EU emissions trading: More than just hot air

January 1, 2012 marked the start of the European Union’s highly controversial Emissions Trading Scheme with the aviation industry falling under its tough new rules. Although the first year is essentially a monitoring and preparation period for aviation, legal challenges, threats of bi-lateral trade retaliation and industry alliances are all adding up to a potential showdown on the issue. Michael Mackey examines the issues and possible outcomes.

EU emissions trading: More than just hot air

At its core the EU’s Emissions Trading Scheme (ETS) is a bid by the EU to expand radically its anti‐climate change policy even, some suggest, at the risk of creating a tit‐for‐tat trade war, by spreading controls on gases admitted from 11,000 power stations and industrial plants in 30 countries (the 27 EU Member States plus Iceland, Liechenstein and Norway) to airlines coming to, going from and within the EU.

Launched back in 2005 the ETS works on the ‘cap and trade’ principle. This means there is a cap, or limit on the total amount of certain greenhouse gases that can be emitted by factories and power plants. Within this cap, companies get emission allowances but at the end of each year each companies must surrender enough allowances to cover all its emissions, or be fined.

Companies who reduce emissions can either keep the spare allowances or else sell them to other companies who need them. “The flexibility that trading brings ensures that emissions are cut where it costs least to do so,” explains the EU’s website.

It is the kind of laudatory idea that everyone approves of especially as it is to be progressive with the number of allowances being reduced over time so total emissions fall, the site adds. The target is that in 2020 emissions will be 21 per cent lower than in 2005.