With its Emissions Trading System (ETS) covering more than 12,000 installations, the European Union (EU) has been a global leader in establishing mechanisms that compel industries to pay for the right to pollute. But the EU has struggled with whether and how to bring Europe’s civil aviation sector into this system. According to the U.N. Intergovernmental Panel on Climate Change (IPCC), civil aviation accounts for at least two percent of all CO₂ emissions, and represents at least three percent of the total anthropogenic impact on climate change.

Over the past three months, the EU has proposed two major Directives which seek to incorporate aviation emissions into the ETS. The first, released in December 2007, would pull air transportation emissions into the ETS as early as 2011, beginning with all domestic and international flights between EU airports, then extending in 2012 to all international flights arriving at or departing from EU airports. The Directive would apply to both EU-based and foreign carriers. During the ETS “Phase II” (through 2012) period, the majority of emissions allowances to aviation would be issued for free on the basis of each operator’s historical share of traffic.

The second proposed Directive, released in late January, addresses the structure of “Phase III” (post-2012) of the ETS and proposes to further decrease the permissible emissions from civil aviation. Under this proposed Directive, civil aviation would, as of 2013, be subjected to declining annual emissions caps. Like many other industries covered by the proposed Directive, civil aviation would receive 80% of its emissions allowances for free in 2013, and would have to purchase the balance at auction or on the market. The free allocation would decrease annually by equal amounts until 2020, when free allowances would no longer be provided.

Notably, the paragraphs in the proposed Phase III Directive that would give effect to the new requirements on the civil aviation sector are bracketed, reflecting strong political differences on the inclusion of civil aviation under the proposed terms. Much of the dissent to the inclusion of civil aviation is driven by concerns over the likely adverse competitive impact on European airlines if the proposed Directive enters into effect. As major EU-based airlines such as Lufthansa have pointed out, if the EU acts alone in imposing greenhouse gas emissions costs on airlines, global air traffic flows are likely to be altered to the detriment of EU airlines, but without a net positive impact on global aviation emissions. The United States has also complained about the proposed Directives, claiming that they would impose costs on U.S. air carriers in contravention of the recently concluded “Open Skies” agreement between the United States and the EU. The bracketed language in the proposed Directive reflects these competitive concerns, urging the EU to work toward a global agreement to reduce greenhouse gases from civil aviation.

Meanwhile, the International Civil Aviation Organization (ICAO) has developed its own work plan for the development of a global program to reduce greenhouse gas emissions from civil aviation. The first step, decided at the ICAO’s 36^th Assembly in September 2007, is the formation of a Group on International Aviation and Climate Change. But it may take years for this group to issue concrete proposals - a process likely to be complicated by the divergent interests of ICAO’s global membership. At least for the moment, it appears that the EU’s efforts to regulate aviation emissions within its borders are rapidly outpacing ICAO’s work toward a global framework.

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