In defence of the EU ETS
ICAO and McGill IASL Worldwide Conference on
Aviation Safety, Security and the Environment
Richard Janda
Martine De Serres
Institute of Air & Space Law
Faculty of Law
McGill University
September 16, 2007
Disclaimer
The following is an optimistic dramatization.
Unfortunately, none of the views expressed
can be attributed to real actors with political
clout.
We have a big problem
Make a confession
Do penance
Seek redemption
Contributed to putting a patient
in the emergency room
Role in poisoning
Adding more poison all the time
But only
2% of what is being added
Have to poison the patient to do good things
Getting better all the time at poisoning less
intensively
True confession
 Actually, 2% of part of the poison (CO2)
 But
3%
of all poison (radiative forcing)
 Actually, will be poisoning more because of
projected growth
 Will account for
5%
by 2050
 FASTEST GROWING CONTRIBUTOR
Another true confession
Have been avoiding penance and seeking
pity
Times have been hard
Don’t force me to do anything
Have others pay
But have had an epiphany
My friend, Chemical Industry
 Resisted EU REACH
 Registration, Evaluation,
Authorisation and
Restriction of Chemical
substances
 Now learning to apply it
globally
Want to stop poisoning, though I can’t right
away – give me 50 years
I realize that it is cheaper to do it now than
later (invest 1% GDP to avoid 11% GDP
loss)
Can imagine non-poisonous aircraft, but
this is now science-fiction
 Make me pay for my poisoning in the meantime
 I will buy the right to poison from others who
have cut down
 Will embrace EU ETS
 Will lobby to have an ETS everywhere
 Over the nest two weeks will seek to have ICAO
create a SARP consistent with the EU ETS to be
applied by all Members
Giving up on voluntary measures
Voluntary measures will create competition
distortions
Have experienced destructive competiton
before
Let me introduce my friend….
ICAO discourages environmental taxes
SARP on emissions is a light touch
ICAO has not taken any mandatory action
pursuant to Kyoto Protocol mandate
ICAO has not welcomed “unilateral action” by
EU
What’s the best solution?
Taxes?
Low price elasticity of demand
Little political support for high taxes
Competition distortion unless internationally
applied
ICAO recommends against
ETS: the best solution
ETS more dynamically efficient than
tax
ETS self-adjusts to economic growth
A well-designed ETS may:
• Create abatement incentive for other
industries
• Allow emission caps on all aviation GHG
• Avoid many competition distortion effects
Design elements of an ETS
 Auctioning most credits may dampen competition
distortion effects
 Downstream ETS that includes other GHG than
merely CO2 will efficiently reduce all aviation
emissions
 Open ETS could finance reductions in other
sectors, compensating for air travel growth
 Large spatial scope and coverage will strengthen
flexibility of an open ETS
 Banking could promote early action and protect
against price fluctuations
Overview of EU ETS
 Each member state responsible for its reduction
goal, and allocates as such
 Minimum 95% of rights grandfathered b/w 20052007, 90% b/w 2008-2012
 Only CO2 covered for now
 Downstream system. Only 5 major industries
covered, with expansion underway
 Unrestricted transactions (banking ok)
 Monitoring and supervision through reports
 Penalty for failure to purchase allowances
Shortcomings of EU ETS
Trading period (5 years) may be too short
for adequate financial planning
More auctioning needed
Allowance price is too low to efficiently
promote reductions; too many sellers
=> Need for emissions buyers
EU proposal to include aviation
EU in better position than ICAO to set up
open ETS
Airlines are chosen participants
EU ETS would apply to
• Domestic flights starting 2011
• International flights starting 2012
Avoids competition distortion
EU proposal to include
aviation (cont’d)
 After 2012, amounts of allowances equal to
average emissions b/w 2004-2006
 No double-counting: EU will negotiate with
states having at least equivalent requirements
=> Invitation toward international ETS
Summary of our
penance
 EU ETS is the largest open ETS currently
available
 Global aviation regulation acknowledges that EU
ETS should be built upon rather than opposed
BUT… the global aviation
industry has raised doubts
about EU jurisdiction
Does the EU have
jurisdiction?
 Argument against: Art. 24 of Chicago Convention
(customs duties) and Arts. 11 and 15 (non-discriminatory
regulations and charges) Art. 1 (sovereignty)
 ETS is not a customs duty
 ETS is not a navigation charge
 ETS applies in a non-discriminatory fashion as between
EU and non-EU carriers
 ETS accounts for the emissions attributable to aircraft
movements with EU origin or destination: does not
regulate movements originating and terminating outside
the EU. Therefore is not extra-territorial
 CO2 molecules do not respect territory
Toward redemption
Need to expand toward an international
system
• To avoid forum shopping
• Avoid competition distortion on international
scales
• Efficiently reduce the climate impact of
aviation
ICAO’s benchmark for success
Create SARP on ETS:
 Standard: design elements of ETS for aviation
•
•
•
•
•
Rules on allocating rights
Deciding on actors
Banking allowed
Accurately and transparently measuring emissions
Common and differentiated responsibility
 Recommended practice: all Member States have an
open ETS for efficient reductions
A SARP is NOT voluntary
Ultimate redemption?
Lowering demand until 0 footprint achieved
vs.