ICAO 2013 Environmental Report - page 151

151
chapter 4
global emissions
icao environmental report
2013
of carbon units, changes to existing carbon markets, whether
tonnes of allowable emissions can be banked or saved from
one year to future years, the possibility of forward purchases of
carbon units, the availability of option contracts (acquiring the
right to purchase carbon units in the future at a price agreed
in advance), and other factors.
Factors Affecting Demand, Supply, and Cost
Carefully structured, market tools like banking and credit for early
movers can reduce costs while safeguarding environmental integrity.
Moreover, environmental integrity and administrative complexity
may vary significantly across different types of carbon units:
• In general, units with the highest environmental integrity and
least administrative burden come from programmes that
place tough caps on emitters, ensure that emissions are
accurately reported, and penalize non-compliance, as do
the EU and California trading programmes.
• Units for which environmental integrity is subject to question
and/or involve greater administrative burden, usually come from
programmes that lack a cap on emissions. These programmes
allow projects to earn credits if they reduce emissions below
what would have otherwise occurred in the project’s absence.
Proving the environmental integrity of such units is difficult.
Regulators, for example, must determine whether emissions
would have declined without the project, and must account
for “leakage” (
i.e.
reducing emissions in one place increases
emissions elsewhere). These issues have led regulators to
place quantitative and qualitative restrictions on such credits
4
.
Sources of Carbon Units to Offset the Gap
From a macro perspective, the global aviation sector currently
accounts for about 2% of world CO
2
emissions. Growth in air
travel is expected to double by around 2040
5
. International
aviation comprises about two thirds of the total. Offsetting this
growth is not expected to pose a problem for the industry.
In theory, to offset international aviation’s emissions growth,
emissions could be reduced anywhere else. Units from any
of the world’s existing emissions cap and trade programmes,
or those under development
6
, could be used. In addition, the
UN and other bodies recognize over a hundred categories of
carbon credits-producing projects in sectors where there is no
cap on emissions. These projects range from domestic and
industrial energy efficiency, to renewable energy to forestry and
land use. Many more categories are expected to be recognized.
Supplying the aviation industry with carbon units to offset the
industry’s post-2020 growth thus seems eminently feasible.
Potential Supply
Four main sources of supply could provide emissions units to
meet the aviation industry’s goals:
1. Emissions allowances from national or regional cap and
trade programmes.
2. Emissions allowances created under the Kyoto Protocol.
3. Credits from UN registered emission reduction projects.
4. Credits from voluntary offset projects.
Whether, and to what extent, these could be counted as “supply”
is unclear, given that some were developed in the absence of an
emissions cap, or are subject to uncertainties about the future
regulatory framework under which they might be accepted.
1. Emissions Allowances From National
or Regional Cap and Trade Programs
These include the European Union’s emissions trading system
(EU ETS), New Zealand’s programme, the U.S. State of
California’s programme, and the Canadian Province of Quebec’s
provincial programme.
The EU ETS is the largest system in operation. It has a large
surplus of allowances that could potentially be used by the
aviation industry. The EU ETS caps GHG emissions (mostly
CO
2
, but also N2O and PFCs) from more than 11,000 power
generating and industrial facilities in 31 countries. As of mid-
2013, aircraft within-EU travel are also covered. In total, the
system covers about 50% of EU CO
2
emissions. This system,
combined with the economic downturn in Europe, has resulted
in emissions substantially below the cap for the last five years
7
,
and a substantial “bank” of unused allowances.
Analysis by Bloomberg New Energy Finance (BNEF) indicates
that withdrawals from the “bank” may begin starting in 2018,
but will still leave a potential pool of banked allowances of about
1.7bnt by the year 2020. These would be available to aviation
sector buyers if EU ETS allowances were deemed eligible
in a future global MBM. Allowances from the New Zealand,
California, and Quebec programmes might also be deemed
eligible in a future aviation MBM. Allowances from programmes
under development could provide further supply. China, for
example, recently launched the first of seven pilot emissions
trading programmes, and Korea is consulting on design options
for its proposed system. Others currently considering such
programmes include Mexico, Kazakhstan, South Africa, Australia
and Brazil. While it is difficult to estimate the potential of these
programmes, one in the Brazilian state of Acre estimates
that it will reduce emissions by as much as 164mt during the
period 2006 to 2020
8
.
2. Kyoto Protocol Emissions Allowances
The Kyoto Protocol was established under the auspices of
the UNFCCC in 1997. It imposes GHG emission limits on,
and issues emissions allowances to, some 35+ countries for
the period 2008 to 2012. Although the US did not participate,
and Canada withdrew, the targets were accepted by the
EU, Japan, New Zealand, Australia, Russia and the Ukraine,
among others.
Among the Protocol’s primary flexibility mechanisms are
emissions trading and banking: a Party with an emissions limit
may transfer surplus allowances to another such Party and/
or save surplus allowances for use in future years. Included
in this trading are allowances registered with the UNFCCC
as representing emission reduction units (ERUs) from joint
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