Aviation and climate change Commission activities and policy statements relating to the use of economic instruments Niels Ladefoged DG Environment, European Commission December 2004

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Aviation and climate changeCommission activities
and policy statements relating to the use of
economic instrumentsNiels LadefogedDG
Environment, European Commission December 2004
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Overview

• The challenge
• Major Commission policy statements
• Key Commission studies
• The possible control options
• Taxes or charges
• Emissions trading
• Next steps

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Aircraft emissions have grown rapidly

• GHG emissions from international aviation
  reported by Annex I Parties to the UNFCCC
• 48 from 1990 to 2000
• 1.2 of total national emissions
• Note
• Total radiative forcing of aviation higher than
  that of CO2 alone
• Only comprise reported emissions of Annex I
  countries (e.g. not Thailand, Brazil, China)

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..and air traffic is forecast to continue growing

• According to ICAO analysis presented in February
  2004, the world passenger aircraft fleet could
  double by 2020 - an increase from 12317 in 2002
  to roughly 25000 aircraft in 2020.
• Global air freight will average 5.6 growth
  between 2003 and 2008 (MergeGlobal, Inc. Global
  Freighter Capacity Fleet Model)
• "World air cargo traffic will expand at an
  average annual rate of 6.2 for the next two
  decades, tripling over current traffic levels."
  (Boeing forecast)
• With respect to climate change (CO2-equivalents)
  air transport is dominating the EU-plus outbound
  and inbound tourism transport impact with 72
  The general trend in tourism towards more
  frequent, less long and further away trips has a
  strong impact on transport demand. Cheap air
  transport leads to a combined mode-destination
  shift which very strongly influences the
  environmental impact. (Feasibility and
  preparatory study regarding a Multi-stakeholder
  European Targeted Action for Sustainable Tourism
  Transport, DG Enterprise)

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Major Commission policy statements of relevance

• COM(96) 549 - Report under Directive 92/81/EEC
• COM(1997) 30 - Proposal for a Directive
  restructuring the Taxation of Energy Products
• COM(1998) 466 - White Paper on Fair Payment for
  Infrastr. Use...
• COM(1999) 640 - Air Transport and the Environment
• COM(2000) 110 - Taxation of Aircraft Fuel
• COM(2000)821 - Community objectives for 33rd ICAO
  GA
• COM(2001) 31 - Proposal for the 6th Community
  Environment Action Programme (6EAP)
• COM(2001) 370 - White Paper on the Common
  Transport Policy
• COM(2004) 74 - A Community aviation policy
  towards its neighbours
• COM(2004) 505 - Financing the European Union
• SEC(2004) 923 - Impact of Int. Aviation on
  Climate Change prep. For 35th ICAO Assembly

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Key Commission studies

• Economic incentives to mitigate greenhouse gas
  emissions from air transport in Europe
• Bibliographical data R.C.N.Wit, J.M.W.Dings,
  P.Mendes de Leon, L.Thwaites, P.Peeters,
  D.Greenwood and R. Doganis.
• Delft, CE, 2002. Publication number 02.4733.10
• Further information on this study is available
  from Mr. Ron Wit
• Tel [phone]/e-mail wit_at_ce.nl
• The final report can be downloaded at
• http//europa.eu.int/comm/transport/air/4733_final
  report-en.pdf
• Analysis of the taxation of aircraft fuel
• Study VII/C/4-33/97
• Final report January 1999, prepared by a
  Consortium led by Resource analysis, Delft, The
  Netherlands (Tel[phone]/e-mail 
  RA_at_resource.nl)
• On the basis of this study, the Commission
  adopted a Communication on taxation of aircraft
  fuel COM (2000)110 which can be found at
• http//europa.eu.int/comm/taxation_customs/publica
  tions/official_doc/com/com.htmCOM2000110

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1999 Comm. on Aviation Sustainable Development

• Proposed long term policy target to achieve
  improvements to the environmental performance of
  air transport that outweigh the environmental
  impact of growth
• Noted this was very ambitious, especially for CO2
  emissions, without breakthrough developments in
  engine technologies
• Recognised new approaches are required

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Other reasons to consider market based instruments

• internalising external costs
• getting fairer treatment between sectors
• the internal market
• general transport and tax policies
• possibly helping finance the EU

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Fuel/Emission Tax

• 1996 EC Report on imbalances from the exemption
  of international aviation from excise duty
• 1997 EU Council noted the Report requested
  information on effects of introducing such
  taxation
• 1999 Analysis of Taxation of Aircraft Fuel by
  Resource Analysis et al published

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Main Tax Options Studied

• Taxation Level 245 euros/1000 litres wef 1998
• Option A
• All routes from EU
• Option B
• Intra-EU routes/EU carriers only

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Tax - Results

• Option A
• - more environmentally effective
• - less economic/competitive impact
• - more cost-effective
• Option B
• - immediately feasible legally
• - but not really effective

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Tax - Conclusion

• Confirmed commercial aviation fuel should be
  taxed as soon as the international legal
  situation allows such a tax to be levied on all
  carriers, including those from third countries.
  EU should pursue this in ICAO.
• Recommended EU Member States should be able to
  tax fuel used for domestic flights and, by mutual
  agreement, fuel used on flights between such
  States. Since given effect by Directive
  2003/96/EC
• Differential en route charges based on
  environmental impact of aircraft should be
  pursued in addition or as an alternative meantime.

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Emissions Charges

• These could e.g. take the form of
• a levy added to the fare
• a levy based on distance flown/ environmental
  performance of the aircraft
• a levy associated with airport LTO charges

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The revenues

• These could
• fund environmental investments
• (eg. in RD, in new technologies)
• fund compensatory measures
• (direct or indirect eg. carbon offset)
• be revenue neutral (ie. reward the better
  environmental performer at the expense of the
  worse)
• be some combination of these

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Options studied

• An environmental charge
• A Performance Standard Incentive (PSI)

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Incentive Level

• Same for both options
• Based on external costs of climate change
• Mid-range working values of 30 euros per tonne of
  CO2 and 3.6 euros per kg of NOx
• Sensitivity analysis low(10 euros and 1.2 euros
  respectively) and high (50 euros and 6 euros)
• Choice of level ultimately a political issue

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Environmental charge - impact

• Main effects would be
• reduced CO2 emissions in EU airspace of
• 10 megatonnes (9) in 2010
• increased ticket prices of 3-5 euros for short
  flights and 10-16 for long ones
• annual revenues 1-9 billion euros
• Revenues could either be
• - allocated to Member States, or
• - to an EU emission abatement fund

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Revenue-neutral PSI - impact

• Reduced CO2 emissions in EU airspace of
• 6 megatonnes (5) in 2010
• Impact on ticket price would depend on the
  definition of the performance standard
• No net financial burden on industry, though some
  segments would benefit at the expense of others

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Other findings

• No significant economic distortions between
  airlines identified
• No legal obstacles provided the incentive
• - has no fiscal aim
• - is based on the polluter pays principle
• - is not directly linked to fuel consumption

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Emissions trading

• Commission is now launching a study
• Will examine the feasibility of including
  aviation in the EU ETS
• Terms of Reference available
• Final report due 8 July 2005
• If aviation were to be included it should be done
  in a way that doesnt compromise the
  environmental integrity of the current scheme

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Implications for air service agreements

• Important to ensure that the ongoing reform of
  the EUs external air transport relations does
  not undermine but support efforts to mitigate the
  sectors impact on the environment
• To allow for the taxation option created by
  Council Directive 96/2003/EC and to keep all
  options for market-based measures open to
  mitigate the climate impacts of international
  aviation, air services agreements between Member
  States and third countries should not contain
  provisions excluding the option of fuel taxation
  on flights operated by third country carriers
  between two points in the EU
• In future negotiations on comprehensive Community
  agreements the services of the Commission are of
  the view that the Community should insist on
  preserving full flexibility as regards aviation
  fuel taxation.

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Next steps

• The Commission may announce proposals to deal
  with the impact of aviation on climate change in
  2005. If and when it does so and what it will
  consist of will depend on
• The outcome of the study on aviation and EU
  emissions trading
• The relative merits of the different options
• How the new Commission sees this