The Road to Paris 2015: EU Emissions Trading Scheme and its Application to Non-EEA Airlines – Enforcement on the Rise?
Europe is stepping up enforcement of its climate change rules against foreign airlines. Recently, a Belgian authority competent for the enforcement of the EU Emissions Trading System (“ETS”) on airlines flying to and from Brussels, collected a fine of €1.4 million. The fine was imposed on Saudi Arabian Airlines for failing to surrender emission allowances. This follows a UK judgment upholding the UK Environment Agency’s fine against the Indian carrier Jet Airways for failing to report emissions from its intra-European flights in 2012. These are only two out of many examples of fines for non-compliance with the emissions trading rules.
This increased enforcement comes at the time when the International Civil Aviation Organization (“ICAO”) is supposed to reach an agreement on international aviation emission reductions.
The Cap and Trade System
The ETS is a “cap and trade” system, established by Directive 2003/87/EC (“ETS Directive”). In short, under the ETS Directive, European authorities issue a limited number of emission allowances on a yearly basis. This cap represents the total amount of greenhouse gas emissions that operators, including airlines, may emit. The number of allowances drops over time, encouraging operators to lower their emissions. Operators are allocated a limited number of allowances per year, and every April 30, operators must surrender a number of allowances equal to their prior year’s emissions. If an operator expects to exceed its annual number of allowances, it must purchase additional allowances from other operators.
Under the ETS Directive, airline companies must:
Register with the ETS Union Registry. The Union Registry is an online database that keeps track of all the emission allowances in the EU, including all transactions that take place using those allowances.
Surrender, by April 30th of each year, a number of allowances equal to the total emissions from their aircrafts during the preceding calendar year. Upon surrender, the competent Member State authorities must cancel the allowances.
Monitor and report emissions from each aircraft that they operate, per calendar year.
The ETS applies to Economic European Area (“EEA”) and non-EEA airlines. However, until December 2016 the rules will only be enforced for intra-EEA flights, i.e., flights that take place between European airports. After 2016, the cap and trade rules will also effectively apply to flights to or from airports in the EEA unless the EU is satisfied with the ICAO’s progress on an international agreement to reduce emissions.
Enforcement on the Rise?
The ETS Directive provides for two types of penalties:
First, aircraft operators must pay a fine of €100 per ton of CO2 (or CO2 equivalent) that they emit in excess to the number of allowances they surrender. In addition, aircraft operators will be required to obtain and surrender sufficient allowances to cover the excess emissions. These fines are the same throughout the EEA.
Second, Member States must impose “effective, proportionate and dissuasive” penalties on airlines that fail to comply with their other obligations under the ETS Directive. These fines may vary significantly from one Member State to another. For example, the maximum fine in Spain for failure to comply with monitoring and reporting obligations could be as high as €2.000.000, whereas in the United Kingdom it is only €50.000.
The recent enforcement actions on Jet Airways and Saudi Arabian Airlines are the latest of a series of enforcement actions against non-EEA airlines that failed to comply with the EU’s cap and trade rules. The UK Environment Agency recently published a list of the fines it imposed on Air India, Loid Global Ltd, Oranto Petroleum, Media Consulting Services LLC, and Primevalue Trading Ltd for failure to surrender allowances by April 30th, 2013. Similarly, in 2013 German authorities published a list of airlines and aircraft operators that did not comply with the ETS in 2012, including non-EEA companies such as Air Arabia Egypt, and Tathra International. In addition, the French authorities also fined non-compliant airlines, such as the Swiss airline Legend Air. The €112.500 fine was imposed for failing to surrender 1.125 allowances for the year 2012.
It will be interesting to see whether these enforcement practices will influence the negotiations within the ICAO regarding an agreement to reduce emissions from aviation by 2016.
Pedro Mendez de Vigo is a Covington summer legal trainee from the Universidad Autónoma de Madrid.