1. Design of the EU ETS for aviation

2. Aviation and EU ETS legislation Directive 2008/101/EC Directive 2008/101/EC –entered into force on 2 February 2009 Each Member State transposes the Directive into national law Each Member State transposes the Directive into national law Aviation included in EU ETS from 1 January 2012 Aviation included in EU ETS from 1 January 2012

3. Aviation activities covered by EU ETS: Flights arriving at and departing from EU airports Flights arriving at and departing from EU airports EU ETS covers 30 European States (the EEA) EU ETS covers 30 European States (the EEA) Exemptions: Exemptions: Small aircraft - of less than 5 700 kg Small aircraft - of less than 5 700 kg State, military, rescue, emergency, VFR, training flights State, military, rescue, emergency, VFR, training flights Commercial air transport operators with: Commercial air transport operators with: –less than 2 flights per day, or –less than 10 000 tonnes of CO 2 per year

4. Aviation emissions cap Emissions cap Emissions cap –Baseline:219.6 Mt CO 2 (average annual emissions of 2004-2006) –2012:cap = 97% of baseline –2013-2020: cap = 95% of baseline Aviation expands the total EU ETS cap by approximately 10% Aviation expands the total EU ETS cap by approximately 10%

5. Allocation of allowances 82% allocated to operators free of charge, based on a benchmark 82% allocated to operators free of charge, based on a benchmark 15% allocated by auction 15% allocated by auction 3% held in reserve for new entrants and fast growing operators 3% held in reserve for new entrants and fast growing operators –distributed in middle of 2013 -2020 trading period based on tkm activity in 2014

6. Trading Allowances can be freely traded Allowances can be freely traded Aircraft operators can buy and use allowances from other sectors Aircraft operators can buy and use allowances from other sectors Aircraft operators can use CERs/ERUs: Aircraft operators can use CERs/ERUs: –50% of their reduction effort can be met through credits –Will not be below 1.5% of verified emissions

7. Use of auctioning revenues Auctioning proceeds should be spent on tackling climate change in the EU and third countries: Auctioning proceeds should be spent on tackling climate change in the EU and third countries: –Reduce emissions –Adaptation –Administration of scheme –Global Energy Efficiency and Renewable Energy Fund –Avoiding deforestation in DC –Research and development (mitigation and adaptation in aeronautics and air transport) –Low emission transport Member States must report how they spend revenues to the Commission Member States must report how they spend revenues to the Commission

8. Timetable for inclusion of aviation in the EU ETS 2011 2011 –31 March: Submission by aircraft operators to States of: –2010 verified emissions report; and –Optional 2010 verified tkm (benchmarking) report –30 June: Submission of tkm data by States to the COM –30 September: COM decision on the benchmarks for 2012 and 2013-2020 –30 December: States publish allocations of free allowances to aircraft operators

9. Timetable for inclusion of aviation in the EU ETS 2012 2012 –28 February Issuing of free allowances for 2012 –31 March: Submission by aircraft operators to States of 2011 verified emissions report 2013 2013 –28 February: Issuing of free allowances for 2013 –31 March Submission by aircraft operators to States of 2012 verified emissions report –30 April: Surrender of allowances equal to the 2012 emissions

10. Impacts of the EU ETS on aviation

11. Analysis of the impacts The Commission extensively analysed the impacts of the EU ETS on aviation when developing the legislation The Commission extensively analysed the impacts of the EU ETS on aviation when developing the legislation A comprehensive impact assessment is available on our website A comprehensive impact assessment is available on our websitehttp://ec.europa.eu/clima/documentation/transport/aviation/index_en.htm This considers a range of impacts including environmental and economic This considers a range of impacts including environmental and economic

12. Environmental impacts Total CO 2 emissions from aviation will continue to increase Total CO 2 emissions from aviation will continue to increase The emissions cap means that this growth will be offset by reductions in other sectors or from projects in other countries The emissions cap means that this growth will be offset by reductions in other sectors or from projects in other countries Compared to a business as usual scenario, by 2020 the EU ETS will result in a annual emissions reduction of over 190 million tonnes CO 2 Compared to a business as usual scenario, by 2020 the EU ETS will result in a annual emissions reduction of over 190 million tonnes CO 2 Total global aviation CO 2 emissions in 2006 were approximately 750 million tonnes, so this is a significant saving Total global aviation CO 2 emissions in 2006 were approximately 750 million tonnes, so this is a significant saving

13. Economic impacts We examined impacts in 2020 of 30 per tonne carbon price We examined impacts in 2020 of 30 per tonne carbon price Our modelling showed that: Our modelling showed that: –Air traffic will continue to grow substantially –The EU ETS will reduce demand for aviation by a small amount in 2020 relative to business as usual forecasts

14. EU ETS will have a small impact on demand Change in aviation demand (revenue tkm) 0 50 100 150 200 250 300 20052020 - with EU ETS2020 - no EU ETS 2005 = 100 135% 142%

15. Impacts on airlines Since all airlines will be treated equally, competition between airlines would not be significantly affected Since all airlines will be treated equally, competition between airlines would not be significantly affected Airlines costs should be passed on to consumers Airlines costs should be passed on to consumers Our modelling showed that by 2020 airline tickets could increase by 4.6 to 39.6 depending on the journey length and allowance price Our modelling showed that by 2020 airline tickets could increase by 4.6 to 39.6 depending on the journey length and allowance price

16. Example of impact on ticket prices Madrid to Mexico City = 9,060 Km Madrid to Mexico City = 9,060 Km Flying one way in economy generates 712 Kg of CO 2 (ICAO carbon calculator) Flying one way in economy generates 712 Kg of CO 2 (ICAO carbon calculator) At current carbon prices (17 per tonne), this is 12. At current carbon prices (17 per tonne), this is 12. Munich to Cancun = 8,869 Km Munich to Cancun = 8,869 Km Flying one way in economy generates 620 Kg of CO 2 (ICAO carbon calculator) Flying one way in economy generates 620 Kg of CO 2 (ICAO carbon calculator) At current carbon prices (17 per tonne), this is 10.50 At current carbon prices (17 per tonne), this is 10.50 These examples assumes full pass through of value of emissions allowance These examples assumes full pass through of value of emissions allowance Lower cost to airlines as 82% of allowances allocated for free Lower cost to airlines as 82% of allowances allocated for free

17. Conclusions on the impacts of the EU ETS EU ETS brings significant environmental benefits in reducing the net CO 2 emissions from aviation EU ETS brings significant environmental benefits in reducing the net CO 2 emissions from aviation Economic modelling suggests that the system will have little impact on the demand for aviation Economic modelling suggests that the system will have little impact on the demand for aviation Based on current and forecast carbon prices the EU ETS is likely to have limited impact on the price of air tickets Based on current and forecast carbon prices the EU ETS is likely to have limited impact on the price of air tickets

18. Measures taken by other countries

19. Climate measures taken by other States EU ETS legislation recognises that other States may decide to implement their own climate change measures relating to aviation EU ETS legislation recognises that other States may decide to implement their own climate change measures relating to aviation Recital 17 and Article 25a of Directive 2008/101/EC are the key provisions Recital 17 and Article 25a of Directive 2008/101/EC are the key provisions

20. In summary Where 3 rd country adopts measures to reduce climate change impact of flights to the EU: Where 3 rd country adopts measures to reduce climate change impact of flights to the EU: –EU will consider options to provide for optimal interaction –The Commission may recommend negotiating an agreement with 3 rd country –The Commission able to adopt amendments to exempt arriving flights from the scope of the EU ETS In case of agreement on global measures, EU will consider amending Directive as appropriate In case of agreement on global measures, EU will consider amending Directive as appropriate

21. Further information Aviation and climate change website: http://ec.europa.eu/clima/policies/transport/av iation/index_en.htm

22. Any questions?