No issue in aeropolitics is as contentious as the introduction of charges for carbon emissions. The European Union almost caused a trade war over its Emissions Trading System (EU ETS), but it seems a global deal is in sight.

Agreeing on the basics and a schedule for the introduction of a global structure of market-based measures (MBM) to limit aviation's greenhouse gas emissions will be the most important topic at the International Civil Aviation Organization's (ICAO) 38th General Assembly, which begins Sept. 24 in Montreal.

While it is clear no agreement on the details of a concrete global system will be sealed, progress has been made on a compromise solution that would commit ICAO to develop a method for tackling aviation's carbon emissions and decide its details by 2016. The global MBMs would be fully implemented from 2020 as part of a basket of measures involving technology and operational improvements (including adopting a global CO2 standard for aircraft by 2016) and sustainable alternative fuels. They are intended to achieve carbon-neutral growth beginning in 2020.

The proposal, endorsed by ICAO's governing council on Sept. 4, accepts the principle of regional or national MBMs, such as the EU ETS, until the global system is in place. At the request of the EU, which is not a member of ICAO, the council's draft resolution recognizes that states (or groups of states) may choose, before the full implementation of a global MBM, to implement systems that apply to flights to/from third countries, which depart or arrive at airports in that state, for the portion of those flights within the airspace of that state, and which would fully cover all emissions from flights that both depart from and arrive in that state.

Negotiations on the compromise accord were difficult. Several states on the 36-member council, including Argentina, Brazil, Cuba, India, Saudi Arabia and the U.S., had strong reservations, yet they did not raise formal objections. Whether ICAO's 191 contracting states will support the deal at the pending Assembly is unknown, but “it seems unlikely that delegates will wish to reopen substantive debate on such a hard-won consensus text,” says Chris Lyle, chief executive of Canada-based Air Transport Economics. “The question is how meaningful and committing the resulting, formally adopted Assembly resolution will be,” he adds.

This will be key for the EU, which has demanded that the Assembly agree “meaningful” international action on a global MBM. Last November, the European Commission (EC) agreed to “stop the clock” on the application of the ETS to routes beyond Europe for a year to give ICAO time to devise a global solution. Until the end of this year, operators (regardless of their nationality) must surrender emissions allowances only for air traffic between European airports.

As part of the compromise, and only in return for a global deal, the EC has pledged to extend the moratorium to 2020, although the scope will be slightly amended to include emissions from all arriving or departing flights (also to third countries) using European airspace. Overflights will not be included. For example, a London-New York flight will be included in the plan for the segment using European airspace, comprising EU-member states plus Iceland, Liechtenstein and Norway.

“There are some technical challenges in implementing a 'territorial airspace' approach, but it does address head-on what was the most-cited problem with the original ETS, namely its extraterritorial reach,” notes John Byerly, former U.S. State Department deputy assistant secretary for transportation affairs.

The concept of a trading system constrained to European airspace is not new. A group of European carriers led by Air France urged the EC to kick-start the principle of curbing and taxing emissions within the limits of the bloc's airspace to let airlines and states gain expertise with the new cap-and-trade mechanism and avoid international opposition. Also, before the EU adopted the ETS, the U.S. had signaled it might accept a version that applied only to intra-EU flights by U.S. carriers. Despite this, the EC stuck to its overzealous environmental aspirations and in 2008, adopted legislation to bring international aviation into the ETS from 2012—all flights arriving at and departing from a European airport were included for the total length of the flight.

The EU now is lowering its ambitions, with the EC's directorate general for Climate Action (DG Clima) recognizing it is “a multilateral negotiation where you give-and-take.”

The approach is not undisputed, however. Inside the EU, critics warn that some countries might still opt out and claim exemption under the broader climate-change principle of “common but differentiated responsibilities” (CBDR). Under this United Nations notion, developed countries have greater responsibility and capacity for taking action to address climate change. Developing countries, in particular China and India, dispute the compatibility of the EU ETS with the CBDR principle. China has prohibited its airlines from complying with ETS legislation and its airlines operating intra-European flights face fines for non-compliance. Also, Indian airlines have not complied.

Surprisingly, China appears to be willing to accept the proposed ICAO Council deal because, insiders say, it hopes to name the next ICAO secretary general succeeding Raymond Benjamin, whose second three-year term ends in 2015.

The Federal Association of German Aviation and Space Industry, of which Lufthansa is a founding member, objects to the compromise, claiming it represents “a massive distortion of competition for European airlines.” Also, the European Low Fares Airline Association decries the intra-EU-only application as discriminatory and urges the EU to “honor its oft-repeated public commitment to 'automatically snap back' to the legally proven, all-flights scope for EU ETS, pending implementation of any equivalent MBM by ICAO.”

For International Air Transport Association (IATA) Director General/CEO Tony Tyler, a positive conclusion at the forthcoming ICAO Assembly “is far from assured,” and he warns, “if an agreement is not reached, and individual regions go their own way, then the threat of a trade war will loom again.”

The IATA general Assembly in June in Cape Town backed a resolution calling for governments to agree to a single global MBM. IATA's stance is that a single mandatory carbon-offsetting system, without a revenue-sharing element, under which all operators would have to buy carbon credits from other industries to offset their future growth, would be the quickest and simplest MBM to introduce and administer. It would also minimize competitive distortion, it states.

It took IATA almost two years to align the majority of its 240-member airlines (representing 84% of global air traffic), but its efforts are bearing fruit. The council text, which will be discussed by the Assembly, “notes the support of the aviation industry for a single global carbon-offsetting scheme, as opposed to a patchwork of state and regional MBMs.” ICAO established a high-level group last November to try to find a way to implement a single, global mechanism and/or a framework for states establishing their own MBMs. Options for a single system adopted by all states include a mandatory emissions offset, a mandatory offset with an added revenue charge and a global emissions-trading system similar to the EU ETS's.