ICON Mbms PageOnce the industry has maximised the reductions in emissions through technology, operational efficiencies and infrastructure improvements, we can then turn our attention to economic measures that can help to limit aviation’s climate change effects. Economic measures should first be used to boost the research, development and deployment of new technologies rather than as a tool to suppress demand. The use of tax credits and direct funding must be explored as incentives to drive new technology programmes and encourage companies to invest in new, more efficient equipment.

While emissions from domestic aviation (and airport facilities) are covered under the Kyoto Protocol, those from international aviation (and shipping) are not, due to the difficulty in allocating these emissions to specific countries. International aviation emissions are therefore not included in the carbon reduction goals of signatories to the Kyoto agreement. Instead, governments agreed to pursue the limitation or reduction of such emissions through the UN's aviation body, the International Civil Aviation Organisation (ICAO).

Since 2008, the aviation industry has been asking Governments to develop a global market-based measure for international aviation, as part of the four pillar strategy. Despite political differences, at the 2013 ICAO Assembly Governments agreed to develop such a measure by the 2016 Assembly, for implementation by 2020. This will mean that the industry’s suggested goal of carbon-neutral growth from 2020 can be realised. While there is a lot of work that needs to be done before the 2016 Assembly, the industry is confident that this is the best course of action. It is also worth noting that aviation is subject already to some $7 billion worth of fuel- and emissions-related taxes and charges in various places around the world. Below are some of the options for economic measures:

Offsetting

This is the industry’s preferred option, at least initially. Offsetting is the process of purchasing good quality carbon credits in the global market (such as the UNFCCC’s CDM, or gold standard credits and using them to offset the carbon emitted. In other words, if a flight creates one tonne of CO2, a credit can be purchased which helps fund a scheme for greener electricity production in a developing country the value of which would save one tonne of CO2.

This is the industry’s preferred option because it is the simplest to implement and could be used by all countries – it does not require a sophisticated infrastructure like some of the other options below.

Emissions trading

An emissions trading scheme (ETS), also known as cap-and-trade, involves setting an overall limit on emissions and then allowing companies to buy and sell emission allowances to meet their reduction targets. A global ETS is one possible option for ICAO to follow in pursuit of a reduction in emissions.

An emissions trading scheme can provide an added financial incentive for companies to combat global warming because emissions allowances are given a cash value; companies that are able to reduce their own emissions can sell excess credits to companies that exceed their targets. However, for a full ETS to be developed, it requires a complicated registry and allocation system to be established, which may slow down progress particularly with the complexities of a global marketplace.

Currently, international aviation is not covered under any global emissions trading scheme. However, the European Union included all international flights departing from or arriving at European airports under their internal ETS. This led to a fairly tense stand-off between the EU and other parts of the world as they objected to the EU regulating their airlines even as they were flying over their own airspace. The EU, prior to the 2013 ICAO Assembly, agreed to pause this scheme to allow negotiations to take place at ICAO on developing a global scheme.

Aviation is currently covered under several emissions trading schemes at a domestic or regional level: the European ETS covers all flights between airports in the EU, Iceland and Norway (the European Economic Area); China has implemented trial ETS at several Chinese cities, including one in Shanghai that covers domestic airlines; and New Zealand’s ETS covers domestic aviation.

Green taxes

Green taxes add a cost to each flight, whether by adding a charge for each passenger carried, for each take-off or landing, or for each leg of a flight. Green taxes are aimed at changing demand for air transport, which simply means pricing some passengers out of the market.

But in many instances, travellers have no reasonable alternative to air transport.

The aviation industry believes that green taxes are not a viable solution to address aviation’s contribution to climate change because they drain the aviation sector of financial resources needed for investments into research and development. In nearly all cases, the money raised by governments from such taxes have not been reinvested in environmental improvement measures – the UK’s Air Passenger Duty is a case in point.

Fuel levies

Fuel levies are additional taxes on fuel. Fuel is already the largest expense for the aviation industry. Fuel levies tend not to be an effective emissions-reduction tool for aviation because of the international nature of its operations. Airlines should make refuelling decisions based on efficiency rather than stopping in one country instead of another because of the tax regime. This is why the Chicago Convention protects international services from fuel taxes to prevent unilateral fiscal measures.

The development of a global market-based measure for aviation

The industry will be working to help Governments develop a global MBM for aviation before the next ICAO Assembly in 2016. Among the technical design work that will take place are the following elements.

  • MRV: deciding on the most appropriate ways to measure aviation emissions, so that all countries and airlines are measuring the same things in the same way.
  • Offsets: deciding what the best quality offsets are and what are acceptable uses of the revenue from the measure.
  • Coverage: deciding whether all countries need to take part (there are a number of very small aviation markets which combined would only account for a couple of percent of the industry’s emissions – they may not need to go through the process.
  • Fairness: how to reconcile the need to ensure good coverage, whilst also taking account of some of the key dynamics of the aviation industry – there are some very mature markets (mainly the developed world) that are not growing rapidly, and some very fast growth areas (mainly in the developing world). The key political sticking point is how to make sure one set of countries does not pay too much, considering their desire to develop their economies, whilst also ensuring that overall growth in emissions does not take place. Aviation, unlike most other sectors, is fairly homogenous as we use the same equipment and fly the same routes no matter if we are flying from developing or developed countries.