Last week, the European Commission voted to include aviation emissions in the European Union Emissions Trading System (EU-ETS), beginning in 2012.  The decision means that air carriers - of passenger and freight - landing in or taking off from the European Union must obtain and surrender emission allowances. 

Notably, aviation emissions will operate under a cap that is separate from other industries captured by the EU-ETS.  The initial cap will be set at 97% of the average emissions of 2004 through 2006.  Beginning in 2013, when the EU-ETS enters its third phase, the cap will drop another 2%.  Initially, 85% of the allowances will be distributed to carriers for free, and only 15% will be auctioned.  The European Union has the option of changing the allocation percentages once the airlines begin trading emission allowances. 

Including aviation emissions in a cap-and-trade system is a very controversial topic, particularly given the poor financial health of many major carriers.  Experts estimate that including aviation in the EU-ETS will cost carriers over $4 billion per year in compliance costs.  These costs will inevitably be passed on to air travelers, making flying in and out of Europe more expensive than it is today.

In the United States, federal cap-and-trade proposals, such as Lieberman-Warner and Dingell-Boucher, have not included the aviation industry, choosing to concentrate instead on power generation and large industrial facilities.  Transportation activity in the air, sea and land would, however, be captured indirectly as petroleum refineries are likely to be one of the targeted industries. 

For further information about this topic, please contact Akin Gump.