EU Emissions Trading System
The EU Emissions Trading System (EU ETS) is the cornerstone of the European Union's policy to combat climate change. It is the world's first and biggest international emissions trading scheme, regulating around 45% of total EU greenhouse gas emissions.
The EU ETS was set up in 2005. Initially, it covered greenhouse gas emissions from power stations and manufacturing plants. But since 2012, it also includes carbon emissions from European and non-European aircraft operators.
Cap and Trade Mechanism
The EU ETS works on the 'cap and trade' principle. The overall volume of greenhouse gases that can be emitted each year is limited by a cap set at EU level. The cap for phase 3 (2013-2017) was originally set at 210,349,264 per year. However, it has undergone changes because of Croatia's full integration into the EU ETS, BREXIT and the limitation of the geographical scope to flights within the European Economic Area (EEA).
One emission allowance gives its holder the right to emit one metric ton of carbon dioxide. They are exchanged between companies that have an allowances surplus and those being short of allowances. Trading takes place because regulated companies are required to surrender emission allowances equivalent to the number of metric tons of CO2 emitted during the previous year.
Distribution of Emission Allowances
During phase 3 of the EU ETS, the majority of emission allowances (82 %) is allocated for free based on verified tonne-kilometre data submitted for 2010. 15 % of the emissions cap is auctioned and 3% is held in a special reserve for later distribution to fast-growing aircraft operators and new entrants.
The free allocation of emission allowances is based on a greenhouse gas performance benchmark. The benchmark rewards greener operators by handing out relatively more free emission allowances.
Scope of the EU ETS
The EU ETS currently regulates all flights between aerodromes in the European Economic Area (EEA), so called intra-European flights or reduced scope. The EEA consists of 27 EU member states (*), Iceland, Liechtenstein and Norway. Since 2020 and 2022, flights from the EEA to Switzerland and the UK respectively are also included in the reduced scope of EU ETS.
Originally, the EU ETS also regulated flights between an aerodrome in the EEA and an aerodrome in a country or territory outside the EEA (also referred to as extra-European flights). Today, aircraft operators are no longer required to report emissions from these flights. However, emissions from extra-European flights are still to be taken into account when determining whether your flight department is below or above the de minimis threshold (see below).
Who must participate?
All European and non-European aircraft operators must participate in EU ETS unless they are exempt.
As a non-commercial operator, you are exempt if your total emissions from intra and extra-European flights in a calendar year are below the de minimis threshold of 1,000 t CO2.
If you have an AOC and provide air transport services for remuneration, you are exempt if:
- your total emissions are below 10,000 t CO2, or
- you don't have more than 243 intra and extra-European flights in any of the three four-month periods.
Furthermore, the EU ETS exempts the following flights:
- flights performed exclusively for the transport, on official mission, of a reigning Monarch and his immediate family, Heads of State, Heads of Government and Government Ministers, of a country other than a EEA member state, where this is substantiated by an appropriate status indicator in the flight plan
- military, customs and police flights
- search and rescue, firefighting, humanitarian and emergency medical service flights provided these flights were authorized by the appropriate competent authority
- flights performed exclusively under visual flight rules
- circular flights
- training flights performed exclusively for the purpose of obtaining a licence, or a rating in the case of cockpit flight crew where this is substantiated by an appropriate remark in the flight plan provided that the flight does not serve for the transport of passengers and/or cargo or for the positioning or ferrying of the aircraft
- public service flights (under certain conditions)
- flights performed exclusively for the purpose of scientific research or for the purpose of checking, testing or certifying aircraft or equipment whether airborne or ground-based
- flights performed by aircraft with a certified maximum take-off mass of less than 5,700 kg
Please bear in mind that the flight exemptions listed above shall not be considered when assessing whether the de minimis threshold is exceeded.
Obligations under the EU ETS
If your flight department is required to participate in EU ETS, you must:
- submit an annual emissions monitoring plan for approval to your competent authority
- monitor emissions in accordance with your approved monitoring plan, EU and national law
- (if required) send your annual emissions report to an accredited EU ETS auditor for verification
- submit to your competent authority an annual emissions report by 31 March of the year following the monitoring year
- open a Union Registry account
- purchase and surrender emission allowances equivalent to the number of reduced scope emissions by 30 April of the year following the monitoring year
- keep all ETS relevant records for a minimum of 10 years
* List of EU Member States: Austria, Belgium, Bulgaria, Cyprus, Croatia, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain and Sweden.