Carbon Market Watch

For fair and effective climate protection.

International Aviation and Global Offsetting (Newsletter #1)

16 Nov 2012

See Newsletter #1, November 2012

Guest article by Bill Hemmings, Transport & Environment

Progress is finally evident at the International Civil Aviation Organisation (ICAO) to develop a global market-based measure (MBM) to address CO2 emissions from international aviation.  With the aviation industry predicting significant growth and relatively high abatement costs, market-based measures are likely to focus on carbon markets. Many ICAO member states and industry seem to favour global mandatory offsetting as the most administratively simple and attractive option. However, inherent problems about offset quality remain unaddressed. 

The Kyoto Protocol adopted in 1997, tasked ICAO with limiting and reducing international aviation emissions. ICAO’s slow pace, led the European Union (EU) to take action to include aviation in its Emissions Trading Scheme (ETS) from the start of 2012. ICAO’s 2010 Assembly has resolved to “continue to explore the feasibility of a global MBM scheme …and report progress” to the 2013 Assembly. Early this year a Group of Experts was established to provide technical advice to ICAO’s Council on options to address the growing emissions. These have been narrowed down to mandatory offsetting, with the option of linking to a revenue generation mechanism such as a transaction fee on the purchase of offset credits,  or a cap-and-trade scheme for aviation that offers open access to the carbon markets and which could also generate revenues. The ICAO Council met mid-November 2012 in Montreal to consider progress towards developing a global market-based measure and agreed on the establishment of a high-level group of policy makers to progress the design choices from a political and policy perspective.

The high-level group will need to address many contentious issues that will have far reaching implications including whether the regulated entity should be states or airlines; whether revenue should be raised from an MBM and if so whether to use it to further in-sector emission reductions or to assist developing countries (e.g. through the Green Fund); whether pure offsetting is environmentally effective; and what the level of ICAO’s ambition (reduction targets) should be.

At this point, mandatory global aviation offsetting without revenue generation seems the most favoured option by many ICAO members and by the aviation industry itself.  At current prices this option would enable airlines to retire emissions at 90 cents per tonne, or even 50 cents, and thus appear very attractive to airlines. Industry influence has always been considerable in ICAO so there is a real danger that airlines’ preference could emerge as the favourite option. In addition the close relationships between airline operators and voluntary carbon market standards, means there is likely to be strong pressure to include Voluntary Emissions Reductions (VERs) in any potential offsetting scheme. Indeed, the concerns surrounding the lack of international verification and fungibility remain unaddressed. It is also not clear how a UN body could recognise VERs for compliance. At the same time, it is highly likely that Clean Development Mechanism (CDM) credits will be deemed eligible for use in these processes, yet concerns about their environmental integrity have not been addressed. Moreover, discounting options (for example requiring 3 credits to offset 1 tonne of CO2) have yet to even be tabled.

The scale of offsetting required for any substantial environmental impact in the aviation sector will have to be dramatic. Even ICAO weak aspirational goal of keeping emissions from international aviation at 2020 levels will require offsetting the equivalent of 140mt of CO2 per annum by 2026 and over 450mt per annum by 2036.

The issue of quality of offsets is critical to the perceived effectiveness of ICAO’s preferred approach. One can assume that the last thing industry wants is to go through all the trouble of arranging a clean bill of health for all the pollution it creates with its friends in Montreal, only to find that this approach doesn’t resonate with the public, and it is subsequently challenged to do more to manage its global emissions. The question of quality and relative effectiveness also needs to be addressed as regards the other ICAO option, that of global emissions trading. In the aviation EU ETS, access to offsets is constrained. Would that also be possible in ICAO?  Which option is more environmentally effective – mandatory offsetting or emissions trading?

No matter what the final choice could be, it is equally important to set a stringent cap so that offset allowances are not over-allocated (as we have seen with the EU ETS) and so that offset implementation upholds environmental integrity and effectiveness. It is not by any means just about administrative simplicity, process and cost.

All these are important questions and there aren’t many answers just yet. The discussions in ICAO over the next few months will need to be definitive if progress is to be made, and these are not inquiries to be resolved behind closed doors. Fundamental issues like these must be addressed openly in public debate where there are questions of offset quality, quantity and supply, they must be properly investigated and the conclusions tested in public. Many airlines have existing programs and they will require some convincing to give them up. If that proves necessary the process must ensure that this is the result.