THE SIZE OF THE TASK
- I have recently blogged on the ability and, indeed, the necessity of the aviation industry to engage in carbon offsetting in order to try to reach carbon nett neutrality by 2050. I will assume that the reader of this blog is familiar with the general structure of CORSIA (which I dealt with in my 4th blog and which can be found on this website if necessary)
- I return to this topic again so quickly in the light of two documents which, when taken together, make clear the sheer size of the task facing the industry.
- The first of these documents is yet another excellent briefing note published by the House of Commons library – this time on decarbonisation of the aviation industry “Aviation, decarbonisation and climate change” (Briefing Paper Number 8826, 1 October 2020).
- As ever, the HoC document commences with a series of summary propositions which are of real interest. These include the following
- In a normal (i.e. non-covid year) UK domestic aviation constitutes 8% of UK carbon emissions and it is expected to return to that level again by 2023-2024. By comparison, in 2006 it amounted to only 5%. (Interestingly, the UK’s 8% is between 3 to 4 times higher than the global national average of 2-3% of all national emissions arising from aviation activities. Even within the UK, there is a startling inequality of distribution as to who is using the aircraft which create the emissions – in that 70% of all UK flights are undertaken by only 15% of the population: this is, it would appear, emissions by the world’s relatively rich).
- In 2019 it was postulated by the government’s statutory consultee, the Committee on Climate Change (“CCC”) that by 2050, aviation would be the single largest national emitter of carbon.
- The aviation sector in the UK is now operating under a double regulatory requirement:
- First, it is now exists within a country which has, since 2019, adopted a zero-carbon target for 2050;
- Second, the CCC recommended on 24.09.19 that all aviation emissions should be formally included within the net zero emission accounting process. Hitherto, international aviation within UK airspace has been accommodated informally within the figures – now, precise and formal accounting for it is being advocated. This matters since 96% of UK aviation emissions arise from international and hence non-domestic flights. Hitherto therefore, the vast bulk of national emissions were simply not forensically accounted for.
(This accounting exercise is, as a matter of fact, entirely feasible as the analogue to emissions, namely ‘bunker’ fuel sales to power the flights which cause the emissions, are either already required to be published by individual airlines (under the EU ETS) or, soon will be a necessary requirement – namely under ICAO from 2021). The CAA itself also has a duty on to publish sector emissions under the Civil Aviation Act 2012. Thus the sectoral contribution becomes highly visible and, in essence, the single greatest potential block against the UK achieving net zero)
- The aviation industry is one in which decarbonisation is not easy to achieve and the international regulatory framework in which it is operating (ICAO) already aspires to carbon neutral growth from 2020 via the CORSIA implementation plan.
- There are in essence 4 options available to international and domestic regulators in conjunction with the manufacturers, operators and the flying public.
- First, to make improvements in fuel efficiency in conventional aircraft and the management of their movement;
- Second, to implement novel aircraft design and fuel use;
- Third, to reduce the use of air travel overall – albeit it should be noted that with improvements in fuel efficiency etc achieved already, there is not a 1-1 increase in emissions as passenger numbers increase
- Fourth, to use ‘market based measures such as the UN CORSIA program, EU Emissions Trading System and the future [post-Brexit implementation period] UK ETS’ (i.e. carbon offset).
- None of the above take into account the non CO2 emissions from aircraft which, overall, are thought to double the warming effect of the CO2 emissions alone. Since we tend only to consider this issue in respect of CO2 alone, it is likely that the overall effect of the aviation industry on climate change is being understated.
- We are promised a transport carbonisation plan and aviation strategy (including a net-zero aviation strategy) with the intention of providing the same prior to COP 26 (1-12 November 2021 – Glasgow). (As a side-note, I hope, along with Mere, to attend and speak at COP 26: more on that in due course).
- So where does this take us?
- We must be careful not to confuse apples with pears. The government’s green paper ‘HMG ‘Aviation 2050 The future of UK Aviation: A consultation Cm 9714 Dec 2018 para 3.87) sets out that it accepted the CCC recommendation that emissions in UK aviation should, by 2050, be no higher than they were in 2005 – as part of the nation’s overall duty to meet nett zero by the latter date.
- Meanwhile, the Airline industry, via its body ‘Sustainable Aviation’ has also produced an impressive paper, ‘Decarbonisation Road-Map: A path to nett-zero’ (04.02.00) (https://www.sustainableaviation.co.uk/wpcontent/uploads/2020/02/SustainableAviation_CarbonReport_20200203.pdf) where they seek to argue that they can get to nett zero by 2050 – even with a 70% projected increase in numbers – apparently an even greater ambition that the green paper. This is the second document which I wish to consider in this blog.
- The apparent difference between the two stated ambitions (namely that of the green paper to reduce emissions to 2005 levels and that of the industry body to obtain nett neutrality – each by 2050) lies in measuring absolute emissions against nett zero. Thus it is only by understanding that the goal of achieving a certain level of emissions is one aspect of the plan but that emissions will never be nil and that, the other necessary side of the plan, is the need to also engage in carbon offsetting in order to achieve nett neutrality. Thus the goals are capable of being reconcilable. Given the increasing prominence of aviation emissions as a proportion of the national emission level over time (as set out above) what is true for the aviation industry is true for the UK as a whole.
- However, it is at this stage that we meet the rub. The debate lies in to what proportion the two aspects are to be applied. On the one hand, carbon offsetting can be done today; it does not require the development of new technology; using validated sources of carbon reduction elsewhere and which have been properly priced (such that the exercise is a real cost to the industry), permits the need to offset to act as a financial spur to innovation tending to reduce actual emissions overall. That is, the industry will be incentivised to invest in technologies which to the greatest extent free the airline from the need to buy in carbon offsetting. Further, the right offsetting itself creates incentives elsewhere, for others to either reduce their emissions or increase their own carbon sequestration from the air so that they can sell the benefits to polluters. In a nutshell, the requirement for carbon offsetting is the regulators application of a ‘polluter pays’ principle – a principle which is increasingly recognised in international law. But on the other hand, it is feared that carbon offsetting permits a polluter to buy offsetting products of doubtful value which both amounts to tacit encouragement of carbon leakage and, if too cheaply purchased, becomes a comfortable alternative to the hard task of investing in carbon reduction technologies within the aviation sector itself.
- However, before we come to consider a reconciliation of those two competing sets of ideas, it is necessary to consider just how large a role offsetting plays in the UK aviation industry’s thinking. I have extracted the following two diagrams from the ‘Road Map’
(Taken from p18 of the ‘Road-Map’)
The reference to ‘MBM’ here is to offsetting permitted under CORSIA>
The second is taken from p42 of the same document
- It can quickly be seen that net zero can only be achieved by very substantial carbon offsetting. Whilst it is assumed that investment in ‘out of sector’ offsetting (that is ‘private’ offsetting paid for by individual airlines outwith any industry regulatory requirement imposed by CORSIA) will dwindle to nil between 2035 and 2050, that is only because it is assumed that the ICAO ‘in sector’ global system of offsetting, CORSIA is assumed to take up an ever greater amount of the slack. But it should then be recalled that CORSIA itself permits offset and so in reality, the aviation industry will at never be in need of less than 27 million tonnes of CO2 emission offset in any year between now and 2050. Let’s put that in context. The average personal emission production per capita for the UK is 5.3 tonnes (www.carbonbrief.org). The aviation industry need is the equivalent of c 5 million people or, roughly the entire population of Scotland.
- As readers will know already, I wear several hats in this area and one of them is as a non-executive director of Mere Plantations. Dependent on which complex formula is used, it is estimated that a teak tree grown in Ghana will, during the course of a 12 year cycle sequester up to 6 tonnes of carbon. Lower figures are also possible to calculate but even at the upper figure of 6, that amounts to a need for the equivalent of 4.5 million trees planted annually there to meet such a need. And that is trees being professionally husbanded in the ideal tropical growing conditions. Imagine how difficult it would be to meet such a need from say domestically grown pine – which grows at a very much slower rate and also suffers from the problem of being a nett emitter of Green House Gases in the early years. The target of 27 million tonnes plus would be even more difficult to meet if, instead of carbon sequestration, it was to be met by carbon emissions reductions undertaken by third parties on the aviation industry’s behalf. Surely, schemes of that magnitude would tend to be acquired by the host government to be accounted for locally as part of local targets for carbon reduction?
- All of this places the aviation industry in a bind. And it’s problems are the nation’s problems. It constitutes, in addition to being a major employer, the sinews of our network of in-person international communication with the world and even amounts to a projection of our national ‘brand’. It aspires to increase passenger numbers post covid. All projections of national economic success assume that to be so and that that success is, itself, dependent upon it being so. Yet, the more they grow their business, and particularly the more they do so and trumpet it, the greater will be the charge levied at them that they do so at grave damage to the planet. Already the Citizen’s Assembly on Climate Change has taken it upon itself to declare that a future of ever increasing air passenger numbers (i.e. after Covid) is not acceptable for this reason. Only time will tell if shareholder activism will lead to stormy AGMs or, worse still yet for the industry, aviation shares will be seen increasingly to be an unacceptable constituent of a pension company’s portfolio.
- However with careful public messaging it is perfectly possible to square the circle of growth and nett zero. The key to it is the purchase of certificated carbon offset. Here tropical tree growth is ideally placed since regulation is from seed to shipping. The growth of the timber is controlled by the UN’s REDD+ regulatory scheme; where applicable, the timber cutting and labelling controlled by the EU’s FLEGT scheme (with the UK successor scheme) – all to prevent inappropriate planting and unlawful logging. However, key to our argument here is the certification of additionality – that is proof that but for the purchase of the carbon offset, the trees would not have been grown. With such certification it can be shown that the purchase of offset is leading to increased carbon capture compared to what would have occurred in the absence of the purchase.
- Finally, and because this is after all, first and foremost a legal/policy blog, it is worth spending a moment to consider how any ‘cap and trade’ system operates and to what degree such pollution allowance units as may be purchased have a legal nature?
- For instance, insofar as any regulatory scheme has a ‘cap and trade’ element, does the possession of a certain number of ‘allowances to pollute’ . Morally the answer but surely be ‘no’ but the importance of the question expands beyond morality. Such a right to possession of an emissions unit, if it existed, should, one presumes, create a property right held by the owner. Yet if the regulator who issues the right in the first place can then reduce the number of circulating permissions (in order to reach nett zero) then what is the true value of the property right if it can be withdrawn at will by the regulator. It would be the equivalent of buying a long lease not knowing the remainder of the term and where the long lease-owner could re-enter at will.
- Here the international system is at odds with itself. Under Kyoto, an AAU whilst constituting ‘a tradeable public-law instrument’, is not considered fully-alienable legal property. The EU has, via an opinion of General Advocate Kokott (Borealis Polyolefine GmBH C-191/14), has also held that the fact that their number can be reduced by a joint decision of the Member States trumps the fact that they can be traded and so they do not amount to property. However
- Where EUA have been auctioned to individual bodies (as opposed to merely being handed out free by the state) then it is far more likely that the individual entity acquiring them has obtained full property within it. There are identifiable taxation events for a fixed and ascertainable value. Accounting and taxation is thus rendered simpler
- A margin of appreciation is awarded to member states and within the UK, they have been held to constitute property (DLW GmBH v Winnington Network Ltd  EWHC 10 (Ch)). As was said by Streck & von Unger (Creating, Regulating and Allocating Rights to Offset and Pollute: Carbon Rights in Practice  3 CCLR 188 (Citing Winnington)
“…carbon credits have a clear economic value and they establish a firm legal position for the person who holds that value….”
- Interesting issues also arise as to whether the sale of such instruments are subject to financial market regulation and, if so, who can sell them and on what terms. Under MiFID 2 all contracts for sale (spot and derivatives etc.) are regulated. However there are ‘dealing on own account’ exemptions.
All issues for another blog….
MER QC 25.10.20