The European Commission (EC) is moving forward with aviation’s inclusion under the European Union Emission Trading Scheme (EU ETS) despite calls by airlines and industry associations to delay or abandon implementation. Airlines should no longer operate under the assumption that EU ETS implementation will be postponed. Airlines that delay action will face greater costs than those that proactively develop a near-term compliance strategy, which includes capturing the potential cost savings offered by aviation biofuels.
Starting in 2012, participating airlines will be required to surrender one permit for each ton of CO2 released on flights to, from and within the EU. The EC will cap 2012 permits at 212.9 million tons. This cap will reduce to 208.5 million tons in 2013. Individual airline emissions will be capped as a percentage of the total cap, calculated on their CO2 emissions contribution in 2010.
The EC will allocate 82 percent of the capped permits in the form of free allowances, auction off 15 percent, and keep the remaining 3 percent of permits in a reserve fund. The percent of free allowances is expected to decline throughout the third phase of the EU ETS, increasing the burden of compliance placed on aviation. Airlines that exceed their number of free allowances may purchase additional allowances via auctions or secondary markets.
Relying on a strategy of purchasing allowances for compliance will impose significant costs on airlines; Lufthansa has projected the EU ETS will create additional costs for the airline of up to 350 million euros a year. These costs are likely to increase if the industry continues on its projected growth path. Investments in fuel efficiency gains will be important but are not expected to offset a large portion of airlines’ new costs. In this environment, we expect aviation biofuels to receive continued and growing interest and investment, since aviation biofuels are considered zero-emissions fuels under the EU ETS.
For more information on the EU ETS and aviation’s 2012 emissions cap, please click here.