Wed 28 Nov 2007 – A report published by Deutsche Bank says some of the proposals regarding the inclusion of aviation within the EU Emissions Trading Scheme voted on by MEPs in the European Parliament (EP) on November 13 are so radical that they are unlikely to be accepted by the European Commission (EC).
The EP voted to allocate European Aviation Allowances (EAAs) to the industry at only 90% of its average emissions over 2004-6 rather than the 100% originally proposed by the EC, and to cap the use not only of Certified Emission Reductions/ Emission Reduction Units (CERs/ERUs) but also European Unit Allowances (EUAs). Moreover, it voted to reduce by half the value of every CER/ERU/EUA used by airlines and to auction 25% of the allowances set aside for aviation.
“If adopted in full,” says Mark Lewis, Director of Global Carbon Research at Deutsche Bank and author of the report, “these proposals would result in a two-tier EU carbon market, which is contrary to the goal of establishing a uniform carbon price, and may result in the cost of EAAs being significantly higher than the cost of standard EUAs.”
For this reason, Deutsche Bank does not anticipate the EC will accept all the proposals and, in particular, expects the proposed limit on the use of EUAs by the aviation industry will be rejected. This is because limiting the use of EUAs at the level envisaged by Parliament would, the bank estimates, leave a residual deficit of allowances within the Aviation Trading Scheme that would then have to be covered by internal abatement. This would likely result in a very high marginal cost of abatement and, hence, in a price for EAAs significantly above that of EUAs.
With the increased demand for EUAs from airlines and an expected tighter emissions cap, the bank believes the EUA price target for 2008 will reach 35.00 euros per tonne compared to its present price of around 23.50.
The proposals are due to be discussed by EU environment ministers on December 20. Any rejection or changes made by the ministers to those proposed by Parliament would then be sent back to MEPs for a second reading.
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