Vedder Thinking | Articles ICAO Strikes Deal at 2016 Assembly to Create the First Global Market-Based Mechanism for International Aviation Emissions
On October 6, 2016, after years of protracted negotiations, the General Assembly of the International Civil Aviation Organization (ICAO) passed Resolution 22/2,1 creating the first global market-based measure (GMBM) to attempt to contain aviation emissions. The GMBM, known as the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA), will take effect in 2021, be reviewed every three (3) years and run until 2035. CORSIA is among a basket of measures—along with improved air traffic management and more energy efficient aircraft, engine and fuel technology—aimed at reducing aviation emissions. Despite this unprecedented and groundbreaking progress by ICAO, CORSIA has significant limitations, leaves questions unanswered and mechanics undetermined, and in the view of many nongovernmental organizations (NGOs) does not sufficiently address the ongoing dangers posed by aviation greenhouse gas (GHG) emissions.
What Was Agreed
Unlike the cap-and-trade system of the European Union’s Emissions Trading Scheme (EU ETS), whereby aircraft operators are required to purchase and surrender permits to pollute, and the allotment of free permits decreases over time, CORSIA requires operators situated in countries party to the scheme to offset their excess emissions above 2020 baseline levels by purchasing qualifying carbon offset credits from GHG reduction and limitation projects in other industries. The first two phases of CORSIA, from 2021 through 2026, will be voluntary, and countries may join or opt out of the scheme at any time. From 2027 through 2035, it will be mandatory except for those countries, flights or operators specifically exempted from (and not voluntarily participating in) the scheme.2
Under the ICAO resolution, aviation carbon emissions will continue to increase through 2020, after which nonexempted emissions above the 2020 international aviation industry baseline must be offset. As of October 12, 2016, 66 countries3 collectively comprising more than 86.5% of international aviation activity indicated their intention to voluntarily participate in CORSIA from its outset. Many of the remaining ICAO member countries are either exempted or have yet to commit to the scheme. Russia, India, Brazil, Saudi Arabia, Chile, Argentina and Venezuela are on record with objections that CORSIA either fails to further the goal of carbon neutral growth from 2020 as codified in the Paris Agreement under the UN Framework Convention on Climate Change,4 or its implementation disproportionately burdens developing countries. During CORSIA’s voluntary phase, sectoral baselines will be set from 2020,5 whereas during the mandatory phase, each operator will increasingly set its own emissions baseline using emissions data from either 2021, 2022 or 2023.6
Limitations and Uncertainties
The term “Reduction” in the CORSIA acronym is a misnomer, as the scheme makes no attempt to reduce aviation emissions but only to offset surplus emissions above baseline levels. Most of the technical and mechanical details of CORSIA have yet to be agreed, including: the identity and types of GHG abatement projects that will qualify as eligible offsets for aircraft operators; the measurement, reporting and verification of aviation emissions; and the electronic registries through which offset credits will be held and transferred. Current timelines call for these criteria, procedures and logistics to be ready for implementation by 2018. Of particular significance, CORSIA only applies to international flights—meaning, for example, that 60% of all flights departing and arriving in the United States are not covered by CORSIA. Domestic flights are left to be regulated by individual national authorities under the Paris Agreement (a process the U.S. Environmental Protection Agency has recently initiated with its endangerment finding on aviation GHGs7). Also undetermined at this time are the penalties for noncompliance and the enforcement criteria to be utilized by member states, leaving uncertainty over uniformity, efficacy and consistency of enforcement.
There is also the potential for uncertainty and debate as to which flights after 2020 should be covered under CORSIA and which flights may continue to be regulated under EU ETS. Currently, EU ETS remains in effect for nonexempted flights that originate and terminate in the European Economic Area (EEA) by all operators, regardless of domicile, until 2020; but this period may soon be extended beyond 2020. International aviation emissions are regulated by ICAO and not by sovereign states or regional alliances such as the EU. For example, under ICAO’s definition,8 a flight from Paris to Frankfurt would be considered an “international flight” and thus by definition regulated under CORSIA.
While many observers and NGOs have indicated that CORSIA falls far short of what they consider to be ambitious and a regulatory system equivalent to EU ETS,9 the EU and its member states appear to have reluctantly conceded that the deal reached in October by ICAO is better than no deal at all, and that CORSIA can be improved upon through its mandated triennial review process. There is concern among some members of the EU Parliament (MEPs) that, should global aviation emissions peak by 2020 and decline thereafter, there will be no requirement for international operators or their governments to offset any aviation emissions whatsoever.
What Lies Ahead
In early 2017, the EU Parliament will debate CORSIA and its impact on EU ETS compliance beyond both January 1, 2017 and 2020.10 It is widely expected that aviation will continue under EU ETS until at least 2020, with application continuing in its current form to intra-EEA flights and the current “stop the clock” derogation remaining in place for intercontinental flight activities.11 There is talk among some MEPs of reintroducing “full scope” EU ETS compliance for international flights between the EEA and those countries that have declined to join the voluntary phase of CORSIA. Due to the lack of ambition under the ICAO scheme perceived by many EU MEPs, a strong faction is building for EU ETS to continue in conjunction with CORSIA to cover EEA domestic and regional flight activities. For now, EU ETS remains in full force and effect for intra-EEA flights; operators are not currently permitted to offset emissions from these flights; and allowances must still be purchased and surrendered annually (as opposed to the three-year compliance cycle contemplated by CORSIA).
Some MEPs are looking to tighten EU ETS even further by reducing the aviation cap and eliminating free aviation allowances. They argue that under current EU ETS rules, for example, a flight from Paris to Brussels is subject to a 95% cap and distribution of mostly free aviation emissions allowances, whereas a train trip on the same route is subject to a reduced 45% cap and no free EU emissions allowances. In addition, aviation fuel is exempt from purchase tax, and some politicians believe that aviation is unfairly subsidized.
Many observers believe that the ICAO’s resolution creating CORSIA was the lowest common denominator to enable all parties to show a tangible result for their efforts, particularly since prior proposed GMBMs envisioned a mandatory rather than voluntary scheme. With international aviation being effectively given the green light to continue increasing carbon emissions faster than technology can reduce them, non-aviation industries will have to redouble their efforts to compensate in order to have any chance of achieving the goals of the Paris Agreement by 2020 (or beyond).
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2 Exempted countries mainly consist of least developed countries, small island developing states and land-locked developing countries whose share of global revenue ton kilometer activity falls below a minimal threshold. Exempted operations mainly consist of flights by aircraft with a maximum takeoff weight of 5,700 kg or less, flights for humanitarian, medical or firefighting purposes, or operators with annual carbon dioxide emissions of 10,000 metric tons or less.
3 A current list of voluntarily participating CORSIA member states may be found at http://www.icao.int/environmental-protection/Pages/market-based-measures.aspx.
4 See http://unfccc.int/paris_agreement/items/9485.php.
5 Referred to as “100% Sectoral Share.”
6 Referred to as “Dynamic Share” comprising a mix of sectoral and individual share, with at least 20% individual share during the period 2030–2032 and at least 70% individual share during the period 2033–2035.
7 “EPA Determines that Aircraft Emissions Contribute to Climate Change Endangering Public Health and the Environment 27 July 2016,” https://www.epa.gov/newsreleases/epa-determines-aircraft-emissions-contribute-climate-changeendangering-public-health-0.
8 ICAO defines an “international flight” as a flight containing one or more international stages. See http://www.aviationglossary.com/icao.
9 See, e.g., “Opinion: Why ICAO’s Emissions Deal Will Not Make a Difference,” Aviation Week, October 22, 2016 (http://aviationweek.com/commercial-aviation/opinion-why-icao-s-emissions-deal-will-not-make-a-difference); “ICAO GMBM Agreement a Hard-Fought Compromise and a First Step, Say NGOs, But Falls Short of Temperature Goals,” GreenAir Online, October 25, 2016. (http://www.greenaironline.com/news.php?viewStory=2297); “ICAO: What is Going On?,” Transport & Environment Briefing, September 2016.
10 “EU Airline Pollution Curbs Stay in the Air Until Next Year,” http://www.reuters.com/article/europe-carbon-aviation-idUSL8N1CH4CT.
11 This is to be debated by the European Parliament under Articles 14 and 15 of Regulation (EU) No. 421/2014.