ICAO’s proposed Carbon Offsetting Scheme for International Aviation and Market mechanism under Article 6 PA

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Date produced: 23/05/2016

In the context of developing positions re market based approaches under Art.6 of the Paris Agreement please provide a summary of the key features  for the global market-based mechanism addressing international aviation emissions to be adopted by the next Assembly of the International Civil Aviation Organization (ICAO)?

Summary:

After more than two years of deliberation and technical discussions under the ICAO, a recent Draft Resolution for the 39th ICAO Assembly (October 2016) establishes a Carbon Offsetting Scheme for International Aviation (COSIA).

The COSIA will implement an offset scheme from 2020, obliging international airlines operators to purchase carbon offsets for their operated international flights between participating countries. The amount of offsets to be purchased depends on a formula, which will likely lead to increased offset amounts through the years.

The economic status of countries or their level of international airline activities will determine States’ participation to the scheme. Importantly, Least Developed Countries (LDCs), Small Island Developing States (SIDS) or Landlocked Developing Countries (LLDCs) will not be covered by the scheme, unless meeting both the criteria (economic status and level of international airline activities).

The COSIA will run in two phases (2021-2026 and 2026-onwards). The difference between the two relates to the different criteria for countries’ inclusion into the scheme with the second phase applying also to middle income countries or countries with a smaller share of international airline activities than the first phase.

There are no apparent conflicts (sectoral, regulatory or institutional) between the Draft Resolution and Article 6 of the Paris agreement. Instead, the Draft Resolution contains pathways for recognition of CDM or other UNFCCC-based generated offsets for compliance under the COSIA.

Advice:

Introduction

In 2013 the International Civil Aviation Organization (ICAO) Assembly decided to adopt a framework for ‘Market-based Measures’ (MBMs) as part of its policies to reduce GHGs emissions from civil aviation[1] and under the aspirational goal of global carbon neutral growth by 2020.[2] Importantly, among the numerous principles, the Assembly confirmed that “MBMs should take into account the principle of common but differentiated responsibilities and respective capabilities, the special circumstances and respective capabilities, and the principle of non-discrimination and equal and fair opportunities”.[3] After more than two years of global dialogues, the work of a special ‘Environmental Advisory Group’ to the ICAO Council and of the Committee on Aviation Environmental Protection, a draft Assembly Resolution on a global MBM was presented at a High-level Meeting on a global Market-Based Measure on 11-13 May 2016.[4] Therefore, this advice relies on this draft Assembly Resolution as the most up-to-date potential regulatory framework for a Global MBM (GMBM) in aviation, being aware, however, of its precariousness and the likely changes that might occur at the ICAO 39th Assembly in October 2016.

Key features of the proposed Carbon Offsetting Scheme for International Aviation (COSIA)

The Draft Resolution implements a GMBM as a Carbon Offsetting Scheme for International Aviation (COSIA), which will start from 2021 as part of other measures under the ICAO aimed at curbing GHGs emissions from civil aviation.

The COSIA will address “any annual increase in total CO2 emissions from international aviation (i.e. flights that depart in one country and arrive in a different country) above the 2020 levels, taking into account special circumstances and respective capabilities”.[5]

The COSIA implements the CBDRRC principle through incremental countries coverage. Generally, criteria for coverage under the scheme depend:

  • on the economic status of the country (high income, middle income, and least-developed); and
  • on the country’s share of international aviation activities as measured in Revenue Tonnes-Kilometres (RTKs, i.e. revenue tonne transported [goods or passengers] for a kilometre).[6] Hence, a developing country or a least developed country might be nonetheless included in the scheme if its international aviation activities are significant in the global aviation market.

The COSIA’s implementation is divided in two phases. During the first (2021-2026) only high income countries or countries with <1% of global RKTs will be covered. In the second phase (from 2026), upper middle income countries will also be covered,[7] as well as countries with <0,5% global share of RTKs. Importantly, Least Developed Countries (LDCs), Small Island Developing States (SIDS) or Landlocked Developing Countries (LLDCs) will not be included in the scheme, unless meeting both the income and RTKs share criteria above in the future.[8]

Only aviation airlines (not States) will have to comply with the obligation of acquiring carbon offsets for their covered routes. Covered routes under the scheme are the ones occurring only between two covered countries. Hence, if an international flight departs from a covered country and lands in a non-covered country, it will then be exempted from the offsetting obligations of the airline.[9]

The amount of offset credits that an airline is obliged to buy depends on a formula that will increase the overall offset burden on airlines through time, assuming the sectoral growth of emissions. In other words, international airlines might incur higher offsetting costs through time.[10]

Uncertainties: despite the use of the word ‘offset’ to determine the type of carbon credits that international airlines must acquire on the market, it is unclear:

  • whether the COSIA consists of a cap-and-trade scheme, such as the EU Emissions Trading Scheme, whereby operators have to submit or buy as many emission units at the end of the fiscal year as their verified emissions over an assigned cap;
  • whether it will generate its own offsets (i.e. credits representing avoided or reduced emissions that airlines will have to buy in order to offset their emissions from the global 2020 benchmark); or
  • whether it will recognise offsets generated by other schemes (e.g. the CDM or the future Market Mechanism under the Paris Agreement).

This third option appears the most likely, given that the Draft Resolution mandates the Council to adopt “[…] necessary guidance material for Emissions Unit Criteria (EUC) to support the purchase of appropriate emissions units by aircraft operators under the scheme […]”.[11] This sentence appears to set the ground for future regulatory criteria under COSIA for setting the requirements on the validity of offsets acquisition and use. Other material retrieved from the ICAO website does not clarify on the issue.

Conflicts with Article 6 of the Paris Agreement

The Draft Resolution does not reveal any potential conflicts (in terms of sectoral coverage, regulatory or institutional conflict) with the Mechanism under Article 6 of the Paris Agreement. Although international law does not provide any rules on the resolution of conflict of competence between international institutions (ICAO and UNFCCC-CMA), historically the two processes have operated on parallel tracks.[12]

Synergies with Article 6 of the Paris Agreement

The Draft resolution provides for potential synergies between the COSIA and existing and future offset market-based mechanisms under the UNFCCC umbrella in two ways:[13]

  • It requests the ICAO Council to promote the use of offset credits generated under the CDM or new market mechanisms; and
  • It requests the ICAO Council to promote the inclusion of aviation as an eligible sector under the Kyoto Protocol CDM, also by exploring aviation-related methodologies to calculate emission reductions or avoidance.

 

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[1] ICAO Assembly, ‘Consolidated statement of continuing ICAO policies and practices related to environmental protection — Climate change’, Res. A38-18, Doc 10022, paragraph 18 available at http://www.icao.int/environmental-protection/Documents/A38-17_A38-18.pdf

[2] Ibid., paragraph 7.

[3] Ibid., Annex, letter p).

[4] ‘Draft Assembly Resolution text on a Global Market-based Measure (GMBM) Scheme, (As of 20 April 2016, to be presented to the High-level Meeting on GMBM from 11 to 13 May 2016)’,  ICAO Doc HLM-GMBM-WP/22016, Appendix, http://www.icao.int/Meetings/HLM-MBM/Documents/HLM-GMBM.WP2-Developments_Final_REV1.pdf [hereafter, the Draft Resolution]

[5] Ibid., paragraph 4. [underline added]

[6] ICAO Secretary General, ‘Manual on the Regulation of International Air Transport’, 2004 Doc 9626, Chapter 5.1, http://www.icao.int/Meetings/atconf6/Documents/Doc%209626_en.pdf. See also the 2014 RTKs levels at http://www.icao.int/Meetings/GLADs-2016/Documents/RTK.pdf

[7] According to the World Bank’s GNI ranking.

[8] Draft Resolution, paragraph 7.

[9] Draft Resolution, paragraph 8. Small airlines operating international flights will be exempted from the scheme anyway –see paragraph 11.

[10] Ibid., paragraph 9.

[11] Ibid., paragraph 17(c).

[12] Only Article 2(2) of the Kyoto Protocol explicitly recognized ICAO as the competent institution to deal with aviation emissions. The Paris Agreement is silent on the point.

[13] Draft Resolution, paragraphs 19-20.