EU ETS – Why the need, what needs to be done and by whom?

Following up on my earlier post “Measure tonnes of Carbon not tons of dollars that EU ETS will save!”, I did some brief research on the topic and here’s a quick primer on European Union’s Emissions Trading Scheme cumulated from various sources.

Why the need for ETS?

  • Doubling of aviation carbon emissions in Europe between 1990 and 2006
  • Inability of governments to forge a global deal on reducing emissions as reasons that prompted EU to act.

Why is EU’s ETS an imperative?

  • Kyoto Protocol and the United Nations Framework Convention on Climate Change (UNFCCC) is of particular importance as they require countries listed to reduce their collective GHG emissions.
  • Principles 7,8 &9 of UN Global Compact also state the need to promote and develop environmental responsibilities and technologies
  • Goal #7 of Millennium Development Goals also ask countries to make policies beneficial to the environment

What & How of ETS

  • World’s first multinational cap-and-trade system started in 2005 (for EU states) for GHG emissions
  • On January 1st, 2012, the EU put in place a program called the Emissions Trading Scheme (ETS) which requires any airline flying in or out of the EU to obtain certificates for their carbon emissions.  Most certificates will be free for the first year of the program, but as of 2013, airlines will have to either purchase or trade for the certificates.  The cost of those certificates will proportional to the distance of the flights.

Possible Implications of the ETS

  • ETS may become a source of potential trade conflict that could spiral into global trade war
  • Sanctions against EU by the group of nearly 30 countries, including USA, China, India, Brazil, S. Africa, Russia
  • It would allegedly bring extra costs, higher fares and no environmental benefit.
  • Estimates show that the cost to airlines is likely to be between €5 and €10 for each passenger, which represents only a small addition to ticket prices for international flights.  – “…actually less than the price of the coffee you would buy at the airport.” – (Connie Hedegaard, the European commissioner for climate action)
  • Cause price volatility and disruptive spikes in energy prices


  • The governments/airlines opposing the ETS argue that the trading scheme constitutes a tax, which would be forbidden under longstanding international agreement, but the EU says a trading scheme is different, in part because companies can avoid paying for carbon permits by reducing their emissions.
  • Seen as a way of making money – Billions of dollars made by EU may disappear in National Budgets rather than for necessary “green funds”

Challenges to EU ETS

  • Developing a central coordinating organization
  • Devising incentives and benefits to encourage participation
  • Dealing with the interrelated issues of trade, politics, environment and harmony
  • A Unilateral decision and not a multi-lateral one

Role of ICAO (International Civil Aviation Organization – a UN agency) 

  • ICAO may act as an arbiter between Member States on matters concerning aviation
  • It may investigate any situation which presents avoidable obstacles to the development of international air navigation and, in general, it may take necessary steps to maintain the safety and regularity of international air transport.
  • Its major duty is to adopt international Standards and Recommended Practices (SARPs) and to incorporate these as Annexes to the Chicago Convention and ETS can also be included in those recommendations
  • Policy making – to address the environmental impact of aircraft engine emissions focused primarily on the ground level effects.

Role of opposing Countries/Airlines

  • Rather than attempting to derail the only functioning system to address aviation’s carbon emissions, the opposing countries should come forward with concrete suggestions for an even better, global solution
  • Countries must work with UN aviation agency, the International Civil Aviation Organization (ICAO) to reach a solution
  • Respective governments must provide support to their airlines in combating CO2 emissions

Role of Airbus & Boeing

  • Being the only big players on the scene, they need to act responsibly
  • Work with ICAO to develop next generation fuel efficient/alternate fuel planes
  • Support the Emissions Scheme even if it means reduced sales of their aircrafts, especially in the BASIC countries
  • As part of major MNC’s, they must respect the OECD Guidelines w.r.t climate change and environmental policies

My opinion

  • Just makes sense to have carbon tax on “all” flights!
  • Pass those costs or part of those costs on to the consumer – how much…less than a price of coffee at the airport!
  • EU ETS will cause others to respond in like!
  • Achieve balance and will become business as usual scenario with environmental costs embedded into the prices exist – which ought to be the case, in the first place!

(Image from ICAO website)


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