EU Proposes Narrowing Airlines CO2 Curbs to Own Airspace

The European Union’s regulatory arm proposed limiting the scope of its greenhouse-gas program for airlines to regional airspace after countries worldwide agreed on a roadmap to a global carbon market earlier this month.

The 28-nation EU would extend a temporary freeze on foreign flights through this year and exempt carbon-dioxide discharges taking place from 2014 outside the European airspace, according to a draft amendment to the bloc’s emissions trading law presented today by the European Commission. The original design of the market, which covered emissions the entire length of all flights to and from the region’s airports, triggered opposition from the U.S. to Russia and India.

“I think all countries that will respect law and order will recognize our right to regulate in our own sovereign airspace,” EU Climate Commissioner Connie Hedegaard said at a press conference in Brussels. “This is a very important principle.”

The proposal means airlines from Delta Air Lines Inc. (DAL) to Air China Ltd. (753) will need to surrender carbon allowances for their emissions in the European airspace from 2015 as a temporary suspension for flights into and out of the EU is prolonged by a year. The freeze was imposed for emissions in 2012 to facilitate talks in the International Civil Aviation Organization, which agreed on Oct. 4 in Montreal on a roadmap to a decision on a global carbon measure in 2016.

In Limbo

Before Europe suspended carbon curbs on foreign flights, President Barack Obama signed a bill shielding U.S. carriers including Delta from the EU rules and Russia announced it was considering limits on European flights over Siberia as part of possible retaliatory measures. Airbus SAS said in June that 27 orders from China for A330 wide-body jetliners are still in limbo after the government there froze the contracts as part of a campaign against the EU plans.

Europe, which wants to lead the global fight against climate change, included airlines in its carbon market last year after aviation emissions in the region doubled over two decades. Companies in the system are subject to a decreasing cap on their emissions and have to submit allowances by the end of April each year to cover discharges for the previous year.

There will be an extraordinary two-year compliance cycle for airlines from 2013 through 2014, the commission said on its website. Allowances for emissions in those two years need to be surrendered by April 30, 2015. While intra-European flights remain fully covered by the ETS, discharges from flights operated to and from third countries in 2013 are exempted.

Free Permits

Prices for EU aviation permits for December rose 3.2 percent to 4.36 euros ($5.91) a metric ton yesterday on London’s ICE Futures Europe exchange. The allowances have fallen 26 percent this year.

Carriers in the ETS are given free emission permits making up 85 percent of the industry cap and have to buy the remaining 15 percent at auctions. The auctioning schedule will be adjusted to reflect the lower volume of aviation allowances from 2013 to 2030, the commission said.

The proposal is unlikely to alter the supply and demand balance significantly as the change in covered emissions is offset by proportional adjustments to auctions and free allocation, said Jerry van Houten, an analyst at Bloomberg New Energy Finance in London.

“The much smaller compliance burden for international aviation means that the EU’s trading partners are unlikely to balk at the revised plan, but some may still refuse to cooperate,” he said by e-mail today.

‘Tough Negotiations’

The next step for Europe on the international scene is to secure an agreement on the details of the future emission-reduction program for airlines at the next ICAO triennial assembly, Hedegaard said.

“That requires negotiations; I also believe tough negotiations, from what I saw happening in Montreal,” she said. “In the meantime Europe must insist on our own sovereign right to regulate also aviation in and over our European airspace.”

Envoys from more than 190 countries to ICAO’s general assembly earlier this month declined to validate the EU carbon market. Instead, they called on member states to engage in consultations when designing new or implementing existing emission-reduction programs.

“Europe has tried to be very constructive in these talks,” Hedegaard said. “Now we’re adjusting our legislation so far in order also to create the necessary good atmosphere around the negotiations up to 2016.”

1 Percent

The proposed amendment to the EU emissions-trading law also reflects special exemptions for flights to and from developing states, as agreed by ICAO. Routes to and from those states whose share of international civil aviation is less than 1 percent should not be subject to carbon-market measures until a global program is implemented, ICAO decided earlier this month.

To be enacted, the commission’s proposal will need to be approved by national governments and the EU Parliament. Matthias Groote, chairman of the Parliament’s environment committee, and Peter Liese, its member overseeing aviation legislation, urged their colleagues to decide on the draft measure swiftly.

“The EU is free to legislate within its own airspace, and we are committed to include aviation emissions in the ETS,” Groote said in an e-mailed statement.

To contact the reporter on this story: Ewa Krukowska in Luxembourg at ekrukowska@bloomberg.net

To contact the editor responsible for this story: Lars Paulsson at lpaulsson@bloomberg.net

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