Market-Based Measures Presented by WG 5 Co-Rapporteurs: Stephen Seidel Michael Rossell to ICAO Environmental Colloquium April 9-11, 2001

Overview Why emissions from aviation need to be addressed? What are market-based measures and why are they attractive? What are the key conclusions from CAEP’s work to date? What are the next steps?-- draft elements of a resolution on next steps.

Basis for Action Aviation and the Global Atmosphere (IPCC, 1999) assesses aviation’s contribution to climate change: –Aviation currently 2% of global CO2 emissions and 3.5% of radiative forcing –Projected emissions growth of 3% annually –Emissions growth exceeds likely progress in new technologies –Other emissions (Nox, contrails and cirrus cloud formation) could also play a significant role but science more uncertain.

UNFCCC and Kyoto Framework Framework Convention agreed to in 1992 and entered into force on 21 March –“stabilization of greenhouse gas concentrations at a level that would prevent dangerous anthropogenic interference with the climate system.” Kyoto Protocol -- agreed to in 1997, but has not entered into force: –developed nations to reduce ghg emissions –aviation bunker fuels to be limited or reduced through ICAO

Responds to A-32 Mandates Calls on the Council “….to maintain the initiative in developing policy guidance on all aviation matters related to the environment….” Calls for the Council through CAEP “...to study policy options to limit or reduce the greenhouse gas emissions from civil aviation….” Requests the Council to refine the guidance on emission-related levies

Why Market-Based Measures? More flexible than traditional certification standards -- lets the market work Provides price signals -- internalizes environmental costs Provides incentive for technological innovation Works to minimize costs of achieving reductions Incorporated into Kyoto Protocol to reduce costs

Market-Based Measures 1. Taxes and Charges –levy could be placed on amount of fuel or emissions –taxes: revenue goes to national treasury –charges: revenue used to defray the costs of providing facilities and services for civil aviation –increased costs provide incentive to reduce emissions –can be designed to be “revenue-neutral” –used at airports in Sweden and Switzerland for local air quality

Market-Based Measures 2. EMISSIONS TRADING –sets cap for total emissions –firms can reduce emissions beyond what is required and sell “excess reductions” OR –reduce less than required and buy excess reductions from others –achieves reductions at lowest possible cost –incorporated into Kyoto Protocol –used in US to control acid rain at much lower cost than traditional standards –trading across sectors (open) v. trading within aviation (closed)

Market-Based Measures 3. Voluntary Initiatives –voluntary agreements to reduce emissions –could set either emissions or efficiency target and/or identify menu of actions –not legally enforceable, but typically requires periodic reporting of progress –Used to reduce ghg emissions in some sectors in US, Netherlands, Canada, UK, EU and Australia.

CAEP 5 Conclusions Open emissions trading -- cost effective solution in the long term tied to Kyoto entry into force. –Further work needed to develop system Voluntary mechanisms -- could be a first step to encourage near-term action –guidelines should be developed Levies -- further studies and guidance should be developed for consideration in shorter term.

CAEP 5 Conclusions Impacts on developing countries of market- based measures needs to be fully considered –initial work looked at: global application; developed countries only; and flights to and from developed countries. –further analysis required –greater developing country participation encouraged

Draft Elements of an Assembly Resolution Support continued work by Council to develop policy direction for States and to develop concrete proposals. 1. Voluntary Mechanisms: –encourage short-term actions to limit or reduce emissions –Council to facilitate action by developing guidelines »cont….

Draft Elements of Resolution 2. Emissions-Related levies –Confirm existing ICAO guidance (9 Dec 1996) –Urge Council to carry out further studies and develop further guidance –Charges should be based on cost of mitigating environmental impacts of emissions »cont….

Draft Assembly Resolution 3. Emissions Trading –Implementation of an open emissions trading regime would aim for first commitment period ( ) subject to entry into force of Kyoto. –Request Council to develop urgently the guidelines for open emissions trading