GLOBAL GA - Holman Fenwick Willan
GLOBAL GA - Holman Fenwick Willan GLOBAL GA - Holman Fenwick Willan
The EU ETS: simplified procedure for small emitters - not so simple? Introduction The EU’s Emissions Trading System (or Emissions Trading Scheme, as it is more commonly known) (“EU ETS” or “the Scheme”) was extended to include the aviation industry from 1 January 2012. Although the subject of intense scrutiny and attack, a legal challenge against the EU ETS by the Air Transport Association of America, supported by the International Air Transport Association and the National Airlines Council of Canada, was dismissed by the European Court of Justice in December 2011. Although this is by no means the end of the story, the EU ETS has now come into effect for the aviation industry and is likely to remain so notwithstanding ongoing legal and political challenges to its validity. This article considers the effect of the Scheme on ‘small emitters’, with a particular focus on the problems already being experienced by business aircraft operators. Background The EU ETS is a market-based “cap and trade” scheme for environmental improvement that allows participants to buy and sell emissions allowances i.e. the right to emit a fixed amount of emissions each year. At the end of each trading year, operators must “surrender” allowances which correspond to their actual emissions for that year. A certain number of free allowances are allocated to each operator based on a benchmark figure set by the European Commission (“the Commission”) and 02 General Aviation Bulletin tonne-kilometre data provided by that operator for the year 2010. Unused allowances can be sold to other operators but additional allowances must be purchased if extra emissions are made, or serious penalties may be applied. The Scheme places obligations on operators to monitor, report and verify (“MRV”) their emissions data. In essence, an aircraft operator falls under the EU ETS if it performs flights to, within or from the EU. However, if an operator only operates exempt flights (set out in Annex I of Directive 2003/87/EC) or is a commercial air transport operator falling below the de minimis threshold (see below), the operator is not caught by the Scheme. Important Annex 1 exemptions for the GA market include military flights, search and rescue flights, flights performed exclusively under visual flight rules, flights departing/arriving at the same aerodrome (where no intermediate landing has been made), training flights performed exclusively for the purpose of obtaining a licence, and flights performed by aircraft with a certified take-off mass of less than 5,700kg. The de minimis threshold: “small emitters” A commercial aircraft operator is defined in the relevant EU legislation as an operator with an Air Operator’s Certificate under Part I of Annex 6 to the Chicago Convention. If a noncommercial operator operates fewer than 243 flights per period for three consecutive four-month periods (Jan- April, May-Aug, Sep-Dec) or operates flights with total annual emissions of less than 10,000 tonnes CO 2 per year (the de minimis threshold), it is considered to be a “small emitter” for EU ETS purposes. Commercial operators who operate below the de minimis threshold are exempt from EU ETS altogether. Small emitters are permitted to use a simplified procedure for calculating their annual emissions, which is designed to ease the administrative burden of compliance with some aspects of the Scheme. Although many business aircraft operators fall below the de minimis threshold, the European Business Aviation Association (EBAA) has intensively lobbied the Commission regarding the arbitrarily low limit of 10,000t of emissions. We understand that, in December 2011, the Commission agreed to increase the threshold to 25,000t (EBAA wanted a higher limit of 50,000t), although this is not expected to come into play until 2013. The simplified procedure: is it really that simple? Eurocontrol has produced a ‘small emitters tool’ (“SET”), which has been approved by the European Commission and can be used by small emitters to determine their fuel consumption for EU ETS monitoring and reporting purposes. The SET provides an estimate of fuel consumption based on the actual flight distance and a representative fuel burn model for the aircraft type. It uses the standard density for jet kerosene of 3.15 tCO 2 /tfuel to provide an estimate of the amount of CO 2 produced per flight. Although the SET is free to use, small emitters are still required to adhere to the formal standard reporting and verification requirements set down by the Commission. Unsurprisingly,
many smaller business aircraft operators do not have the resources to dedicate to the time-consuming standard MRV requirements. Recent research carried out suggests that 80% of smaller businesses have already struggled with the administrative burden of compliance and could also face annual verification costs of around €1,000. However, the EBAA estimates that verification costs could, in fact, be much higher. In addition to the SET, Eurocontrol offers (at a cost of €400 per access) an ETS Support Facility which incorporates the SET and produces a draft annual emissions report for small emitters generated from the best available data and flight information. The form of draft report is compliant with the Commission’s reporting requirements but does still require formal verification before it can be submitted. Although some providers (such as VerifAvia) offer a simplified verification procedure for small emitters (which can be conducted remotely by email), small emitters are not relieved of the compliance burden entirely. Free allowances: why it pays to be heavy Another criticism of EU ETS from the business aviation community is that the benchmarking process for calculating free allowances discriminates against business aircraft operators. 85% of the total emissions cap for 2012 has been allocated to qualifying operators (i.e. those who submitted a verified benchmarking report for 2010) for free. The total number of free allowances available will be reduced to 83% from 2013. Allocation of free allowances is based on the operator’s tonne-kilometre data as a proportion of the total tonne-kilometre data of all operators caught by the Scheme in the benchmark year 2010. Tonnekilometre data is calculated using the formula: distance (km) x payload (t). So, the heavier an operator’s payload (i.e. total mass of freight, mail and passengers carried), the higher the tonne-kilometre calculation and the greater the number of free allowances granted. The consequence for business aircraft operators, whose payloads are on a completely different scale compared to commercial airlines, is that they are expected to have to acquire some 96% of their historical CO 2 emissions in permits, whereas busy commercial airlines may need to acquire only 15%. As a result, it is thought that some business aircraft operators are choosing to purchase permits for 100% of their emissions, rather than spending time and money calculating how far their free allowances will go. The future While non-EU countries (such as America and China) legislate to prohibit compliance with EU ETS, and organisations (such as the EBAA) continue to lobby the Commission intensively, the latter remains firm in its stance that EU ETS is legally valid, fully in force and must be complied with. Although many business aircraft operators are not against the premise of EU ETS, it is the timing and execution of the “one-size-fits-all” approach that has been criticised. Pressure continues to grow for an international agreement on carbon emissions from aviation which might resolve the current “stand off” between the EU and those countries threatening non-compliance, but the Scheme is in full swing for now and cannot be ignored. For those business aircraft operators who are not in a position to retrofit newer engines, install winglets, or conduct aerodynamic paint-jobs, it may simply be a case of biting the compliance bullet for now and awaiting developments at an international level. However, the business aviation community will wish to ensure that its legitimate concerns are not overlooked in the event of any adjustment to the application of EU ETS to reflect any international compromise reached in the near future. For more information, please contact Sue Barham, Partner, on +44 (0)20 7264 8309 or sue.barham@hfw.com, or Victoria Cooper, Associate, on +44 (0)20 7264 8556 or victoria.cooper@hfw.com, or your usual contact at HFW. “Although many business aircraft operators are not against the premise of EU ETS, it is the timing and execution of the “one-size-fits-all” approach that has been criticised.” General Aviation Bulletin 03
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many smaller business aircraft<br />
operators do not have the resources<br />
to dedicate to the time-consuming<br />
standard MRV requirements. Recent<br />
research carried out suggests<br />
that 80% of smaller businesses<br />
have already struggled with the<br />
administrative burden of compliance<br />
and could also face annual<br />
verification costs of around €1,000.<br />
However, the EBAA estimates that<br />
verification costs could, in fact, be<br />
much higher.<br />
In addition to the SET, Eurocontrol<br />
offers (at a cost of €400 per access)<br />
an ETS Support Facility which<br />
incorporates the SET and produces<br />
a draft annual emissions report<br />
for small emitters generated from<br />
the best available data and flight<br />
information. The form of draft report<br />
is compliant with the Commission’s<br />
reporting requirements but does still<br />
require formal verification before it<br />
can be submitted. Although some<br />
providers (such as VerifAvia) offer<br />
a simplified verification procedure<br />
for small emitters (which can be<br />
conducted remotely by email), small<br />
emitters are not relieved of the<br />
compliance burden entirely.<br />
Free allowances: why it pays to be<br />
heavy<br />
Another criticism of EU ETS from<br />
the business aviation community<br />
is that the benchmarking process<br />
for calculating free allowances<br />
discriminates against business<br />
aircraft operators. 85% of the total<br />
emissions cap for 2012 has been<br />
allocated to qualifying operators<br />
(i.e. those who submitted a verified<br />
benchmarking report for 2010)<br />
for free. The total number of free<br />
allowances available will be reduced<br />
to 83% from 2013. Allocation of free<br />
allowances is based on the operator’s<br />
tonne-kilometre data as a proportion<br />
of the total tonne-kilometre data of<br />
all operators caught by the Scheme<br />
in the benchmark year 2010. Tonnekilometre<br />
data is calculated using the<br />
formula: distance (km) x payload (t).<br />
So, the heavier an operator’s payload<br />
(i.e. total mass of freight, mail and<br />
passengers carried), the higher the<br />
tonne-kilometre calculation and the<br />
greater the number of free allowances<br />
granted.<br />
The consequence for business<br />
aircraft operators, whose payloads<br />
are on a completely different scale<br />
compared to commercial airlines,<br />
is that they are expected to have to<br />
acquire some 96% of their historical<br />
CO 2 emissions in permits, whereas<br />
busy commercial airlines may need<br />
to acquire only 15%. As a result, it is<br />
thought that some business aircraft<br />
operators are choosing to purchase<br />
permits for 100% of their emissions,<br />
rather than spending time and<br />
money calculating how far their free<br />
allowances will go.<br />
The future<br />
While non-EU countries (such<br />
as America and China) legislate<br />
to prohibit compliance with EU<br />
ETS, and organisations (such as<br />
the EBAA) continue to lobby the<br />
Commission intensively, the latter<br />
remains firm in its stance that EU<br />
ETS is legally valid, fully in force and<br />
must be complied with. Although<br />
many business aircraft operators<br />
are not against the premise of EU<br />
ETS, it is the timing and execution<br />
of the “one-size-fits-all” approach<br />
that has been criticised. Pressure<br />
continues to grow for an international<br />
agreement on carbon emissions<br />
from aviation which might resolve<br />
the current “stand off” between the<br />
EU and those countries threatening<br />
non-compliance, but the Scheme is<br />
in full swing for now and cannot be<br />
ignored. For those business aircraft<br />
operators who are not in a position<br />
to retrofit newer engines, install<br />
winglets, or conduct aerodynamic<br />
paint-jobs, it may simply be a case<br />
of biting the compliance bullet for<br />
now and awaiting developments at<br />
an international level. However, the<br />
business aviation community will<br />
wish to ensure that its legitimate<br />
concerns are not overlooked in<br />
the event of any adjustment to the<br />
application of EU ETS to reflect any<br />
international compromise reached in<br />
the near future.<br />
For more information, please contact<br />
Sue Barham, Partner, on +44 (0)20<br />
7264 8309 or sue.barham@hfw.com,<br />
or Victoria Cooper, Associate, on<br />
+44 (0)20 7264 8556 or<br />
victoria.cooper@hfw.com, or your<br />
usual contact at HFW.<br />
“Although many<br />
business aircraft<br />
operators are not<br />
against the premise<br />
of EU ETS, it is<br />
the timing and<br />
execution of the<br />
“one-size-fits-all”<br />
approach that has<br />
been criticised.”<br />
General Aviation Bulletin 03
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