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European Parliament waters down aviation derogation text

26 Mar 2013 18:02:25 | edcm

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Climate-related investment could lose out on money from the sale of airline allowances, following a vote in the European Parliament's environment committee.

EU states should be free to use money from airline carbon allowance sales as they please, according to a text on the stop-the-clock proposal passed by the environment committee on Tuesday.

This rules out reserving revenue from the EU airline allowance (EUAA) auctions for green funding.

The proposal to earmark the proceeds was scuppered by opposition from the European Council, made up of national governments. The environment committee itself had pushed to ring-fence the money as a way of boosting international confidence in the EU emission trading system (ETS), but backed down in negotiations with the Irish EU Presidency, a source close to the matter said.

Delayed auctions

The latest text on the stop-the-clock derogation - which lets airlines escape EU ETS compliance for a limited grace period comes a day after the EU announced a delay to the start of EUAA auctions.

The EU postponed these auctions until at least June, it said late on Monday, or until "there is clarity on the volume to be auctioned".

This kind of clarity is expected only after May, as the auctioning volume depends on how many airlines opt for an exemption from the ETS under the stop-the-clock derogation.

Emissions from flights between EU airports and third countries were originally due to be included in the ETS from 2012, but this faced strong opposition from non-EU countries. The Commission suspended the inclusion of non-EU flights until the International Civil Aviation Organisation assembly meets in September.

The text adopted on Tuesday will come up for a plenary vote in European Parliament next month, before being formally adopted by the Council.

The plenary vote will take place during the session from 15 to 18 April.

Market impact

Experts polled by ICIS said the Commission's EUAA auction delay would further erode these credits' liquidity, which could prove a compliance hurdle for airlines still included in the ETS.

The uncertainty arising from the stop-the-clock proposal, and the consequent postponement of many airlines' involvement in the carbon market, has driven down liquidity for the EUAAs. This makes compliance hard, particularly for small aviation emitters, which make up a large share of airlines covered by the ETS.

It also adds to the potential compliance cost of all airlines, as EUAAs trade at a discount of around €0.75/tonne of CO2 equivalent to the more liquid EU allowances (EUAs), which have to then be purchased instead. Silvia Molteni/Marie-Louise du Bois

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