advantage of this derogation cannot simply sit back, but will have to take positive action to avoid enforcement action.

Although the draft Decision does not say this explicitly, logically its effect appears to be to scrap the scheme for non all-EU flights for 2012, as there is no provision for allowances to be surrendered for 2012 emissions at any later stage, returned and unissued 2012 allowances are to be cancelled (Article 2) and a correspondingly lower quantity of aviation allowances is to be auctioned in 2012. This also removes the issue we highlighted in last week’s alert regarding the problem of banking Phase 2 allowances for use in Phase 3.

In the absence of further modifications to the EU ETS in 2013, all flights arriving in or departing from the EU including non all-EU flights will be subject to the EU ETS for their emissions in 2013, and allowances would need to be surrendered for this period unless further deferrals or variations to the EU ETS scheme are enacted at a later date (see Q&A 7).

Therefore, although the Q&As are unclear on whether this is legally required, it would appear that aircraft operators should in practice continue to monitor emissions in respect of their flights during 2013. Otherwise they risk their fuel usage for 2013 being determined using a standardised method.

The Commission stated last week that the ICAO would have a year in order to broker a global settlement. However, in the Explanatory Memorandum they appear to have given themselves some leeway by suggesting that they will propose further modifications if ‘clear and sufficient progress is made at the ICAO’ in late 2013.

It is interesting to note that the Commission has not made any comment as to the potentially anti-competitive effects of the proposal with regards to its impact on European as opposed to non-European airlines. The Commission has also not commented on the bill passed by the US Congress preventing American airlines from participating in the EU ETS.

The Commission has expressed its desire that the European Council and Parliament agree to the draft Decision by March 2013. Importantly, the Explanatory Memorandum to the draft Decision states that pending agreement of the draft, the Commission will not require member states to take enforcement action against any aircraft operators that have either not received or have returned their free 2012 allowances. This is a curious statement from a legal perspective since Member State implementing legislation will typically place a binding obligation on regulators to enforce the Scheme which will not be overridden by a merely draft Commission Decision. However, in practice it is of course highly unlikely that any Member State would take action in the face of such a communication from the Commission.

It is clear that for the next 10 months, all eyes will now be on the ICAO as it attempts to broker a global settlement on aviation emissions. 90% of the room for manoeuvre as to the shape of that scheme is in this crucial development stage, so those who lobbied during the development of the Aviation EU ETS should now turn their full attention to the ICAO.

1. http://ec.europa.eu/clima/policies/transport/aviation/docs/com_2012_697_en.pdf  
2. http://ec.europa.eu/clima/policies/transport/aviation/docs/20121120_qa_en.pdf


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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