News Backgrounder
ETS row: lessors nervous
As opposition to Europe’s aviation carbon trading scheme mounts, the leasing industry is taking steps to protect itself against the possible confiscation of aircraft.
September 1st 2012
With airlines in China and India, the world’s two biggest growth markets, refusing to participate in the European Union’s (EU) emissions trading scheme (ETS), many aircraft lessors have moved to protect themselves from the possible confiscation of aircraft operated by carriers that break the rules. Read More »
Lessors contacted by Orient Aviation won’t comment publicly, but several industry sources at leasing companies and airlines have confirmed privately that many new leasing contracts include provisions stipulating that lessees, or permitted sub-lessors, will operate the aircraft in compliance with the EU ETS.
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| 'The onus now is on Europe to take credible action to defuse the situation and get on with finding the global solution' |
| Tony Tyler Director General IATA |
An additional rider ensures that any liability arising from non-compliance with the EU ETS cannot be shifted to the owner, lessor or financer of the aircraft. EU law states that persistent failure to comply with the scheme can lead to fines and, in extreme cases, to aircraft being impounded.
More than a third of the global airline fleet is leased and the percentage is rising. Among India’s financially-troubled airlines nearly all the jet aircraft are on lease. The number of leased jets in China is also extremely high.
These two countries are spearheading opposition to the EU ETS and their airlines have flouted the regulations. Two Indian airlines and eight Chinese carriers failed to meet a March 31 deadline to comply, although more than 1,200 airlines, including U.S. carriers, have met the requirements.
Last month, 17 countries opposed to the EU law, which forces airlines to pay for the carbon they emit on flights to and from Europe, gathered in Washington for a meeting hosted by the U.S. State Department and Department of Transportation.
“In a nutshell, the meeting confirmed the very solid and strong opposition to the ETS, but also indicated there is a lot of interest among countries in continuing to work on the suite of activities in ICAO (International Civil Aviation Organization),” said a senior U.S. official in a news briefing.
Attending the meeting were Australia, Brazil, Canada, Chile, China, Colombia, India, Japan, South Korea, Mexico, Nigeria, Russia, Saudi Arabia, Singapore, South Africa and the United Arab Emirates.
They plan to implement the goals and actions agreed at the 2010 ICAO assembly, including a voluntary target to cap net carbon emissions by 2020, national action plans, improving air traffic management and adopting an emissions standard for aircraft.
There was also broad agreement that they would continue to develop market-based measures that countries or regions could use to curb emissions.
However, the senior official said while there was broad support for creating an international emissions trading or carbon offsetting system, work on the feasibility and on implementing such a scheme would take “a substantial period of time … I don’t have any basis for projecting whether there will be any agreement by the time of the 2013 assembly.”
He said that although the EU was not represented at the talks, he had briefed an EU counterpart on the discussions.
Shortly before the Washington meeting, a U.S. Senate committee passed a bill authorizing the transportation secretary to bar U.S. airlines from complying with the EU ETS. The measure is now awaiting a vote by the full Senate.
In another international development, the Australian government last month voiced its strongest objection yet to the EU scheme. The government backed a strongly worded motion by opposition leader, Warren Truss, for Australia to “use all political, diplomatic and legal tools at its disposal” to ensure the EU’s emissions trading scheme was not applied to Australian aircraft, including backing any World Trade Organization challenge.
In the meantime, one of Europe’s biggest banks, Deutsche Bank AG, has warned airlines will face an ETS “crunch” next April.
“The politics and diplomacy around the inclusion of flights between the EU and third countries will likely continue for many months, with the moment of truth coming on April 30, 2013, when airlines have, for the first time, to surrender EU or United Nations emissions permits against their emissions”, said Isabelle Curien, a Paris-based Deutsche Bank analyst, in a research note.
International airlines in the EU greenhouse gas-reduction system face a cumulative net shortfall of 385 million carbon permits until 2020, according to Deutsche Bank. Carriers will be given free emission permits making up 85% of the industry cap in 2012 and will have to buy the remaining 15% at auctions. They can also trade between each other.
Countries opposing the expansion argue Europe should let ICAO regulate greenhouse-gas limits for the industry. The EU has said while its law enables the exemption of incoming flights from a country if it implements “equivalent measures” to tackle aviation pollution, the bloc won’t exclude airlines.
Under a hypothetical scenario of excluding incoming flights from third countries, the cumulative deficit for airlines would shrink by 94 million carbon permits to 291 million and the whole EU emissions trading system would be oversupplied by 1.558 billion allowances by 2020, according to Deutsche Bank.
If the EU were to exclude both all incoming and all outgoing flights from third countries the deficit for the aviation industry would be 168 million tons and the surplus for the entire programme would rise to 1.481 billion tons, estimated Deutsche Bank.
“Between the extremes of these two broad scenarios an ultimate potential compromise might be for the EU to include all emissions from flights entering and leaving the EU to the extent that the emissions from these flights occur within EU airspace, while excluding the emissions of these same flights that occur outside EU airspace,” said the research report.
Airlines, through the International Air Transport Association (IATA), are continuing to ramp up the pressure on the EU. Speaking in New Delhi, IATA director general, Tony Tyler, said the EU should scrap the carbon tax and seek a global solution to the emissions problem.
“Nobody can deny Europe the credit for moving [environmental] sustainability up the global agenda. States are focused on the issue as never before … but the onus now is on Europe to seize the moment, take credible action to defuse the situation and get on with finding the global solution,” he said.
“The EU should forego its unilateral and extra-territorial inclusion of international aviation.”
ICAO failed to deliver - EU
Europe has continued to argue that it took the ETS action it did because after more than a decade of debate ICAO has failed to deliver. It has said that provided ICAO can agree a concrete plan to curb airline emissions, Europe could waive its scheme. The problem is that few observers have confidence the international body can achieve that anytime soon. ICAO, however, did take a step forward on the environment front at a meeting of its Committee on Aviation Environmental Protection (CAEP) in St-Petersburg, Russia, in July, when it agreed on a common way to measure an aircraft’s CO2 efficiency. The aim of the standard is to drive aircraft manufacturers towards producing more CO2 efficient aircraft, more fuel-efficient engines or innovations such as improved aerodynamics or advanced materials. IATA’s Tyler described the agreement as a “major milestone” that demonstrated the commitment of the global community to environmental sustainability and ICAO’s ability to lead progress. “Establishing a standard for future generations of aircraft will help to ensure that the environmental benefits of the billions of dollars of airline investments in new aircraft are being maximized,” he said. Airbus and Boeing welcomed the development. The European manufacturer said it was the first major milestone in the development of a CO2 emissions standard for civil aviation and once fully established in 2013, the standard would measure the CO2 efficiency of commercial aircraft types from private jets to the world’s largest passenger plane, the A380. “We welcome the progress ICAO/CAEP are making, because it is of utmost importance to establish the CO2 standard as the benchmark and reference point for measuring efficiency delivered by technology,” said Fabrice Bregier, Airbus president and chief executive. “It underscores the importance of ICAO as the international body to lead key issues on aviation globally.” Said Boeing Commercial Airplanes vice-president of environment and aviation policy, Billy Glover: “Our industry continues to advocate for global standards for aviation emissions developed through ICAO because the process works; this achievement is proof-positive.” The metric system defines how an aircraft’s CO2 emissions can be evaluated in a method relevant to how aircraft are operated. It is based on fuel burn performance at three different cruise conditions. To address the wide variety of aircraft sizes, the metric system accounts for the fuselage geometry and the maximum aircraft take-off weight. |
