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OCR for page 37
State of the Global Carbon Markets and Aviation: Regulatory Requirements and Voluntary Stewardship 37 The aviation sector will, for the first time, be covered under the EU ETS in 2012. The EU ETS is the only carbon trading scheme to date that has or is planning to hold the aviation sector respon- sible for their GHG emissions. Airlines will be required to surrender one EUA or eligible off- set credits for every tonne of GHG emissions released from a domestic or international flight that either originates or lands at an airport of a participating country. This means that flights originating in the United States and landing in one of the EU-27 nations will be impacted by this regulation. Certain flights, including military operations, search and rescue flights, train- ing flights, and those by aircraft weighing less than 5,700 kg are exempted from the program. Emissions include the first movement of an aircraft from departure location to its final rest- ing after landing. The aviation sector will receive a relatively large pool of free emission allowances initially to help mitigate the cost of compliance. In 2012, airlines will receive free emission allowances that will cover approximately 97% of baseline emissions, determined as the average annual emissions released from 2004 to 2006 (Flight Global 2011). This allocation will decrease to 95% for the duration of the following compliance period beginning in 2013, and will contin- ually decline thereafter. Because the pool of potentially covered entities will vary, airlines will have to apply to the EU in advance of the compliance period to be considered to receive allocations under the EU ETS. Airlines must undertake a number of steps to comply with EU ETS. First, they must obtain an EU ETS GHG permit to operate in the EU. Additionally, airlines will be required to develop a plan for accounting for, monitoring, and verifying GHG emissions and to have implemented this to account for calendar year 2010 emissions as an initial baseline year. The plan for tracking and reporting emissions is documented in the GHG permit. Annual emissions must be indepen- dently verified and reported to the EU by April following the close of the calendar year. Allowances to cover these emissions, which may include EUAs, CERs (up to 15% emissions), or other approved flexibility mechanism units, must be surrendered by May 2013 and annually thereafter for the previous calendar year emissions. Finally, projected CO2 emissions covered under the EU ETS must be incorporated into corporate planning and public financial information. The impact to passenger costs and airline revenues is expected to be noticeable, but not sig- nificant enough to deter ridership significantly in the near term due to the large allocation of free emission allowances. The EU estimates that individual ticket prices will increase by approxi- mately 6 26 9 through 2020 (European Commission n.d.). However, the full impact of the market-based mechanism is not fully quantifiable at this time. Further, at this time there are several United States airlines that have launched litigation against the EU for these regulations. This case is in the hands of the European Court of Justice. Until a final decision would be made to except these entities, the airlines must comply with the rules as written (European Commission 2011). At this time no other national carbon regulation is slated to cover airline emissions. However, due to the global nature of the industry, the EU ETS may set a precedent for other national or regional climate trading schemes to also directly cover the aviation industry. 4.1.2 New Zealand The New Zealand Emission Trading System (NZ ETS) was passed in 2008 and implemented in July 2010, and after the EU ETS, represents the second most developed national level cap-and- trade program in the world. Currently, forestry, transportation fuels, electricity producers, and industrials are covered. By 2015, synthetic gas producers, the waste sector, and agriculture will fall under coverage of the NZ ETS. New Zealand Units (NZUs) may not be traded to another nation for compliance purposes. Participants in the NZ ETS will retain the ability to use Kyoto flexibil- ity mechanism credits for compliance purposes with no limits, providing a solid linkage to the global carbon market.