Airlines Near First Carbon Market as UN Forges Pollution Deal

  • Market seen voluntary until 2027 as poor nations seek cost cut
  • Lufthansa among airlines seeking inclusion of all countries

The first global greenhouse-gas market for airlines is poised to pass a key milestone on Friday.

The governing council of the International Civil Aviation Organization plans to agree on a final proposal on how airlines are charged for carbon emissions after 2020, the United Nations-overseen regulator said in an e-mailed statement. China is pushing for a voluntary start of a market system led by richer nations through 2026. The U.S. has proposed similar text.

The market, the first for a single industry, is designed to limit climate damage from an expected rise in airline emissions, which account for about 2 percent of the world’s greenhouse-gas output. It would ideally cover all nations, Deutsche Lufthansa AG said last month. Under revised plans, not all airlines on international routes may have to buy tradable credits to offset their carbon emissions.

“If they can get 80 percent participation, that would be good news,” said Annie Petsonk, an international counsel at the Environmental Defense Fund lobby group in New York, who has tracked the negotiations. “If they get 30 percent, it’s not.”

The governing council will agree on text that will be considered by ICAO’s 191 member nations at a meeting planned from Sept. 27 to Oct. 7 in Montreal.

Credit Trade

In proposals made so far, airlines will have to buy credits to cover any emissions that exceed thresholds based on 2020 levels. Such credits may be generated by approved emission-reduction projects ranging from wind parks to industrial-gas destruction. That would add demand in a market valued at about $50 billion by the World Bank.

A voluntary start to the market would balance developing nations’ need for lower climate-protection obligations, “while minimizing market distortion,” according to a submission by a group of nations including China, India, Russia and Arab nations.

Still, the plan raises the prospect that some developed-country airlines will need to buy some emission credits, while developing nation-operators won’t, for flights between the same cities.

The aviation regulator agreed in 2013 to start its own market after the European Union scaled back expansion plans for its system, the world’s biggest, that would have covered international flights. The European Commission declined to comment on the airline industry negotiations.

The voluntary status erodes the ambition of the planned program and will limit its ability to encourage finance in clean technology, said Louis Redshaw, founder of Redshaw Advisors in London, which trades carbon on behalf of clients.

“It’s ridiculous,” Redshaw said by phone. “They said they were going to do it. Now, it turns out they’re not going to.”

— With assistance by Ewa Krukowska

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