2009 Issue 1 - Sabre Airline Solutions

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special section on their total level of CO2 emissions based on agreed-upon targets covering a span of several years (called trading periods). The targets are aimed at reducing global warming. E.U. ETS emission allowances for individual participants in the system (such as companies with polluting installations) are granted for several consecutive year periods. This is done to neutralize changes in CO2 emission levels that may occur due to extreme weather events such as harsh winters or very hot summers. The first trading period ended in 2007. The current trading period, called the second trading period, also corresponds to the Kyoto Protocol’s first commitment period, where the European Union is required to make an 8 percent commitment to reduce emissions compared to a 1990 baseline. During the second ETS trading period, the emissions cap is set at about the same levels for each year. During the second trading period, once the cap has been set, E.U. member states establish individual national allocation plans that determine their total level of ETS emissions. These plans must be approved by the E.U. Commission, and they show how allowances will be issued to participants of the system. The total number of issued allowances must be consistent with member states’ individual emission reduction targets under the European Union’s agreement for the Kyoto Protocol. The national allocation approach has been criticized and will be sunset during the third trading period. The national allocation approach has generated significant differences in allocation rules and creates incentives for member states to favor home industries. To address these problems and replace national allocation plans, there will be a single European Union-wide cap starting in 2013, and allowances will be allocated on the basis of coordinated rules. The move toward union-wide free allocation rules gives new E.U. member states the ability to auction more allowances for industrial installations and introduce a means to redistribute them. linking ets With other schemes Around the World The E.U. ETS also allows the use of offset credits from outside the European Union to help reduce global emissions. E.U. ETS recognizes credits generated by the Kyoto Protocol’s project-based mechanisms — Joint Implementation and the Clean Development Mechanism — as being equivalent to emission allowances. Joint Implementation allows companies in countries with a Kyoto target, namely developed countries, to undertake projects in other developed countries, which reduce their emissions of greenhouse gases. The Clean Development Mechanism allows companies in developed countries to implement project activities that reduce emissions and contribute to sustainable development in countries without a Kyoto target (developing countries). Key elements of the CDM 52 ascend project include voluntary participation; achieving sustainable development; real, measurable and long-term reductions; and that the benefits must be “additional.” Linking E.U. ETS with these Kyoto mechanisms creates additional incentives for E.U. businesses to invest in emission reduction programs in developing countries, using environmentally friendly technologies to achieve sustainable development. The CDM projects are potentially eligible to receive credits called certified emission reductions, or CERs. JI projects create credits known as emission reduction units, or ERUs. The European Union recognizes these credits as being equivalent to emission allowances (1 EUA = 1 CER = 1 ERU) and allows them to be traded under the scheme. The ETS is open to linking with compatible greenhouse gas emission trading schemes with other countries that have ratified the Kyoto Protocol. It is foreseen that each side would agree to recognize allowances issued by the other, thereby expanding the market for emissions trading. Through the link to the Kyoto mechanisms, E.U. ETS facilitates investments in emission-saving projects in developing countries. Supporters of E.U. ETS also hope it can be eventually linked up with other carbon markets, in particular in the United States. The E.U. ETS revisions in December still allow the use of offset credits from outside the European Union, but this amount remains below half of the reduction effort to Euros per ton of CO 2 ecx euA futures contract December 2009 settlement Jan/08 Feb/08 Mar/08 Apr/08 May/08 Jun/08 Jul/08 ensure a sufficient level of emission reductions take place inside the European Union. compling With e.u. ets ETS participants with polluting installations must have a permit from their national authority for emissions of greenhouse gases controlled by the Kyoto Protocol. They must also be able to demonstrate they can monitor and report emissions to obtain their permit. A permit is different from emissions allowances. A permit sets out the emissions monitoring and reporting requirements for an installation, whereas allowances are the tradable unit. Participants that are required to participate in ETS receive emission allowances from their governments. These allowances total to the member state’s national level. Participants are given the right to emit CO2 volumes at facilities in these countries up to a level specified each year. At the end of each year, participants must surrender allowances equivalent to their emissions. A certain number of allowances are given free of charge, allowing levels of CO2 emissions to occur without any cost. To meet their emissions requirements, participants may buy and sell allowances with others, and liquid markets have developed to facilitate this trading activity. Participants can engage in trading credits by purchasing and selling allowances. One allowance gives the holder the right to emit one metric ton of CO2 or the equivalent amount of another greenhouse gas. The cap on the total number of allowances creates value in the market. At the end of each year, participants are required to ensure they have enough allowances Aug/08 Sep/08 Oct/08 Nov/08 Dec/08 Jan/09 Feb/09 emissions futures contracts are traded on several exchanges and can be bought and sold by anyone. the contracts can be purchased to pay for shortages when a participant in e.u. ets pollutes above its allowance. A futures contract gives the holder the right to buy or sell an e.u. allowance at a certain date in the future and at a preset price. ecx euA futures contracts allow participants to lock in prices for delivery of carbon emission allowances for future dates.
to account for their actual emissions. They have the flexibility to buy additional allowances on the open market, and they may sell any excess allowances generated from reducing their emissions below their allocation. Participants that have not produced enough allowances to cover their emissions have to pay a fine of €100 (US$133) per ton for each excess ton emitted. This process becomes an incentive to reduce emissions such as investing in more efficient technology or using less carbonintensive energy. Participants are required to monitor and report emissions according to a plan approved by the regulator of each member state. After each calendar year, participants must surrender allowances equivalent to their verified CO2 emissions in that year. These allowances are then cancelled so they cannot be used again. Participants with surplus allowances can sell or save them for next year (within one trading period). Participants must report their CO2 emissions after each calendar year following E.U. monitoring and reporting guidelines. These reports have to be checked by an independent verifier using criteria in the ETS legislation. Participants with emission reports that are not verified as satisfactory are not allowed to sell allowances until a revised report is approved by a verifier. the carbon Market The buying and selling of allowances takes place on an open market, providing a flexible means for participants to comply with their emissions requirements. Participant companies can cost-effectively manage their emissions where emission allowances can be traded in the marketplace. Companies can access the market to buy allowances to meet their compliance requirements or to sell surplus allowances in several ways: Trade allowances with other companies in the system, Buy or sell allowances from intermediaries (banks and specialist traders), Use a broker to find other buyers and sellers of allowances, Join one of the exchanges that list carbonallowance products. E.U. ETS does not specify how or where trading in allowances should take place. Companies and other participants in the market trade directly with each other or buy and sell via a broker, exchange or any other type of market intermediary that has sprung up to take advantage of this significant new market. A whole range of new businesses has emerged in Europe as a result of the E.U. carbon market: carbon traders, carbon finance and carbon management specialists, and carbon auditors and verifiers. New financial products such as carbon funds have entered the market as well. The size of emissions trading is impressive. In the first half of 2008 versus the first half of 2007, the global emissions market grew more than 40 percent, worth around €38 billion (US$50 billion). E.U. ETS comprised 70 percent of that global market. The carbon market itself was worth about €89 billion (US$118 billion) last year, up 84 percent versus 2007. The carbon market for 2009 is projected to be €113 billion (US$150 billion), up 27 percent from last year, according to a report by London-based firm New Carbon Finance. Growth in the carbon marketplace during 2008 came from higher carbon prices and greater transaction volume — about 4 billion emissions permits changing hands, 42 percent more than in 2007. Trade in European Union allowances, or EUAs, accounted for €71 billion (US$94 billion), or about 80 percent of the overall total. The EUA futures contract on the European Climate Exchange peaked at about €30 (US$40) in July, before recessionary pressure brought prices down to around €15 (US$20) by year’s end. Prices have continued to drop, and they reached a low of €8 (US$10) in early February. These low prices make it more economical to build new coal-fired power stations than to invest in renewable energy and smart infrastructure. Including Aviation In e.u. ets The new legislation passed on E.U. ETS last December affects aviation directly in the last year of the second trading period (2012) and the entire third period, which lasts eight years, from 2013 to 2020. During the third trading period, the cap will change each year to meet the target of reducing CO2 by 20 percent over a baseline. The starting point of this line is the average of allowances to be issued by member states for the second trading period, plus adjustments to reflect the broadened scope of the system starting in 2013. The legislation passed in December adds aviation in its greenhouse gas emissions allowance within the European Commission. The reason for including aviation in E.U. ETS is because total E.U. greenhouse gas emissions fell by 3 percent from 1990 to 2002, while emissions from international aviation in the European Union increased by almost 70 percent. Aviation has grown at high rates relative to other sectors, putting CO2 emissions from airlines on the charts. Even though there has been significant improvement in aircraft technology and operational efficiency, this has not been enough to neutralize the effect of increased traffic, and the growth in emissions is projected to continue. Within Europe, commercial aviation is expected to double by 2020. To address these problems, the European Union will pursue three complementary streams related to aviation: research and development for “greener” technology, modernized air traffic management systems, and market-based measures, namely ETS. research And Development for greener technology Joint technology initiatives, such as Clean Sky, are research initiatives that bring together E.U.- funded projects and major industrial stakeholders in aeronautics and aerospace to move important technologies closer to market. Modernizing Air traffic Management systems The Single European Sky legislation reforms the way air traffic management is organized in Europe. This requires a modernization of the air traffic management systems in Europe. The Single European Sky ATM Research, or SESAR, initiative is the technological component of Single European Sky. One of its objectives is to reduce emissions by 10 percent per flight. The Atlantic Interoperability Initiative to Reduce Emissions, or AIRE, is a cooperative program between the European Union and the U.S. Federal Aviation Administration to coordinate two major programs on air traffic control infrastructure modernization, SESAR in Europe and NextGen in the United States. AIRE will make it possible to speed up the application of new technologies and operational procedures, which will have a direct impact in the short and medium term on greenhouse gas emissions. The measures include “smooth” or “reduced engine” approaches, which will enable noise and exhaust gas emissions to be reduced during landing. Experiments have shown substantial savings in fuel and CO2 and nitrogen oxide emissions. The European Union and the FAA have close involvement of partners from the industry such as Airbus and Boeing; airlines such as Air France-KLM, SAS, Delta Air Lines and FedEx; and aviation navigation service providers in Ireland, Sweden and Portugal. other Actions Other actions are being taken on renewable energy, such as biofuels as a renewable energy source for use in aviation. Renewables can contribute to security of supply, sustainability and competitiveness. A binding target of a 20 percent share of renewable energies in overall E.U. energy consumption by 2020 was agreed upon by the European Council in 2007, with a 10 percent binding minimum target to be achieved by all member states for the share of biofuels in E.U. transportation fuel consumption by 2020. e.u. ets starting Point for Airlines From 2012 on, all flights to and from E.U. airports will be covered by E.U. ETS. This includes E.U.-based airlines as well as airlines that are not part of the European Union. As with other participants in E.U. ETS, airlines will need to surrender emissions allowances for each ton of CO2 they produce. Airlines will also be able to apply for free allocations of allowances at the start of the reporting period by submitting verified activity data for a baseline year. Like other industries, airlines will be able to sell allowances they don’t need on the market. They will have to buy allowances if their emissions are higher or use emission ascend 53 special section
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2009 Issue 1 - Sabre Airline Solutions

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