The different stages to 1 January 2012

1) The European Commission has had to identify the European and non-European airlines that will participate in the system. A list was published in February 2009, which will be updated annually. Since it is the states that will calculate the quotas to be allocated to each airline (based on a common reference system), the Commission also had to determine which member state will be in charge of which airline. This was done on the basis of the airlines’ operating licence (the member state that issues the licence being the one in charge) and, for non-European airlines, on emissions – i.e. traffic – in each member state (the state in which a non-European airline has the most traffic will be in charge of that airline).

2) The Commission will calculate the total quantity of CO2 emitted by the aviation industry for the years 2004-2006 (these are referred to as «historic emissions»), after which the number of permits to be allocated can be identified. The idea is to determine the «shared pool», with one tonne of CO2 giving rise to a permit. This calculation should be performed during the first half of 2009 by Eurocontrol, the European Organisation for the Safety of Air Navigation. The number of allowances to be distributed will not correspond precisely to the average for 2004-2006, but rather to 97% of that figure in 2012 and 95% in 2013.

3) The Commission will determine each airline’s volume of traffic. To that effect, in 2010 the airlines will provide the member states with accurate traffic data (passengers/kilometre, destinations, etc.). If an airline represents 1% of the volume of traffic in 2010, it will receive 1% of the permits for the first year the system operates, in 2012.

Two airlines with the same volume of traffic will therefore be given the same number of permits. At the end of 2012, the airlines will have to give back to the states the number of permits corresponding to their emissions and buy additional permits if the number they have been allocated does not cover their emissions. This is where each airline’s energy efficiency becomes a crucial factor.

Quota allocation method

- For the year 2012: 15% of available quotas will be auctioned. This means the sector will have to pay if it emits a volume of CO2 85% higher than the average for 2004-2006. In fact, it will be a little less, since the calculation is based on 97% of the average for 2004-2006 and a small quantity of the available quotas (3%) will also automatically be placed in a special reserve for new airlines entering the market.

The formula to be applied is the following: number of free quotas to be issued = total quantity of quotas to be allocated (97% of average for 2004-2006) – quantity auctioned (15% of the 97%) - reserve (3% of the 97%).

- After 2012: the formula remains the same but the percentages will change because of the use of 95% of the average for 2004-2005 as the basis for calculating quotas to be allocated. In principle, the share to be auctioned will still be 15% - but this could change if the international community agrees on a mechanism other than auctioning.

Where will the auction proceeds go?

The member states will decide. The directive simply states that the proceeds should be used to cope with climate change in the EU and in third countries (to facilitate adaptation to climate change, to finance research, particularly in aeronautics, etc.). It also states that the money should help finance contributions to the global energy efficiency and renewable energy fund and measures to prevent deforestation.

What about newcomers?

For each period, 3% of the quantity of quotas to be allocated will be placed in a special reserve. This reserve will also be used for carriers whose traffic rises significantly (more than 18% in one year).

Where will airlines be able to buy permits?

They will buy them from other airlines or another sector. On the other hand, the other sectors will not be able to buy permits from airlines. This is referred to as a semi-closed market. Since the Kyoto Protocol does not apply to aviation, its permits are not «accredited» at international level and consequently cannot be used by other sectors to reduce their CO2 emissions.

The airlines will also be able to buy credits for projects under the Kyoto Protocol, for at most 15% of their quotas. With this mechanism, the airlines will be able to finance projects to cut greenhouse gas emissions in third countries, receiving permits (theoretically less costly) in exchange.

Exemptions

Apart from a range of «special» flights (military, customs, rescue, firefighting, scientific research, etc.), an exemption also exists for small aircraft weighing less than 5.7 tonnes and for flights producing emissions of less than 10,000 tonnes of CO2 a year. Carriers with very low rates of traffic will also enjoy an exemption. This measure is likely to keep most operators from developing countries out of the ETS.