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EU free carbon allowance calculation for aviation

On 26th September 2011 the EU published the long-awaited benchmarks that will be used to allocate free emission allowances approximately 900 airlines and aircraft operators. The EU have clarified that –

“Publication of the benchmark values enables airlines to calculate their free allocation of allowances up to 2020. One benchmark has been calculated for the trading period in 2012 and another for the trading period starting in January 2013. In 2013 to 2020 an airline will receive 0.6422 allowances per 1,000 tonne-kilometres, while in 2012 it will receive 0.6797 allowances.

The benchmark for each period was calculated by dividing the total annual amount of free allowances applicable to the 2012 and 2013-2020 trading periods by the sum of tonne-kilometre data included in applications by aircraft operators submitted to the Commission. The submissions by aircraft operators are based on independently verified tonne-kilometre activity data recorded throughout the 2010 calendar year.

The formal allocation of free allowances to each aircraft operator will be carried out by Member States, who will multiply the benchmark by the 2010 tonne-kilometre data of each aircraft operator. Member States have an obligation to determine individual allocations within three months of the publication of the benchmark decision.“

So what does this actually mean in terms of the quantities of free and purchased allowances in each trading year? Let’s illustrate by way of a simple example of a small non-EU aircraft operator flying a small number of return flights per day to the EU –

The example aircraft operator flew a verified 100 million TKs on EU sectors during the 2010 benchmark year will subsequently receive 67,970 free allowances to be submitted against whatever volume of their emissions will be for the year of 2012.

Let’s assume that this airline will emit 100,000 tonnes of CO2 in 2012. Following the airline’s submission of its 2012 verified emissions report in March 2013, in addition to submitting these 67,970 free allowances it will need to have purchased (at any time between now and March / April 2013) the additional 32,030 carbon permits (EUAs, CERS or EUAAs).

This airline will also receive 64,220 free allowances against each operating year from 2013 to 2020, based on its 2010 TKs, and will need to purchase the remaining carbon permits to cover its subsequent emissions growth (purchasable at any time between now and the respective submission dates).

According to its emissions forecasts for 2012 and subsequent years the airline will be able to purchase carbon permits at special EUAA auctions for airlines, or EUA actions open to all sectors, or even already today via a carbon broker such as Climate Corporation and their “Carbon Pool Europe”, or directly on the various carbon exchanges such as Bluenext, or futures markets such as European Climate Exchange. They might do so if they were to forecast that today’s carbon prices are a good buying opportunity and wish to lock-in the potential price advantage, for example.

In the event that an airline were to reduce its frequency of flights to Europe, or reduced emissions through introducing a significant level of bio or other alternative fuels, and their level of CO2 emissions became lower than the number of 64,220 free allowances per annum from 2013, then the airline could either bank them for their future use in case of expected future growth, or alternatively sell them to a broker or another company in the ETS and keep the profits.

Conversely, a fast growing airline can apply to be considered to receive additional free allowances under the 3% special reserve set aside for this purpose, but as of today there is no clarity on who can qualify, what the application process is, and how the number of additional allowances would be calculated for a successful applicant.

Should you need any further explanations or help in estimating your allowances or understanding various carbon strategies, or carbon purchasing options, please do not hesitate to contact our ETS experts using the contact form on this web site.

Disclaimer: The opinions, data and the articles on this site should not be considered investment advice nor indication or guarantee of suitability or potential value of any particular carbon permit or strategy, or information contained herein. We strive to be as accurate as possible but we accept no liability for errors.


EU approved calculation tool for small emitters and all operators

The EU Commission has released a tool primarily for small emitters to allow them to estimate CO2 emissions, as part of their compliance with the EU Emissions Trading System. The tool enables aircraft operators that qualify as “small emitters” with few flights or emissions to use simplified monitoring procedures. However, the tool can also be used by other larger aircraft operators to also estimate emissions for specific flights where actual data is exceptionally not available and hence could become an important tool for them.

The tool was developed by Eurocontrol and it uses fuel consumption coefficients that are statistically robust and which are believed to have included the input of various aicraft operators to make it more accurate. The tool covers the majority of common aircraft types and it meets the requirements of the monitoring and reporting guidelines for the EU ETS established by the EU Decision 2007/589/EC, with a calculation approach based on individual flights, actual route length and statistically sound fuel consumption relationships.

The tool will undoubtedly reduce the ETS compliance administrative requirements for small operators and perhaps the larger ones. The tool is available for download and use free of charge and a description on how to use it on Eurocontrol’s web site at:  http://www.eurocontrol.int/environment/public/standard_page/small_emitters.html


European Union ETS

Overview


You can learn more about the European ETS in this informative overview by the European Commission in this document EU_ETS.pdf

Operator Guidelines


This document is the latest available guide to aircraft operators on how to complete their Monitoring Plans ETS_guidelines_June_2009.pdf

Monitoring Plan Templates


Here are the document templates for Monitoring Plan completion. Please note that these are not final versions and will vary by EU country, however they are extremely useful for preparation:

Tonne Kilometres - 2009_May_ETS_Draft_MP_TKM.xls
Aircraft Emissions - 2009_May_ETS_Draft_MP_AE.xls