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“Strengthen UK ETS to help ensure aviation pays its climate cost,” says AEF

22nd June, 2022

AEF has responded to Government proposals on “Developing the UK Emissions Trading Scheme”. 

The UK was previously part of the EU’s Emissions Trading System, which works by imposing an emissions cap on certain polluting sectors and requiring the surrender of emissions permits for each tonne of CO2 generated. The aim is to allow emissions reductions to be made as efficiently as possible by allowing sectors that manage to cut emissions below the level of their cap to sell their spare permits to sectors in which emissions reduction is more difficult or expensive. Some allowances are distributed for free to the participating entities. Additional allowances can be purchased through a state auction or through the market. 

Since leaving the EU, the UK has created its own emissions trading system which links to the EU scheme. The Department for Business, Energy and Industry Strategy (BEIS) has proposed a number of changes to the UK ETS, following the Government’s commitment to “implementing a net zero consistent cap for the scheme, reviewing Free Allocation policy and expanding the use of emissions trading across the economy.” 

Carbon pricing may seem unglamourous, but it is expected by the Government to do a lot of the hard yards when it comes to cutting aviation emissions. While ministers say they are opposed to policies that are designed to cut air travel demand directly, in the Government’s favoured scenario for aviation emissions cuts between now and 2050, the ‘demand response’ to carbon pricing delivers a larger ‘wedge’ of emissions reduction than any other measure, including Sustainable Aviation Fuel or Zero Emission Aircraft.

There are currently two key mechanisms for delivering carbon pricing for UK aviation: the UK ETS which applies to domestic flights and international departures to EEA destinations, and the UN Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA).  CORSIA is designed to cover all international flights, but doesn’t impose an emissions cap and simply requires any aviation emissions above the level in 2019 to be offset. The Government has yet to confirm how it sees the ETS and CORSIA interacting in future.

The current consultation addresses only the terms of the UK ETS, which covers around one third of UK aviation emissions.

AEF is broadly supportive of the measures proposed for the reform of the UK ETS. We responded to five sections of the consultation:

Chapter 1: net zero consistent cap

We support the proposal to tighten the level of the cap for the ETS as a whole, for the period to 2030, to encourage early action on cutting emissions.

Chapter 4: a call for evidence on future markets policy

We are concerned that current ‘banking and borrowing’ rules permit airlines to use or sell their surplus free allowances, that accumulated during the pandemic due to the drop in traffic, for flights any time between now and 2030, representing a windfall payment for airlines.

Chapter 5: aviation

We agree with the Government’s findings that there is little risk of ‘carbon leakage’ as a result of tightening the UK ETS, and that free allocation of carbon allowances should therefore be withdrawn as soon as possible. Ensuring that all allowances used by airlines are paid for, not received for free, would be an important step towards internalising the climate cost of flying into ticket prices.

The current practice of assuming a 100% emissions reduction under the ETS for CO2 from Sustainable Aviation Fuel should end. Our suggestion is instead to use lifecycle analysis values for SAFs (which should be calculated specifically for a UK context and on the assumption that all sectors are on a pathway to net zero). Any emissions reductions claimed should only relate to gases covered by UK ETS and not – for example – to potential methane avoidance from landfill. 

We support the Government’s proposal to consider capturing aviation’s non-CO2 impacts in the UK ETS. Total historical non-CO2 impacts of aviation have caused twice the amount of warming as CO2. In this situation it would be more perverse not to include non-CO2 impacts at all than to include them imperfectly, for example through use of a multiplier. Other mitigation approaches for non-CO2 impacts should be pursued in parallel. 

The European Parliament recently voted to extend the EU ETS from intra-EU flights to all departing flights (subject to an adjustment to reclaim the costs of offset units purchased for the same flights under CORSIA). This needs to be agreed by the European Commission and EU states before it becomes law, but the UK should be considering matching this level of ambition. 

Chapter 7: expanding the UK ETS to new sectors

While we would support in principle the proposal to include waste incineration and ‘energy from waste’ in the UK ETS, inclusion of only these specific parts of the waste sector could present a distortion if the emissions associated with producing SAF from waste are not covered. Use of lifecycle analysis values for SAF as we have recommended as a stopgap measure in the aviation section would mitigate this risk.

Chapter 8: calls for evidence on greenhouse gas removals and agriculture and land use emissions

We support consideration of whether UK ETS could be an appropriate market for permanent greenhouse gas removals, though impermanent nature-based solutions for carbon removal, or climate mitigation, such as afforestation or peatland restoration should not be included. The ETS should ensure that reduction of emissions at source is always prioritised so access to GGR credits could perhaps be limited 

(a) to participants who have already surrendered permits for their ‘actual emissions cap’, were this to be set as a separate target and 

(b) potentially to certain sectors deemed to be unable to achieve absolute zero emissions by 2050

Read our full response here: