Aviation and climate Aviation and climate changechange

Commission activities and policy statements Commission activities and policy statements relating to the use of economic instrumentsrelating to the use of economic instruments

Niels LadefogedNiels LadefogedDG Environment, European DG Environment, European

CommissionCommission

December 2004 December 2004

OverviewOverview

• The challengeThe challenge

• Major Commission policy statementsMajor Commission policy statements

• Key Commission studiesKey Commission studies

• The possible control optionsThe possible control options– Taxes or chargesTaxes or charges– Emissions tradingEmissions trading

• Next stepsNext steps

Aircraft emissions Aircraft emissions have grown rapidly…have grown rapidly…GHG emissions from international aviation GHG emissions from international aviation reported by Annex I Parties to the UNFCCC:reported by Annex I Parties to the UNFCCC:

•+ 48 % from 1990 to 2000+ 48 % from 1990 to 2000

•~ 1.2 % of total national emissions~ 1.2 % of total national emissions

•Note:Note:– Total radiative forcing of aviation higher than Total radiative forcing of aviation higher than

that of CO2 alonethat of CO2 alone– Only comprise reported emissions of Annex I Only comprise reported emissions of Annex I

countries (e.g. not Thailand, Brazil, China)countries (e.g. not Thailand, Brazil, China)

..and air traffic is forecast to ..and air traffic is forecast to continue growingcontinue growing

• According to ICAO analysis presented in February 2004, the world passenger aircraft fleet could double by 2020 - an increase from 12317 in 2002 to roughly 25000 aircraft in 2020.

• “Global air freight will average 5.6% growth between 2003 and 2008” (MergeGlobal, Inc. Global Freighter Capacity & Fleet Model)

• "World air cargo traffic will expand at an average annual rate of 6.2% for the "World air cargo traffic will expand at an average annual rate of 6.2% for the next two decades, tripling over current traffic levels." (Boeing forecast)next two decades, tripling over current traffic levels." (Boeing forecast)

• ““With respect to climate change (CO2-equivalents) air transport is dominating With respect to climate change (CO2-equivalents) air transport is dominating the EU-plus outbound and inbound tourism transport impact with 72% […] The the EU-plus outbound and inbound tourism transport impact with 72% […] The general trend in tourism towards more frequent, less long and further away trips general trend in tourism towards more frequent, less long and further away trips has a strong impact on transport demand. [… ]Cheap air transport leads to a has a strong impact on transport demand. [… ]Cheap air transport leads to a combined mode-destination shift which very strongly influences the combined mode-destination shift which very strongly influences the environmental impact.” (Feasibility and preparatory study regarding a Multi-environmental impact.” (Feasibility and preparatory study regarding a Multi-stakeholder European Targeted Action for Sustainable Tourism & Transport, DG stakeholder European Targeted Action for Sustainable Tourism & Transport, DG Enterprise)Enterprise)

Major Commission policy Major Commission policy statements of relevancestatements of relevance

•COM(96) 549 - Report under Directive 92/81/EEC…COM(96) 549 - Report under Directive 92/81/EEC…

•COM(1997) 30 - Proposal for a Directive restructuring the Taxation of COM(1997) 30 - Proposal for a Directive restructuring the Taxation of Energy ProductsEnergy Products

•COM(1998) 466 - White Paper on Fair Payment for Infrastr. Use...COM(1998) 466 - White Paper on Fair Payment for Infrastr. Use...

•COM(1999) 640 - Air Transport and the EnvironmentCOM(1999) 640 - Air Transport and the Environment

•COM(2000) 110 - Taxation of Aircraft FuelCOM(2000) 110 - Taxation of Aircraft Fuel

•COM(2000)821 - Community objectives for 33rd ICAO GACOM(2000)821 - Community objectives for 33rd ICAO GA

•COM(2001) 31 - Proposal for the 6th Community Environment Action COM(2001) 31 - Proposal for the 6th Community Environment Action Programme (6EAP)Programme (6EAP)

•COM(2001) 370 - White Paper on the Common Transport PolicyCOM(2001) 370 - White Paper on the Common Transport Policy

•COM(2004) 74 - A Community aviation policy towards its neighbours

•COM(2004) 505 - Financing the European Union

•SEC(2004) 923 - Impact of Int. Aviation on Climate Change – prep. For 35th ICAO Assembly

Key Commission studiesKey Commission studies

• Economic incentives to mitigate greenhouse gas emissions from air Economic incentives to mitigate greenhouse gas emissions from air transport in Europetransport in Europe

• Bibliographical data: R.C.N.Wit, J.M.W.Dings, P.Mendes de Leon, L.Thwaites, Bibliographical data: R.C.N.Wit, J.M.W.Dings, P.Mendes de Leon, L.Thwaites, P.Peeters, D.Greenwood and R. Doganis.P.Peeters, D.Greenwood and R. Doganis.

• Delft, CE, 2002. Publication number: 02.4733.10Delft, CE, 2002. Publication number: 02.4733.10• Further information on this study is available from Mr. Ron Wit:Further information on this study is available from Mr. Ron Wit:• Tel: +31 15 2 150150/e-mail: Tel: +31 15 2 150150/e-mail: wit@ce.nlwit@ce.nl• The final report can be downloaded at:The final report can be downloaded at:• http://europa.eu.int/comm/transport/air/4733_finalreport-en.pdfhttp://europa.eu.int/comm/transport/air/4733_finalreport-en.pdf

• Analysis of the taxation of aircraft fuelAnalysis of the taxation of aircraft fuel • Study VII/C/4-33/97Study VII/C/4-33/97• Final report January 1999, prepared by a Consortium led by Resource analysis, Final report January 1999, prepared by a Consortium led by Resource analysis,

Delft, The Netherlands (Tel:+31 15 2191519/e-mail : Delft, The Netherlands (Tel:+31 15 2191519/e-mail : RA@resource.nlRA@resource.nl))• On the basis of this study, the Commission adopted a Communication on taxation On the basis of this study, the Commission adopted a Communication on taxation

of aircraft fuel – COM (2000)110 – which can be found atof aircraft fuel – COM (2000)110 – which can be found at• http://europa.eu.int/comm/taxation_customs/publications/official_doc/com/http://europa.eu.int/comm/taxation_customs/publications/official_doc/com/

com.htm#COM2000110 com.htm#COM2000110

1999 Comm. on Aviation & 1999 Comm. on Aviation & Sustainable DevelopmentSustainable Development

• Proposed long term policy target: Proposed long term policy target: to to achieve improvements to the achieve improvements to the environmental performance of air environmental performance of air transport that outweigh the transport that outweigh the environmental impact of growthenvironmental impact of growth

• Noted this was very ambitious, especially Noted this was very ambitious, especially for COfor CO22 emissions, without breakthrough emissions, without breakthrough developments in engine technologiesdevelopments in engine technologies

• Recognised new approaches are requiredRecognised new approaches are required

Other reasons to consider Other reasons to consider market based instrumentsmarket based instruments

• internalising external costsinternalising external costs

• getting fairer treatment between getting fairer treatment between sectorssectors

• the internal marketthe internal market

• general transport and tax policiesgeneral transport and tax policies

• possibly helping finance the EUpossibly helping finance the EU

Fuel/Emission TaxFuel/Emission Tax

• 1996 EC Report on imbalances from the 1996 EC Report on imbalances from the exemption of international aviation from exemption of international aviation from excise dutyexcise duty

• 1997 EU Council noted the Report & 1997 EU Council noted the Report & requested information on effects of requested information on effects of introducing such taxationintroducing such taxation

• 1999 1999 Analysis of Taxation of Aircraft FuelAnalysis of Taxation of Aircraft Fuel by Resource Analysis by Resource Analysis et alet al published published

Main Tax Options StudiedMain Tax Options Studied

• Taxation Level 245 euros/1000 litres wef 1998Taxation Level 245 euros/1000 litres wef 1998

• Option A Option A

All routes from EUAll routes from EU

• Option BOption B Intra-EU routes/EU carriers onlyIntra-EU routes/EU carriers only

Tax - ResultsTax - Results

• Option AOption A

- more environmentally effective- more environmentally effective

- less economic/competitive impact- less economic/competitive impact

- more cost-effective- more cost-effective

• Option B Option B

- immediately feasible legally- immediately feasible legally

- but not really effective- but not really effective

Tax - ConclusionTax - Conclusion

• Confirmed commercial aviation fuel should be taxed as Confirmed commercial aviation fuel should be taxed as soon as the international legal situation allows such a tax to soon as the international legal situation allows such a tax to be levied on all carriers, including those from third be levied on all carriers, including those from third countries. EU should pursue this in ICAO.countries. EU should pursue this in ICAO.

• Recommended EU Member States should be able to tax fuel Recommended EU Member States should be able to tax fuel used for domestic flights and, by mutual agreement, fuel used for domestic flights and, by mutual agreement, fuel used on flights between such States. [Since given effect by used on flights between such States. [Since given effect by Directive 2003/96/EC]Directive 2003/96/EC]

• Differential Differential en routeen route charges based on environmental charges based on environmental impact of aircraft should be pursued in addition or as an impact of aircraft should be pursued in addition or as an alternative meantime.alternative meantime.

Emissions ChargesEmissions Charges

These could e.g. take the form ofThese could e.g. take the form of

• a levy added to the farea levy added to the fare

• a levy based on distance flown/ a levy based on distance flown/ environmental performance of the environmental performance of the aircraftaircraft

• a levy associated with airport LTO a levy associated with airport LTO charges charges

The revenuesThe revenues

These couldThese could

• fund environmental investmentsfund environmental investments

(eg. in R&D, in new technologies)(eg. in R&D, in new technologies)

• fund compensatory measuresfund compensatory measures

(direct or indirect eg. carbon offset)(direct or indirect eg. carbon offset)

• be revenue neutral (ie. reward the better be revenue neutral (ie. reward the better environmental performer at the expense of environmental performer at the expense of the worse)the worse)

• be some combination of thesebe some combination of these

Options studiedOptions studied

• An environmental chargeAn environmental charge

• A Performance Standard Incentive A Performance Standard Incentive (PSI)(PSI)

Incentive LevelIncentive Level

• Same for both optionsSame for both options

• Based on external costs of climate changeBased on external costs of climate change

• Mid-range working values of 30 euros per Mid-range working values of 30 euros per tonne of COtonne of CO22 and 3.6 euros per kg of NOx and 3.6 euros per kg of NOx

• Sensitivity analysis: low(10 euros and 1.2 Sensitivity analysis: low(10 euros and 1.2 euros respectively) and high (50 euros euros respectively) and high (50 euros and 6 euros)and 6 euros)

• Choice of level ultimately a political issue Choice of level ultimately a political issue

Environmental charge - Environmental charge - impactimpactMain effects would beMain effects would be

• reduced COreduced CO22 emissions in EU airspace of emissions in EU airspace of

10 megatonnes (9%) in 201010 megatonnes (9%) in 2010

• increased ticket prices of 3-5 euros for short flights increased ticket prices of 3-5 euros for short flights and 10-16 for long onesand 10-16 for long ones

• annual revenues 1-9 billion eurosannual revenues 1-9 billion euros

Revenues could either be Revenues could either be

- allocated to Member States, or - allocated to Member States, or

- to an EU emission abatement fund- to an EU emission abatement fund

Revenue-neutral PSI - Revenue-neutral PSI - impactimpact• Reduced COReduced CO22 emissions in EU airspace of emissions in EU airspace of 6 megatonnes (5%) in 20106 megatonnes (5%) in 2010

• Impact on ticket price would depend on the Impact on ticket price would depend on the definition of the ‘performance standard’definition of the ‘performance standard’

• No net financial burden on industry, though No net financial burden on industry, though some segments would benefit at the some segments would benefit at the expense of others expense of others

Other findingsOther findings

• No significant economic distortions No significant economic distortions between airlines identifiedbetween airlines identified

• No legal obstacles No legal obstacles providedprovided the incentive the incentive

- has no fiscal aim- has no fiscal aim

- is based on the ‘polluter pays’ principle- is based on the ‘polluter pays’ principle

- is not directly linked to fuel consumption- is not directly linked to fuel consumption

Emissions tradingEmissions trading

• Commission is now launching a studyCommission is now launching a study

• Will examine the feasibility of including Will examine the feasibility of including aviation in the EU ETSaviation in the EU ETS

• Terms of Reference availableTerms of Reference available

• Final report due 8 July 2005Final report due 8 July 2005

• If aviation were to be included it should be If aviation were to be included it should be done in a way that doesn’t compromise the done in a way that doesn’t compromise the environmental integrity of the current environmental integrity of the current schemescheme

Implications for air service Implications for air service agreementsagreements• Important to ensure that the ongoing reform of the Important to ensure that the ongoing reform of the

EU’s external air transport relations does not EU’s external air transport relations does not undermine but support efforts to mitigate the undermine but support efforts to mitigate the sectors’ impact on the environment:sectors’ impact on the environment:

– To allow for the taxation option created by Council Directive To allow for the taxation option created by Council Directive 96/2003/EC and to keep all options for market-based measures 96/2003/EC and to keep all options for market-based measures open to mitigate the climate impacts of international aviation, air open to mitigate the climate impacts of international aviation, air services agreements between Member States and third countries services agreements between Member States and third countries should not contain provisions excluding the option of fuel should not contain provisions excluding the option of fuel taxation on flights operated by third country carriers between taxation on flights operated by third country carriers between two points in the EUtwo points in the EU

– In future negotiations on comprehensive Community agreements In future negotiations on comprehensive Community agreements the services of the Commission are of the view that the the services of the Commission are of the view that the Community should insist on preserving full flexibility as regards Community should insist on preserving full flexibility as regards aviation fuel taxation. aviation fuel taxation.

Next stepsNext steps

• The Commission may announce proposals The Commission may announce proposals to deal with the impact of aviation on to deal with the impact of aviation on climate change in 2005. If and when it does climate change in 2005. If and when it does so and what it will consist of will depend onso and what it will consist of will depend on– The outcome of the study on aviation and The outcome of the study on aviation and

EU emissions tradingEU emissions trading– The relative merits of the different The relative merits of the different

optionsoptions– How the new Commission sees thisHow the new Commission sees this