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Commission asks to exempt international flights from EU ETS

12 Nov 2012 19:25:58 | glm

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The European Commission will ask member states for a one-year delay on the inclusion of flights that are not wholly within the EU in the bloc's emissions trading system (ETS), Climate commissioner Connie Hedegaard said in a statement on Monday, after previous repeated assurances to the market that it would not back down on the matter.

After a UN International Civil Aviation Organisation (ICAO) meeting on Friday, the EU decided to "stop the clock", according to Hedegaard, on enforcing the inclusion of non-European flights in the EU ETS. Hedegaard has asked the bloc's 27 member states to approve the move, which will postpone their need to comply until after ICAO's general assembly meeting in autumn 2013.

"But let me be very clear: if this exercise does not deliver - and I hope it does, then needless to say we are back to where we are today with the EU ETS," Hedegaard added.

The move may be seen as a victory for the lobbying power of international airlines, which have vehemently resisted paying for their CO2 emissions under the EU rules. Without the EU U-turn, airlines would have had to hand in carbon credits to cover their 2012 emissions in April 2013.

Instead, the EU called the move a "window of opportunity" and said it would engage with ICAO to work towards an international solution on aviation emissions next year.

"Stopping the clock creates space for the political negotiations and demonstrates confidence on the side of the EU that together with international partners we will succeed in ICAO to agree on meaningful international action," Hedegaard said.

"This means the ICAO process is allowed time until the 2013 Assembly in September/October next year and that no compliance will be expected as regards air traffic outside the EU in the interim."

The EU only included airlines in the ETS after ICAO failed to make significant progress on the matter for over a decade.

After the EU responded by including airlines in its ETS as a way to address rising CO2 pollution from this sector, it repeatedly stated that it would not exempt airlines from their inclusion in the ETS, despite strong international resistance, arguing that it was legally sound (see EDCM 7 June 2012), which was also confirmed by the World Trade Organisation (see EDCM 1 June 2012). The latest move may now undermine the credibility of future assurances by the Commission to crack down on aviation emissions.

First reactions

Early reactions to the news were mixed.

The UK's Department of Energy and Climate Change (DECC) welcomed the EU's decision to exempt international flights from ETS compliance in another statement, also on Monday. "We welcome the Commissions proposed approach to 'stop the clock'," the DECC said. "It is right that ICAO are given more time to make progress on reaching a global deal on aviation emissions."

It added that once the legislative framework for this delay had been approved, it would revise its auctioning calendar for EU airline allowances (EUAA).

The news is bearish for the market, which is already oversupplied and has a bearish outlook.

One trader pointed out that the market would have trouble absorbing the additional permits, for which demand and liquidity have already been low.

Another trader said: "I'm a bit surprised but it's more promises nothing proven, nothing is known. But something had to give, with none of these countries willing to comply with the EU aviation scheme.

"It's a very good compromise - you work on a global scheme, and we'll work on an emissions scheme. None of the non-EU airlines have received their allocation yet.

"Instead of 30m demand there will be 10m demand ,that's peanuts compared to the EU allowance (EUA) overhang." MLDB

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