Term Paper (Advanced seminar), 2010
30 Pages, Grade: 1,3
2 The EU Emissions Trading System
2.1 Summarising ET: General Concepts of the Policy Instrument
2.2 Contents and Concepts of EU-Emissions Trading System
2.2.1 Selected background of EU-agreements on the EU-ET Scheme
2.2.2 Profiling present moulding concepts of the European Union ’s ET System
2.3 Incorporating Aviation into the EU ETS: Contents and Stage of Affairs
2.3.1 Incorporating aviation into EU ETS: Impact and selected content
2.3.2 Incorporating aviation into EU ETS: Stage of affairs
3 Issues related to the Introduction of Aviation into the EU ETS
3.1 Problems in Implementing EU-wide Aviation into the EU ETS
3.2 Problems in Implementation: Divergences in an UN-wide context
4 EU-ET: Values and Deficits in Proceeding Problems from Aviation
4.1 Values and Potentials of the EU ETS in a Special Regard to Aviation
4.2 Deficits and Criticism to the EU ETS in Proceeding Problems from Aviation
5 Intermediate Result: Evaluation of Deficits and Values
6 Future Proposals to the Inclusion of Aviation into the EU ETS
List of Abbreviations
This Policy Paper is emerged from the context of the Master course: “Protecting the Environment in the European Union” at the Westfälische WilhelmsUniversität Münster under the coordination of Dr. Jörg Waldmann.
Within the scope of this course the presentation results from the commissioned group works, divided into thematic clusters - supplemented by active discussions - have acuminated the view on contents and concepts of this issued EU Policy. In doing so, it was a major aim to analyse political instruments within the EU, used to accesses various fields of environmental problems. Congruously in this Policy Paper, a specific instrument of EU Environmental Policy is chosen to be analysed and finally evaluated by its performances and capabilities as operational policy instrument.
In the course of the seminar, the preservative subject area of Climate Policy has crystallised as an emerged and large-scaled subject to EU Environmental Policy. EU Climate Policy contacts nearly every field in European environmental adoption. Facing the latest scientific prognoses and reviewing European as well as common global environmental activity - the abatement of Climate Change appears to be one of the most superordinated aims.
Hence, this policy topic especially defies an exemplary investigation on how EU policy-making proceeds, to protect environment in anent to a current issue.
At present, the EU Emissions Trade System / -Scheme (EU ETS) as one of the most expansive pillars to the Union’s Climate Policy and concurrently the most comprehensive global ETS, is ought to be completed within its second (of three) phases of development. The integration of EU-wide aviation into the system of EU ET proceeding since 2003 is a main part to the future enterprise in expanding EU Climate Policy. Within this step of integration the EU has declared its ambition to take a pioneering task in combating global Climate Change until 2020.
During the current decade, critical scientists appraise the realisation of those aims as an impossible scenario for near future (Hahn 2006 / Brockhagen 2004). Not less, within this EU-wide expansion plans the EU ETS is ought to cover and regulate a mobile pollution sector, which has grown eminently during the last decade and as so far has enjoyed special status to national politics.
The fact that the EU ETS is discussed to be a proto-type of global concepts of Emissions Trading regimes additionally increases the importance of its analysis and evaluation (e.g. Ellerman 2008: p.2).
EU organs have consequently communicated the environmental need for action in controlling aviation in numerous declarations since 1996 (e.g. Brockhagen 2004). The EU Commission, Parliament and Council in conjunction consistently accent the problem by showing the raising rates of civil air traffic (e.g. CEC 2005 ; CEC 2006). The recent releases document, that EU-wide 793 Million starting passengers had been listed in 2007 - a raise by 7,3 % compared to 2006 (Stockmann / Janßen 2009: p.6). In 2007 (p.1) the EP asserted, that aviation is the fastest growing source of CO2 emissions in Europe. Even during the global financial crisis in 2008 inner EU civil traffic has temporary decreased by only a rate of 3,2 % in comparison with 2007. The highest growth is related to budget flights (Hahn 2006: p.6). Overall, the EU is a mayor actor in global aviation: 25 % in global traffic is covered by inner European flights (Wolf 2007: p.293). Against the background of this large-scaled and raisinging environmental problem, it is inalienable to EU Politics, to constantly adjust and control the capabilities and potentials of the European ETS, to (a) run and insure its successful implementation and (b) to help reaching practical results in protecting of the environment in the EU.
Therefore, in three major steps the following question is approached: How effective can the policy arrangement of EU ETS be, to contain environmental problems from aviation? For this aim, in the first part of this Policy Paper the question is responded: What are contents and the concepts of the EU ETS - in a special regard to aviation? Coherently, the second part of this paper raises the question of values and deficits of the EU ETS - on the one hand arising from lessons that have been already learned - on the other hand to emerge future problems: What difficulties and potentials are to be state for the integration of aviation into the EU ETS? The third and concluding part of this paper evaluates and finally proposes how to proceed and to optimise the incorporation of aviation into the EU ETS - leaded by the question of: How could components of the EU ETS be modified to achieve better results in terms of initialising, proceeding, and ensuring this planed policy scheme?
Generally, Emissions Trading to be commonly understood as a policy tool, applied in current political reality is the most important market-based approach to administrative regulation of international Climate Change, used in line with the Kyoto Protocol (e. g. Kjærseth / Wettestad 2008: p. 275).
Unlike direct command and control approaches, pollutions of industrial operators are regulated by the help of market-based governance arrangements.
As such, Emissions Trading in special is deemed as a feasible Climate Policy tool to contexts of international implementations (Kosobud 2000: p.3).
The theoretical basic approach to ET was first drafted by an economical abstract from Ronald Coase. In 1960 the economist was searching for a method to optimise industrial pollution. As a precondition, Coase asserted that pollutions are costs and burden, which industries pass on to society. He concluded that pollution - as a societal problem - would be minimised, if it would be no longer at no charge to pollutants, but rather be emerged as part of procurement calculations in total economical costs (Coase 1960: p. 3-44).
Comparable to Coases approach, most operationalised ETS are assembled by the “cap-and-trade” principle (PEW Centre on Global Climate Change 2009: p.1).
In the process according to this approach, governments set legal limit-ceilings (Tietenberg 1985: p.3), the “caps” on the amount of emissions of pollutant groups that can be emitted. Such “caps” in terms of existing ETS are the sum of all allowed emissions from all included facilities. In terms of the existing EU ETS, industrial companies or other groups are addressed by issued emissions permits and are required to hold an equivalent number of those allowances which represent the right to emit a specific value.
While the logic of the Coase Theorem is founded on continuously disburse and narrowed allowances for pollution - current worldwide existing Emissions Trading Systems are giving emissions allowances which are reviewed as proportionally high. Still todays operationalised ET Schemes give most allowances for free. For instance in the EU ETS, allowances are set in line with pollution limits that is based on past pollution levels (a.k.a. the method of Grandfathering). In the case of the aviation sector at the limit of what was emit in the year of 2005.
Nevertheless, the middle-term aim of ET - like in standards of the EU ETS - is to lower the emissions “caps” in line with defined time periods (e. g. Centre of American Progress 2008: para. 3).
In theory, the goal of cap-setting only can be fulfilled by adequate ceiling levels. If cap-levels are set adequately, it is expected that companies, which pollute continuously intensive or intend to increase their emissions have to buy credits from industries that pollute less; in ideal case, from those operators who began to minimise their emissions as a result from the cost compression of the ET. Comprehending this theoretical effect it appears to be obvious, that the transfer of allowances is referred to as a “trade”: In fact, under these circumstances the buyer is paying a charge for polluting, while the seller is being rewarded for having reduced emissions by more than it was defined by the given cap. Thus, following the approach at first, those who can reduce emissions most cheaply will do so. Consequently, it can be expected that for some emitters, implementing new low-emitting technologies are less expensive.
To operationalise a free market-based certification exchange amongst emitters, allowances are traded on Stock Exchange. Aside this, certifications that are needed above the defined caps can in most cases also be bought from the appropriate national governments. Resulting revenues from the ET that are paid to governments are transferred into environmental funds and ET associated climate programmes. In conclusion, is expected that the impact of ET is driven by the forces of supply and demand in markets. Consequently, the developments of prices result from supply, demand and from market expectations to capacities of emissions of a sector. In theory like in line with most current credos of the EU's Climate Policy strategy, this method is expected to a) stimulate best practice and cost efficiency, b) optimise economical behaviour within market- based incentive structures and c) advance desirable societal goals in common welfare in terms of environmental protection by a scheme of pollution control. At present, the EU ETS is out to cover nearly every EU-wide pollutive industry. while for example prominent ET arrangements like US-Americans or Japanese systems exist more “local” - national bounded and more fragmentary - addressing specific regions and environmental hazardous branches (Stavin 2000: p.49 et. seqq.).
“The EU ETS is the most comprehensive multi-national ETS worldwide and was the first to be introduced in 2005" (EU 2007: para. 15).
To first contextualise the agreement about the introduction of the EU ETS in 2005, it is to be pointed out that decisions were based on forgone stagnation in process EU Climate Policy in emissions abatement. Since the beginning of the 1990s, the EU Commission failed in the undertaking of initiatives to introduce carbon and energy taxes. In this context, the agreement on EU Emissions Trading appears to be a policy-outcome traced back on a forgone European request for alternative Climate Policy instruments.
Most conspicuously, fiscal ambitions were started about one decade before the established market-based governance scheme of EU ET came into agreement. For the CEC and the EC, ET appeared as a strategy to remediate failures in a Climate Policy that were at first tried to be achieved by direct interventional command and control approaches.
An important advantage for the implementation of the EU ET- in contrast to fiscal proposals is based on the simple fact, that it required only a simple majority to be passed in the EC (Luhmann / Brouns 2005: p.15 ; Convery 2009: p. 393 et seqq.). Consequently, in the first contemplation ET might be regarded as an alternative political strategy.
In the process Emissions Trade-levels increase over time. This attribute makes EU ET integration additionally appear in a mode of what Lenschow and Reiter (2008: 179 et seqq.) characterise as of creeping integration: They identify creeping political processes as a frequently utilised option to process environmental policy integration on the level of the EU.
Recapitulating the content of requirements under which Emissions Trading was passed, altogether it can be hardly underestimated, that this policy instrument includes possibilities to be applied under the prerequisite of (a) international (EU) treaties - (b) still leaving compatible elbowroom to national governments and industrial operators, at least at the beginning of trading emissions in the EU.
As most scientists, Frank Convery (2009) considers the present developments of the ETS as a extensive improvement for EU Climate Policy. He concludes that after failing an EU Taxation System, nevertheless the decision to pass an ETS was not inevitable to the Member States. Warrantable, he advises to present progresses in structuring the EU ETS as first promising developments.
As a matter of fact at present, the EU ETS currently covers more than 10,000 installations with a net heat excess of 20 megawatt (MW) per day in the industrial sectors which are responsible for a half of the EU's emissions of CO2 and 40% of its total Green House Gas (GHG) emissions (Wagner 2004: p.12). Under the EU ETS, large emitters of carbon dioxide within the EU have to monitor and annually report their CO2 emissions. Additionally these polluters are obliged every year to return an amount of emission allowances, so called European Union Allowances (EUAs) to the government that is equivalent to their CO2 emissions in that year. In order to neutralise annual irregularities in CO2 emission levels, emission allowances for operators subject to the EU ETS are given out for a sequence of several years at once. Each such sequence of years is formed as a trading period.
The first ETS “trail" 4 trading period expired in December 2007; has covered all EU ETS emissions since January 2005. With its terminations, the first phase of EU allowances became invalid. Since January 2008, the second trading period is under way which will last until December 2012.
In January 2008, the European Commission proposed a number of changes to the scheme, including centralized allocation, which means no more national allocation plans by an EU authority, a turn to auctioning a greater share (60+ %) of permits rather than allocating freely, and inclusion of other greenhouse gases, such as nitrous oxide and fluorocarbons (Europe Press Release 2005). These changes are still in a draft stage; the mentioned amendments are only likely to become effective from January 2013 onwards, i.e. in the third trading period under the EU ETS. In addition, the proposed caps for the third trading period foresee an overall reduction of greenhouse gases for the sector of 21% in 2020 compared to 2005 emissions.
A core element of the implementation of the EU ETS is the involvement of all major pollutive sectors during the course of its development (e. g. EP 2008: para. 10). As a basic element to this aim, in 2003 the EC has decided to involve the aviation sector into the provisions of the EU ETS.
In comparison to other pollutive sectors EU-wide - such as global aviation is supposed to extensively low emissions control. Examples for working instruments in emissions regulation next to the EU ETS are the Dutch Kerosene Tax - covering its few domestic flights (e. g. Netherlands Environmental Assessment Agency 2005: p. 12) and pilot-projects on emissions depended landing and take-off charges at the major German airports of Frankfurt and München ( EP 2007: p.3).
Consequently, unlike other pollutive sectors the plan to regulate aviation meets eligibilities of few structures in executive, practical and administrative control. Already from the start, the EU ETS is not to be seen as an additive junior policy arrangement in emissions control of aviation. Within the EU ETS the first covering international emissions control on this sector is getting initialised in general. This backlog in demand makes it even more obvious, why this project of ET incorporation is named a main planning pillar to its second trading period (e. g. EP / CEC 2007: para. 1). The Commission’s proposal of 2006 to include the aviation sector in the EU ETS has been finally agreed between the EP and the CEC and was passed in January 2008 by Directive 101/CEC/2008.
Following the EU declarations, from 2011 inner European aviation emissions are expected to be included into the scheme, trans-European flights are expected to be involved from 2012. The actual formal agreements, legislates this expansions to be realised until February 2010. Consequently, the integration of aviation, in fact is estimated to be included in the limits of the third EU-ET period until 2020. Consequently, the EU ETS is planned to be practiced by the end of the term of the Kyoto Protocol. An ET cap ceiling was agreed by the end of 2008 and is planned to as a basis to regulate aviation operation in the upcoming decade.
As a first proposal in June 2008, the EP and Council reached an informal deal of auctioning 15% of total emissions allowances (CEC / EP 2008 Art. 3d 1.) Art. 3d 2.: “From (...) 2013, 15 % (...) shall be auctioned’. MEPs from the CEC- ENVI Committee pushed for aviation pollution permits to be capped at 90% of the average-level of GHGs emissions, emitted during the period of 2004-2006. The Member States were demanding to set the cap at the level of 100% of the underlying average basis. A compromise was made by 95% as a basis for the trading period from 2013 to 2020, unless no new agreements are negotiatated (CEC / EP 2008: Art. 3c ; EP 2008: para. 4d ; CEC / EP 2008: para. 10). Weinreich (2009: p. 5) points out that there is currently neither a legal nor an administrative basis to this European legislation until commissioned national monitoring plans are elaborated as framework conditions to control aviation. Nevertheless, the assigned comitology committee of the CEC has already elaborated basical parameters. Next to Member States, the EU plans the airlines themselves to be responsible for controlling their emissions: Aircraft operators have the most direct control over (...) aircrafts (...) and should therefore be responsible for complying with the obligations'’" (EC / EP 2009 para.: 15).
The planned decisions about this implementation legally accord to national public expenditure and are therefore given as a matter of national sovereignty. Hence, the implementation depends on the principle of subsidiary of Member States to the EU. According to the information of the DEHSt (Deutsche Emissionshandelsstelle) at present, about 300 German aircraft operators are engaged to design monitoring plans.
If aircraft operators fail to comply with the requirements of the Directive, Member States should act in solidarity: The administering Member States are expected to request the Commission to decide on the imposition of an operating ban on aircraft operators at the Community level - concerned as a last resort.
“Revenues generated from the auctioning of allowances, (...) required by overriding budgetary principles of the Member States, such as unity revenues generated from auctioning should be used in particular to contributions to the Global Energy Efficiency and Energy Fund and measure to avoid deforestation and facilitate adaptation in developing countries and on the development of low-emission transport (CEC / EP 2008: para. 22).
 Stockmann / Hafner (2007: p.6) report that “(...) total flights from, to and inner Europe cover [about] more than 50 % in [total] global emissions
 This formulation is to be understood in a global context - the EU ETS in most regards, is a local limited trading system amongst others; such as US American and Japanese ETSs.
 To pass EU-wide taxation in the EC absolute majorities are needed. The proposals were vetoed by Member States that suspected EU taxation to provoke accessive cuts in national core sovereignty.
 While the first Emissions Trading phase (2005-2007) of the EU ETS is widely regarded as a pilot phase for “learning by doing”, the second trading phase (2008-2012) is commonly seen as the start of Emissions Trading in earnest.
 E-Mail response from the DEHSt.
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