The EU Emission Trading Scheme (EU ETS) was implemented in 2005. It is a Cap and Trade system for CO2 only. The first trading period is 2005 to 2007, the second from 2008 to 2012 which is equal to the first Kyoto trading period. Utilities and energy intensive industry are obliged to participate, in total some 11,000 installations in the EU. EU member states have developed National Allocation Plans defining the rules and procedures how CO2 allowances are allocated to the installations. The allowances are allocated free of charge to the installations. The Installations are obliged to monitor and report on the CO2 output. If the CO2 output exceeds the amount of allowances a company is holding, it must buy the difference on the market. If not doing so it will have to pay penalties of 40 €/t CO2 and from 2008 on 100 €/t CO2.

EU ETS and Aviation

• All flights between EU airports will be covered from 2011
• All departing / arriving flights at EU airports will be covered from 2012
• Allowances will be allocated by reference to average annual emissions in the period 2004-2006
• Allocation will likely be based on benchmark with free allowance combined with auctioning of up to 40 %
• The Aircraft operators are allowed to buy allowances from other sectors in the EU
• Airlines will have to monitor and report on emissions from 2010
• Emission reduction potential is limited for the airlines (invest in advanced technologies / efficient and modern fleet, maintain clean and efficient airframes and engines, fly direct routes, maximise load factor, maximise seating capacity ??, etc.). Biofuels not yet available.
• Airlines with high RTK / emission will win
• As the aviation is expected to grow more (4-5% pa) than the fuel consumption can be reduced (2% pa) the airlines will be net buyer of emission allowances.
• Air transport emissions in 2025 might be 70-80% higher than in 2005
• This will increase the demand of CO2 allowances and stimulate the carbon price
• Contribution to environment and sustainable development will become more important within company communication
• Investors will ask for Corporate Social Responsibility