Pressure on UK as Germany backs EU ending free carbon permits for airlines
The German government is backing an extension of EU carbon pricing that will end free carbon permits for airlines, putting pressure on the UK to put in place a similar package to meet climate targets. The European Commission will propose several climate policies on 14th July, to try to cut greenhouse gases faster in line with an EU goal to cut net emissions by 55% by 2030 from 1990 levels. The package will include reforms to the EU carbon market. Germany has backed the EC’s plan to impose CO2 prices on transport through a separate system to the EU’s existing ETS. Germany said the reforms to the EU’s carbon market should prolong free carbon permits “to an appropriate extent”, but end them soon for aviation. The UK has created its own carbon pricing market since leaving the EU, but it mostly follows the existing EU model and focuses on heavy industries and energy providers. The UK’s pledge to reduce CO2 emissions 78% by 2035 will dramatically force up the cost of fuel for transportation, including flying. Not all MPs are happy with that.
Pressure on UK as Germany backs ending free carbon permits for airlines
Critics of carbon pricing say the overuse of free permits has allowed firms to use energy at little extra cost
By Phillip Inman and agencies @phillipinman
Sun 6 Jun 2021
The German government is backing an extension of EU carbon pricing that will end free carbon permits for airlines, putting pressure on the UK to put in place a similar package to meet climate targets.
The European Commission will propose a dozen climate policies on 14 July, each designed to slash greenhouse gases faster in line with an EU goal to cut net emissions by 55% by 2030 from 1990 levels.
The package will include reforms to the EU carbon market and a border levy to impose CO2 costs on imported goods. All the policies will need approval from EU governments and the European parliament.
Boris Johnson has pledged to give details of how the UK will meet climate targets ahead of the Cop26 conference in Glasgow this year.
Ministers are concerned that the costs of transition arrangements to reduce emissions 78% by 2035 will dramatically force up the cost of fuel for transportation, including flying, potentially prompting protests and a backbench rebellion by Tory MPs.
According to a document seen by Reuters, Germany backed the commission’s plan to impose CO2 prices on transport and heating in buildings through a separate system to the EU’s existing carbon market.
“The long-term goal should be to have a uniform cross-sector carbon price in the EU,” the document said.
The carbon market forces factories, power plants and airlines to buy permits when they pollute in the EU. Industry and airlines get some for free, shielding them from carbon prices that have soared to record highs this year.
The UK has created its own carbon pricing market since leaving the EU, but it mostly follows the existing EU model and focuses on heavy industries and energy providers.
Critics of carbon pricing say it has done little to curb emissions after a collapse in the price during much of the last 10 years and the overuse of free permits, allowing firms to use energy at little extra cost. The price has risen sharply recently as economies have begun to recover from the pandemic, coming close to caps put on the price by the EU and the UK.
Berlin this year imposed a national CO2 levy on suppliers of heating and transport fuels, set at an initial €25 (£21.50) a tonne. However, the plan to reform the EU-wide system and impose higher costs on heavy carbon users is facing pushback from some EU governments and lawmakers, who fear it could translate into higher household fuel bills.
Brussels is under pressure to come up with a compensation scheme to ensure governments have enough resources to address the policy’s social impact – particularly on low-income households and people who rent their homes, Germany has said.
The UK government is going to face the same dilemma if it pushes the cost of carbon emissions on to consumers, many of whom are on low incomes and already struggling to pay heating bills.
Berlin said the reforms to the EU’s carbon market should prolong free carbon permits “to an appropriate extent”, but end them soon for aviation, the document showed.
Analysts have said that to comply with World Trade Organization rules, the EU must phase out free permits when it introduces a carbon border levy on imported goods.
After years of cheap carbon allowances, price has doubled from around €25 to around €50 in the past 6 months
Airlines flying within Europe have to pay for their carbon emissions, through the Emissions Trading System (ETS). They have to buy carbon allowances, for the carbon emitted. Until 2020, the price of those allowances did not rise beyond about €25. Before that, till around 2018 it was more like €8 per tonne. But there has been a sharp rise in the price in the past 6 months or so, reaching €56 recently and now being around €49. This is not what airlines like, as like other carbon intensive sectors in Europe, they must buy the tradable credits to cover the amount they pollute under parallel emissions systems in both the UK and the EU. The nascent UK carbon trading system, which launched this month, started trading at higher prices, of above £50 a tonne. The higher prices hit the dirt-cheap airlines hardest, with their low ticket prices – Ryanair, easyJet and Wizz Air have been hit particularly hard as almost all their flights are in Europe or the UK, requiring carbon allowance payments. Traders and market participants expect the price of carbon to keep rising as net zero pledges of governments and corporates become more ambitious.
Report for the European Commission shows the CORSIA carbon scheme inadequate – EU ETS more effective in cutting CO2
The aviation industry’s carbon offsetting system (Corsia) risks being ineffective and poorly enforced. A report commissioned by the European Commission (EC) is highly critical of Corsia, which it says may do almost nothing to reduce international aviation emissions. The EC is expected to propose in June how aviation industry emissions should be mitigated, including whether to include international flights in the EU Emissions Trading Scheme (ETS) – currently only those within the European Economic Area are included. The ETS has its faults, but would be hugely more effective in cutting European aviation carbon. A key problem with Corsia, apart from it being voluntary, is the use of cheap, ineffective carbon credits. Currently the price of Corsia-eligible offsets is under $2.50 per tonne. The ETS price is up to $43. Many of the credits are dubious, with inadequate certification or quality control of offsets. The rationale of just allowing airlines to compensate for their emissions, rather than encourage reductions, is misguided. The report concludes that the most effective way to cut EU aviation carbon would be to use the ETS, not Corsia, and include all international flights. The UK is considering how to do its own ETS, including aviation.
UK Government undecided on how to price carbon after leaving the EU ETS
Until the end of December 2020, the carbon emissions from key sectors of the UK economy come under the European Emissions Trading System (ETS). From January 2021, a new system has to be put in place. The options are either for the UK to have its own ETS, or alternatively to tax carbon. The Treasury is keen on the economy-wide carbon tax. The BEIS is keen on a new ETS. There might also be a hybrid scheme. A decision is expected by early December, but this lack of charity is very late for business etc that need to plan now for what they will be doing in 2021. Some companies would end up paying less with an ETS than with a carbon tax, if the price of carbon allowances is too low. The current EU ETS carbon price is about £24 per tonne, but the UK ETS price could be around £15. Within the EU ETS, only flights within the EU are included – not flights outside Europe, so the scope is very limited. It is important that aviation pays tax on its carbon, and it is also important that the system is in place from January 2021, not a year or two later. The Aviation Environment Federation says: “In the event that the UK does not develop its own emissions trading system, there is a risk that UK aviation will not be subject to any carbon pricing from 1 January 2020. This would be a backward step, and send the wrong message…”