Thursday, April 19, 2012

What Does China's Emissions Reduction Proposal Mean For EU ETS?

EU officials have expressed a willingness to consider whether China's recently announced plans to reduce carbon emissions from aviation could constitute an "equivalent measure" that would exempt Chinese carriers from required participation in the EU ETS. See Barbara Lewis, EU Climate Boss: Studying China's Airline CO2 Plan, Reuters, April 19, 2012 (available here). China is proposing to redirect revenue from an existing passenger tax on international flights to the newly created Civil Aviation Development Foundation, which will be responsible for reducing aviation emissions among other duties. The tax will not be increased, so any claimed emissions reductions from the plan will have to come from the initiatives produced by the Civil Aviation Development Foundation as opposed to a deterrent effect from the tax itself. The authority to exempt carriers from States that adopt equivalent emissions reduction measures is granted by recital 17 of the preamble to Directive 2008/101/EC, the directive that incorporated aviation into the EU Emissions Trading Scheme. The complete text of recital 17 is as follows:

The Community and its Member States should continue to seek an agreement on global measures to reduce greenhouse gas emissions from aviation. The Community scheme may serve as a model for the use of emissions trading worldwide. The Community and its Member States should continue to be in contact with third parties during the implementation of this Directive and to encourage third countries to take equivalent measures. If a third country adopts measures, which have an environmental effect at least equivalent to that of this Directive, to reduce the climate impact of flights to the Community, the Commission should consider the options available in order to provide for optimal interaction between the Community scheme and that country’s measures, after consulting with that country. Emissions trading schemes being developed in third countries are beginning to provide for optimal interaction with the Community scheme in relation to their coverage of aviation. Bilateral arrangements on linking the Community scheme with other trading schemes to form a common scheme or taking account of equivalent measures to avoid double regulation could constitute a step towards global agreement. Where such bilateral arrangements are made, the Commission may amend the types of aviation activities included in the Community scheme, including consequential adjustments to the total quantity of allowances to be issued to aircraft operators.

Because "equivalent measures" has never been defined, this provision has long been identified as one that offers the EU and opposing States some potential flexibility to reach a compromise. However, according to the text, a "third country"such as China would need to adopt measures, "which have an environmental effect at least equivalent to that of" the EU ETS. It is unclear how the EU will determine the environmental effect of China's Civil Aviation Development Foundation without at least some understanding of the emissions-reducing measures the Foundation will produce. In the event that EU officials aren't satisfied that China's proposal will have an equivalent environmental effect, recital 17 indicates that the EC has the option of amending the application of the ETS to China's carriers without exempting them completely, presumably by granting the carriers more allowances free of charge as compensation for China's less-than-equivalent emissions reduction efforts. Such a gesture may not be enough to convince China to drop its complaints against the EU scheme, as those complaints have often been couched in terms of sovereignty and the EU's authority to extend the scheme to Chinese carriers rather than the actual cost of the scheme. Regardless, this will serve as an interesting initial test of whether "equivalent measures" can provide a solution to the current impasse.

http://lawprofessors.typepad.com/aviation/2012/04/what-does-chinas-emissions-reduction-proposal-mean-for-eu-ets.html

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