Explanatory Memorandum to COM(2021)552 - Amendment of Directive 2003/87/EC as regards aviation's contribution to the Union’s economy-wide emission reduction target and appropriately implementing a global market-based measure - Main contents
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This page contains a limited version of this dossier in the EU Monitor.
| dossier | COM(2021)552 - Amendment of Directive 2003/87/EC as regards aviation's contribution to the Union’s economy-wide emission reduction target ... |
|---|---|
| source | COM(2021)552  |
| date | 14-07-2021 |
1. CONTEXT OF THE PROPOSAL
• Reasons for and objectives of the proposal
Contents
This proposal introduces amendments to the EU Emissions Trading System (EU ETS) legislation in relation to its application to aviation to ensure that:
aviation contributes to the 2030 emissions reduction target in accordance with the European Green Deal;
the EU ETS is amended as appropriate in respect of the ICAO’s Carbon Offset and Reduction Scheme for International Aviation; and
allocation of emission allowances in respect of aviation is revised to increase auctioning.
The objective is to revise the EU ETS in respect of aviation emissions in a cost-effective and coherent way in line with the Union’s increased climate target, while taking into account the need for a just transition and the need for all sectors to contribute to the EU climate efforts.
The European Green Deal 1 , adopted by the Commission in December 2019, as well as the Climate Law 2 and the Climate Target Plan (CTP) 3 , aim at enhancing the Union’s climate commitment under the Paris Agreement, consistent with its objective of reaching economy-wide climate neutrality in the EU by 2050. The EU is increasing its economy-wide decarbonisation commitment, from at least 40% to at least 55% compared to 1990 levels by 2030 without using international credits. To reach the increased climate target, all sectors, including aviation, must adequately contribute to the required domestic emission reduction efforts.
The European Green Deal aims to transform the EU into a fairer and more prosperous society, with a modern, resource-efficient and competitive economy where there are no net emissions of greenhouse gases by 2050 and where economic growth is decoupled from resource use. The climate neutrality objective has been endorsed by the European Council and Parliament and is laid down in a legally binding manner in the politically agreed European Climate Law. The European Green Deal also aims to protect, conserve and enhance the EU's natural capital, and protect the health and well-being of citizens from environment-related risks and impacts. At the same time, this transition must be just and inclusive.
Beyond the increase in EU 2030 ambition to achieve EU-wide economy-wide greenhouse gas emissions reductions domestically by at least 55% compared to 1990, the 2030 Climate Target Plan communication underlines that “in accordance with its international commitment to economy-wide action under the Paris Agreement, the EU should continue to regulate at least intra-EU aviation emissions in the EU ETS”. In its conclusions of December 2020, the European Council “invites the Commission to assess how all economic sectors can best contribute to the 2030 target and to make the necessary proposals, accompanied by an in-depth examination of the environmental, economic and social impact at Member State level” 4 .
Aviation emissions account for 2-3% of global CO2 emissions and have significantly increased since 1990 both at EU-level and globally. At EU-level, CO2 emissions from aviation made up 3.7% of the economy-wide total or 15.7% of CO2 transport emissions in 201849. In 2018, the EU was responsible for 15% of the global aviation CO2 emissions 5 . Moreover, non-CO2 climate impacts of aviation are estimated to be at least as important in total as those of CO2 alone 6 .
Notwithstanding the recent reduction in traffic as a consequence of the COVID-19 pandemic, aviation climate impacts are projected to grow further given the sector’s historical growth of above the average of other economic sectors. Before the COVID-19 pandemic, Eurocontrol had projected an annual increase in European aviation emissions by 53% by 2040 compared to 201753. Before the COVID-19 crisis, ICAO had estimated that, by 2040, international aviation emissions could rise by up to 150% compared to 202054.
A key tool for addressing CO2 emissions from aviation in Europe is the EU ETS. In the public consultation on updated rules for aviation ETS, 91% of respondents agree that aviation should contribute more to climate actions. 88% of respondents believe that market-based measures can be effective to tackle aviation emissions in line with the climate objectives. Between 2013 and 2020, an estimated net saving of 193.4 Mt CO2 was achieved by aviation via the EU ETS primarily through funding of emissions reduction in other sectors39. This constitutes the aviation contribution to the 2020 EU climate objective, and the contribution is foreseen to continue for 2030.
Considering current and projected emissions from the aviation sector, and in the context of an enhanced climate ambition of the EU for 2030, the climate contribution needs to be significantly strengthened, also with a view to allow for the necessary contribution to the EU climate neutrality by 2050. The 2019 European Aviation Environment Report has also highlighted this need.
The Commission has prepared a number of impact assessments to support the envisaged revisions of key legislative instruments for the “Fit for 55” policy package. The impact assessment on the revision of EU ETS aviation rules analyses various options through which the revision could effectively and efficiently contribute to the delivery of the updated target as part of the wider package. Therefore, the revision of aviation rules must be addressed together with the revision of EU ETS for stationary installations and its extension to other sectors. ETS elements where the interlinkage of revisions is particularly prominent are the provisions concerning total quantity of aviation allowances and application of linear reduction factor thereto as well as provisions regarding market stability reserve. Choices regarding the scope of EU ETS and CORSIA implementation will impact the level of emission reductions of the ETS sector, and demand for EU allowances. Choices regarding the auctioning share of aviation allowances will impact the amount of auctioning revenues available for tackling climate change, as well as distributional elements.
For aviation to contribute to the goals of the Paris Agreement, broader global action should also take place. EU has supported ICAO’s CORSIA, and is working with others to encourage adequate participation and implementation. The review of the EU ETS for aviation should ensure that CORSIA is implemented as appropriate through the EU ETS and implementation of CORSIA needs to ensure equal treatment of airlines. At the same time, any amendment of the EU ETS Directive must be consistent with EU’s ambition to become climate neutral by 2050, the Union’s economy-wide greenhouse gas emission reduction commitment for 2030 and with the aim of preserving the environmental integrity and effectiveness of Union climate action.
A large volume of allowances have been allocated to aviation sector for free since 2012. The Communication on a European Green Deal70 announced that there would be a proposal to reduce the free allowances allocated to airlines. This is re-stated in the Communication on Stepping up Europe’s 2030 climate ambition. As free allocation is a derogation from the ‘polluter pays’ principle, the default method in EU ETS is auctioning. The underlying analysis also suggests a low risk of carbon leakage and a very limited impact on consumer prices when increasing auctioning in respect of aviation.
to consolidate the total quantity of aviation allowances at current levels, and apply the linear reduction factor in accordance with Article 9 of the ETS Directive;
to increase auctioning of aviation allowances;
to continue intra-European application of the EU ETS while applying CORSIA as appropriate to extra-European flights; and
to ensure that airlines are treated equally on the same routes with regard to their obligations with economic impacts.
In parallel to these amendments to the EU ETS Directive, a separate proposal is being made to implement Member State notification to EU-based airlines of zero CORSIA offsetting for the year 2021. The separate proposal relates to CORSIA-related aspects that should be in place by November 2022, for notification of zero additional offsetting to take place by that date.
• Consistency with existing policy provisions in the policy area
The ‘Fit for 55’ package is a comprehensive step in overhauling Union legislation to align it with the EU’s increased climate ambition. All initiatives in the package are closely interlinked, and each one depends on the design of the others.
While the political mandate to reinforce the EU ETS for aviation is clear, this is being examined in conjunction with other related and relevant initiatives, such as the revision of the Energy Taxation Directive and the Renewable Energy Directive, as well as the ReFuelEU Initiative, which are being assessed separately, with due account of the ETS dimension and impacts.
As indicated in the European Green Deal, reducing climate change impacts from aviation requires a mix of policy instruments, as there is no one single solution to decarbonise the sector. The revision of the EU ETS for aviation is therefore part of a so-called “basket of measures”, which includes market-based measures like the EU ETS and CORSIA, the boosting of the production and uptake of sustainable aviation fuels (“SAF”), aircraft technology improvements and operational improvements through e.g. the Single European Sky initiative.
• Consistency with other Union policies
All EU actions and policies must be consistent with the proposals of the ‘Fit for 55’ package and help the EU achieve the increased 2030 target and a successful and just transition towards the 2050 climate neutrality, as stated by the Commission in the European Green Deal Communication.
As such, this initiative is linked to many other policy areas, including the Union’s external policies, e.g. through the EU encouraging partner countries to also implement CORSIA, and support to help ensure that airlines operate on an equal footing. The Commission announced it will improve the way its Better Regulation guidelines and supporting tools address sustainability and innovation issues, with the objective that all EU initiatives live up to the green oath to ‘do no harm’. This initiative is also consistent with the EU’s policy for research and innovation and will enhance synergies between the EU’s deployment programmes in particular the Innovation Fund and the EU Framework Programmes for research and innovation by incentivising the uptake and deployment of low-carbon innovative solutions.
The impact assessment accompanying the 2030 Climate Target Plan assessed carefully the possibility of reinforcing and expanding emissions trading as one of the tools to achieve greenhouse gas emission reductions at the EU level.
Consistency with other Union policies is also ensured through the coherence of the impact assessments for the EU ETS with the assessments made for the remainder of the 2030 climate, energy and transport framework, and with other measures presented as part of the basket of measures to address greenhouse gas emissions from aviation.
2. LEGAL BASIS, SUBSIDIARITY AND PROPORTIONALITY
• Legal basis
The legal basis for the EU ETS Directive 2003/87/EC, as well as all subsequent legislation amending it and other legislation regulating GHG emissions, is Article 192 of the Treaty on the Functioning of the European Union. This should remain the legal basis for any new legislation addressing climate impacts of aviation, as the principal objective of the measure is the protection of the environment through the reduction of GHG emissions.
• Subsidiarity
The EU ETS Directive is an existing EU policy instrument. In accordance with the principle of subsidiarity set out in Article 5 of the Treaty of the Functioning of the European Union, the objectives of the proposal amending this instrument can only be achieved through legislation at EU level.
An EU legal act is required for Member States to apply CORSIA as appropriate for the flights covered by the geographical scope of application of Directive 2003/87/EC as set out in its Annex I, i.e. flights departing from airports in the EEA and arriving to other airports in EEA or to third countries and, incoming flights to airports in the EEA from third countries.
Acting at EU level, and where possible at global level, is more efficient than acting at the Member State level, due to the transboundary effects of climate change and the largely transnational nature of aviation. Action at EU level will most effectively deliver the EU's domestic and international climate targets and ensure the harmonised and appropriate implementation of CORSIA in respect of the EU.
• Proportionality
This proposal complies with the proportionality principle because it does not go beyond what is necessary in order to achieve the objectives of implementing the EU's target for reducing greenhouse gas emissions for the period 2021 to 2030 in a cost-effective manner, while ensuring fairness, environmental integrity, proper functioning of the internal market, and implementation of CORSIA.
The European Council has endorsed an overall economy-wide and domestic reduction in greenhouse gas emissions of at least 55% below 1990 levels by 2030. This proposal covers a large part of these greenhouse gas emissions, and revises the Directive in order to achieve this objective.
• Choice of the instrument
The objectives of the present proposal are best pursued through an amending Directive. This is the most appropriate legal instrument to make amendments to the existing EU ETS Directive, Directive 2003/87/EC. A Directive requires Member States to achieve the objectives and implement the measures into their national substantive and procedural law systems. Member States should ensure that national transposition provisions do not hamper innovation and are technologically neutral.
3. RESULTS OF EX-POST EVALUATIONS, STAKEHOLDER CONSULTATIONS AND IMPACT ASSESSMENTS
• Ex-post evaluations/fitness checks of existing legislation
Article 28b(2) of Directive 2003/87/EC requires the Commission to present a report to the Council and the European Parliament on CORSIA, examining its ambition and overall environmental integrity, including its general ambition in relation to targets under the Paris Agreement, the level of participation, its enforceability, transparency, the penalties for non-compliance, the processes for public input, the quality of offset credits, monitoring, reporting and verification of emissions, registries, accountability as well as rules on the use of biofuels. In the light of this, a proposal should be made to amend Union law to implement CORSIA as appropriate.
In addition, Article 28b(2) of Directive 2003/87/EC provides that the report of the Commission should consider whether the provisions adopted under Article 28c(2) need to be revised. Article 28b(3) of the EU ETS Directive foresees the Commission accompanying the report with “a proposal, where appropriate, to amend, delete, extend or replace” the derogations provided for in Article 28a (which limit the scope of EU ETS to intra-EEA flights from 2017-23), that is “consistent with the Union economy-wide greenhouse gas emission reduction commitment for 2030 with the aim of preserving the environmental integrity and effectiveness of Union climate action”.
The report is included in the impact assessment accompanying this proposal, and draws on a study “Assessment of ICAO’s global market-based measure (CORSIA) pursuant to Article 28b and for studying cost pass-through pursuant to Article 3d of the EU ETS Directive” 7 .
Article 3d(2) of the EU ETS Directive requires the Commission to “study the ability of the aviation sector to pass on the cost of CO2 to its customers in both the EU ETS and ICAO’s market-based measure, comparing this to industries and to the power sector, and with the intention to propose to increase the percentage of auctioning pursuant to the review referred to in Article 28b(2).
The study is included in the Impact assessment on Revision of the EU Emissions Trading System in respect of aviation, and draws on the report “Assessment of ICAO’s global market-based measure (CORSIA) pursuant to Article 28b and for studying cost pass-through pursuant to Article 3d of the EU ETS Directive”.
• Stakeholder consultations
Stakeholders were consulted on the inception impact assessment between 3 July 2020 and 28 August 2020. In total, 54 entities submitted a feedback. Of respondents, EU MS supported a coexistence of the EU ETS and CORSIA; non-EU countries expressed concern with overlap between EU ETS and CORSIA, partial implementation of CORSIA, treatment of non-EU carriers and the exclusivity of CORSIA. Regarding CORSIA implementation options, the vast majority of NGOs favoured full scope EU ETS or options maintaining at minimum the current scope or hybrid options in between. They also supported immediate full auctioning.
Most business associations and companies preferred the CORSIA only policy option. On auctioning, most business associations and companies favoured the status quo or the slow reduction, and the use of the revenues for the aviation industry. EU citizens who responded were in favour of more climate ambition from the sector.
The open public stakeholder consultation took place between 1 October 2020 and 14 January 2021, and received a total of 81 responses. In the public consultation, 91% of respondents agree that the aviation sector should contribute more to climate actions. 88% of respondents believe that market-based measures can be effective to tackle aviation emissions in line with the climate objectives. 82% of respondents to the public consultation agreed that market-based measures be combined with other policies such as support for innovative aviation technologies, operational improvements, taxation, and the production and use of sustainable aviation fuels.
For CORSIA implementation options, opinions differed between and within stakeholder groups. For business associations, the most preferable options were CORSIA ONLY and MIX option with 33% of responses for each option. The least preferable options were ETS full legal scope and MIX BIS with 33% of responses for each option. For public authorities, 30% found CORSIA ONLY the most preferable option, and 40% found CORSIA ONLY the least preferable option. For NGOs, EU ETS full legal scope was the most preferable option with 89% of responses, and CORSIA only the least preferable option with 44% of responses.
For increasing the auctioning share of aviation allowances, most stakeholders preferred the immediate phase out, while they held maintaining the status quo as the least preferred option. Respondents’ views were clearly split between or auctioning share increase options. 53% of business associations preferred the status quo and stated immediate phase-out as the least preferred option (74%). 56% of NGOs preferred immediate phase-out, and 63% stated status quo as their least preferred option. 60% of public authorities preferred slow phase-out of free allocation.
Large majority of the stakeholders considered that increasing auctioning could increase the cost of flying, while the majority also agreed that this measure would contribute to climate change mitigation.
• Impact assessment
The impact assessment has analysed the various options through which a revision of EU ETS in respect of aviation could effectively and efficiently contribute to the delivery of the updated target as part of such a wider “Fit for 55” policy package. The impact assessment analyses different options for CORSIA implementation through the EU ETS and for increase of auctioning share.
The options for implementing CORSIA differ in the extent to which the existing EU ETS coverage is maintained, reduced or extended. Comparison of options shows that while ETS price incentives are orders of magnitude more meaningful than the price of CORSIA quality offsets, the overall environmental impact at global level across policy options is limited due to the limited geographical scope of the EU ETS. However, there are significant differences between the options as regards the contribution to the EU’s emission reduction target. There are also considerable differences in terms of revenues stemming from the different policy option combinations, as CORSIA, by design, does not generate any public revenue from airlines. The preferred option is to maintain the current EU ETS coverage (intra-EEA flights, including departing flights to Switzerland and to the UK) and introduce appropriate CORSIA-related provisions for flights that are currently not covered by the EU ETS (flights to/from third countries, and by EU-based airlines between two third countries).
The options for increasing the auction share in allocating aviation allowances differ in the speed of increase. The comparison of the analysed options shows a strong case for moving to full auctioning from the date of entry into force of the revised legislation. While free allowances have been allocated notably to address potential adverse competitiveness impacts and carbon leakage, they constitute a derogation from the ‘polluter pays’ principle. The analysis suggests a low risk of carbon leakage when increasing the auctioning share. Switching to full auctioning implies stabilising the cap for aviation at current levels as auctioning is currently a fixed percentage of free allocations. This would maintain current level of environmental integrity for the aviation cap, and the cap would be subject to the linear reduction factor, as already required by the co-legislators and as is the case for all other operators in the EU ETS. The removal of free allocation in the EU ETS would reinforce its environmental integrity. The preferred option is increased auctioning from the entry into force of the amendment.
• Fundamental rights
The proposal respects the fundamental rights and observes the principles recognised in particular by the Charter of Fundamental Rights of the European Union. In particular, it contributes to the objective of a high level of environmental protection in accordance with the principle of sustainable development as laid down in Article 37 of the Charter of Fundamental Rights of the European Union.
4. BUDGETARY IMPLICATIONS
Under the existing ETS, most of the auction revenues accrue to Member States, hence there are positive impacts on national budgets. Adjustments to the EU budgetary framework will be presented by the Commission as part of the upcoming Own Resources package including a proposal to amend the multiannual financial framework.
For the existing coverage of the EU ETS, there are no additional administrative impacts on national administrations. The impacts of the implementation of CORSIA should be limited by using the same infrastructures.
IT development and procurement choices will be subject to pre-approval by the European Commission Information Technology and Cybersecurity Board.
5. OTHER ELEMENTS
• Detailed explanation of the specific provisions of the proposal
Article 3c, paragraphs 1 to 3 are amended to consolidate the total quantity of allowances for aviation at the level of allocation/auctioning for intra-European flights and departing flights from EEA airports to Switzerland and the UK. The allocation for year 2024 will be based on the total allocation to active aircraft operators in 2023, reduced by the linear reduction factor as specified in the ETS Directive. The allocation shall be increased by the level of allocation that would have been made if routes between outermost regions, and other states than the Member State in which the outermost region is located, had been covered by the ETS in 2023. The temporary derogation from EU ETS obligations for these routes expires on 31 December 2023. The increased cap shall be reduced by the linear reduction factor as specified in the ETS Directive.
A time-limited derogation from the EU ETS is proposed for emissions from flights between an aerodrome located in an outermost region of a Member State and an aerodrome located in the same Member State.
Article 3d paragraph 1 is replaced to establish increased auctioning of allowances for aviation from year after the entry into force of the amendment. The amendment is for transition to full auctioning as from 2027.
Article 3d paragraph 2 is deleted as obsolete.
Article 3d, paragraph 3, first sentence is amended to reflect that delegated acts to be adopted to supplement this Directive concerning the detailed arrangements for the auctioning by Member States of aviation allowances should include the modalities for the transfer of a share of revenues to the Union budget.
Article 3d, paragraph 4 is replaced to reflect a stronger recommendation that Member States use ETS auctioning revenues to tackle climate change and that a share of those revenues is attributed to the Union budget under Decision (EU, Euratom) 2020/2053 on the system of own resources.
Articles 3e and 3f are deleted as free allocation rules to aircraft operators are no longer needed after the transition to full auctioning.
Article 11a, paragraphs 1 to 4 are replaced to provide for EU-based airlines to use appropriate international credits for compliance for flights to or from third countries that are applying CORSIA. To ensure that the EU’s CORSIA implementation supports the Paris Agreement goals and gives incentives for broad participation to CORSIA, the following conditions must be met: compliance credits originate from states that are Parties to the Paris Agreement and that participate in CORSIA, and double counting of credits is avoided.
A new paragraph 8 is added to Article 11a, empowering the Commission to adopt an implementing act specifying the credits which have been considered acceptable by the ICAO Council to use for compliance of CORSIA.
A new paragraph 6 is added to Article 12, implementing CORSIA for EU companies for flights to, from and outside European Economic Area, Switzerland and UK. Airlines’ surrender obligations for these flights are decreased from full amount of emissions to their share of collective aviation emissions as per CORSIA baseline.
New paragraphs 3 to 9 are added to Article 25a.
The Commission is empowered to adopt and maintain an implementing act listing states (other than EEA, Switzerland and UK) which are considered to be applying CORSIA for the purposes of Union law.
CORSIA verification of compliance of non-EU based airlines is meant to belong solely to the home country of these airlines. Implementing CORSIA for extra-European flights therefore means exempting non-European airlines from the EU ETS obligations for the flights between Europe and third countries that are implementing CORSIA.
To ensure equal treatment on routes, flights to and from countries that are not implementing CORSIA would be exempt from EU ETS or CORSIA obligations.
Flights to and from most Least Developed Countries and Small Island Developing States not implementing CORSIA would be exempt from EU ETS or CORSIA obligations without end date for the exemption.
The Commission should be empowered to adopt an implementing act exempting EU-based airlines from surrender requirements in respect of emissions from flights where a significant distortion of competition to the detriment of EU-based airlines occurs due to a less stringent implementation or enforcement of CORSIA in the third country. The distortion of competition could be caused by a less stringent approach to eligible offset credits or double counting provisions.