The European governing institutions have hammered out a compromise deal to prolong the “stop-the-clock” provision on the European Union Emissions Trading System (ETS) for aviation to cover only flights operated within the European Economic Area till the end of 2016. This will ease international opposition to the system and give the International Civil Aviation Organization (ICAO) time to devise a global mechanism to curb aviation emissions.

But Europe's airlines are not ecstatic about the deal, which for now is still informal, asserting that limiting the European Union ETS to intra-European flights results in competitive distortions. They also question why they have to pay for offsetting their emissions, thereby enriching governments' treasuries, while the same governments are blocking the implementation of the Single European Sky (SES), which could save up to 18 million metric tons of carbon-dioxide emissions per year (see article below).

The draft agreement does not include a legal obligation for EU member states to invest ETS auction revenues in research and technology projects on climate change; it only requires the countries to inform the European Commission (EC) on the allocation of the revenues. This has been a very contentious issue in the negotiations among the European Parliament (EP), Council of the EU and EC. The council, which represents member states, is reluctant to have any prescriptions on earmarking, whereas EP representatives demand greater environmental stringency regarding ETS revenue spending. Airlines share the EP's view.

“Airlines are only able to contribute their fair share if the regulatory environment enables them to do so, for example via earmarking of auctioning revenues for the sustainability of European air transport,” says Athar Husain Khan, CEO of the Association of European Airlines (AEA).

The AEA supports the overall draft compromise package that was agreed to by negotiators from the EP, council and EC on March 4 because the “decision to reduce the scope temporarily takes into account the achievements already made at the ICAO level,” it says. The association, which promotes the interests of Europe's network carriers, recognizes that the agreement is not perfect, and it regrets that the “stop-the-clock” provision was not extended until 2020, when the global market-based measure (MBM) is due to come into force.

“The last thing we want as an airline industry is to be caught in the same mess [in 2017] that we have been caught in in 2013,” says Husain Khan. “Legal clarity, legal certainty, planning and operational stability are key for the airlines. For AEA it is therefore essential that ICAO delivers a global MBM in 2016,” he adds.

ICAO working groups met in Washington early this month to kick-start discussions on establishing a global MBM.

The new EU ETS will cover emissions from all flights—no matter the nationality of the operator—till the end of 2016 between airports in the European Economic Area (EEA), which includes the EU's 28 members plus Iceland, Norway and Lichtenstein. Flights to and from the EEA's outermost regions will be exempt during the four-year period. These include: Spain's Canary Islands; the French overseas territories of French Guiana, Guadeloupe, Martinique, Reunion and Saint Martin; and the Portuguese archipelagos of the Azores and Madeira.

Flights between airports in the EEA and Switzerland also fall outside the scope of the revised EU ETS. The initial one-year stop-the-clock measure, covering emissions on flights operated in 2012, included operations between airports in the EEA and Switzerland because the EC reasoned the country was part of “closely connected areas with a shared commitment to tackle climate change.” The Swiss government has always protested this view.

There will be an extraordinary two-year compliance cycle for 2013 and 2014 aviation emissions, which must be reported by March 31, 2015 (in two emissions reports), with allowances to be surrendered by April 30, 2015.

To speed up the process and quickly give airlines a legal framework, the new aviation ETS will be an EU regulation with binding legal force throughout the bloc as soon as it is passed, probably next month. Unlike the current EU ETS legislation, which is a directive, it will not require transposition into national law of all member states.

All options are left open for the EU to react to the developments of the ICAO assembly in September 2016 and to readjust the scope of the EU ETS from 2017 on. The compromise solution envisions a “snap-back” to the original ETS in 2017 if ICAO fails to deliver credible progress toward a global deal that would begin in 2020. Following pressure from the EP's negotiators, this ICAO MBM would “reduce greenhouse-gas emissions from aviation”—rather than achieve “carbon-neutral growth”—and be non-discriminatory, treating all airlines equally, regardless of their country of origin.

The Council endorsed the compromise package March 7, the EP's Environment (ENVI) committee will vote on it March 19, and it will be submitted for a plenary vote on April 3.

The ENVI vote could prove to be a bottleneck. ENVI negotiator and committee chairman Matthias Groote labels the deal “an acceptable compromise,” though he notes that “we do not yet know whether we will get a majority in parliament.” In addition, he points out that “there is also the question of timing: if we don't agree by April, we will automatically fall back upon the previous legislation.” In other words: international flights departing from or landing at an EEA airport would be fully included within the ETS scope starting May 1.

Europe's airlines have differing opinions on the compromise solution. The AEA calls on the EP to formally adopt the trilateral agreement but the European Low-Fares Airline Association (Elfaa) urges the EP to reject what it calls the “unworthy compromise” because an intra-EEA ETS is environmentally ineffective. Elfaa Secretary General John Hanlon notes that since “80 percent of EU aviation emissions of CO2 result from long-distance flights, this necessarily requires the inclusion of all flights departing from and arriving at EU airports.”

Meanwhile, the International Air Carrier Association (IACA), representing 28 leisure airlines, argues that the stop-the-clock provision discriminates among airlines. “The effects of CO2 are worldwide. Whilst the rest of world is working toward an ICAO solution, Europe has chosen to hurt its own interests in order not to lose face,” says IACA Director General Sylviane Lust. IACA and its regional-airline counterpart, the European Regions Airline Association, want a suspension of the EU ETS for all flights, pending a satisfactory conclusion to ICAO's work.

A return to the full-scope ETS is a no-go internationally. And scrapping the ETS till 2020 was simply not a negotiable option for the EC and EP.