by Assaad W. Razzouk and Gareth Phillips

The international aviation and shipping sectors are core to the world’s global trade, leisure and commerce sectors. Transportation has been central to our global economy for thousands of years. However together, aviation and shipping account for at least 5.3 per cent of global greenhouse gas (GHG) emissions and are rising rapidly.

Based on current trends, their emissions could take up 25 per cent of the 2° Celsius global emissions budget by 2050 (in order to maintain planetary warming at less than 2°C from pre-industrial levels, we need to cut emissions to 80 per cent below 1990 levels by 2050), an enormous share which threatens to crowd out other sectors.

Despite the size of their responsibility, the aviation and shipping sectors have done little since 1997.

Indeed the 1997 UN Framework Convention on Climate Change (UNFCCC) gave responsibility for international aviation and maritime emissions to the UN’s International Civil Aviation Organization (ICAO) and the International Maritime Organization (IMO) respectively, both of whom were expected to make progress on reducing emissions from their respective sectors.

Sixteen years later, these bodies are still procrastinating while in some cases, companies are taking advantage of their customers by offering them the option to offset their travel through exorbitantly-priced carbon credits which allow the airlines to add to their profits while continuing to do nothing.

The European Union has been the principal Government trying to nudge these industries to act responsibly. It has included some of the aviation industry in its Emission Trading Scheme (ETS) and the European Commission recently launched new legislation requiring the monitoring, reporting and verification of maritime emissions from ships in EU ports. But the EU has had to agree to a one year delay on the inclusion of aviation in its ETS because of industry pressure, backed by states such as the US, China and India.

Mechanisms to manage activities which have a direct effect on GHG emissions include: the deployment of taxes and subsidies; the application of performance standards via voluntary or mandatory programs; bi-lateral investment programs; laws and regulations; emission trading schemes (single and multi sector, domestic and international) and international treaties.

Two of these mechanisms place a price on carbon or GHG emissions. Pricing, either through taxation or an emissions trading scheme (ETS), creates broad and efficient incentives to reduce GHG emissions. Both taxation and emissions trading have strengths and weaknesses but together they can be used to manage and reduce around 50 per cent of global GHG emissions originating from the combustion of fossil fuels.

Emission trading schemes in particular work very well with stationary sources and large fleets including aviation and shipping (small mobile sources of pollution such as cars are best regulated through design and fuel standards, whereas stationery sources such as power plants and large mobile sources such as planes and ships – which can be monitored and inspected for example – are more suitable to a cap and trade system).

The ICAO is holding a meeting in September to supposedly agree how to address aviation emissions and their current preferred option is to use offsets to meet emissions reduction goals. In all likelihood, the ICAO will broadcast aspirational tunes and – to their credit – these will be about market-based solutions.

The International Air Transport Association (IATA), a trade association representing the airline industry, recently declared that they prefer a 100 per cent offsetting option, a position likely to be supported by a majority of ICAO member states.

The September ICAO meeting should enshrine a meaningful cap and trade for the aviation industry and require airlines to use offsets to mitigate their emissions. This model should then be adopted by the shipping industry without delay.

Industry leaders are coming forward with new technologies (for example, the Airbus A380 and Boeing’s Dreamliner) and voluntary targets (shipping giant Maersk plans to reduce its emissions in 2020 by 40 per cent compared to 2007 through the development and use of more efficient ships) and investors are helping by seeking greater transparency in monitoring and reporting of environmental performance.

Offsetting is an effective medium-term solution that ensures we stay below a 2⁰C temperature rise while we wait for the aviation and shipping sectorsto reduce their emissions from operations. Offsets work as a medium-term solution because they will compensate for current emissions from aviation and shipping by reducing emissions from projects elsewhere. Provided the offsets have high environmental and social integrity, this will improve climate impacts. As a result, eligible offsets should be restricted.

The only emission reductions produced with international regulatory oversight are Certified Emission Reductions (CERs) from the Clean Development Mechanism and Emission Reduction Units from the UN’s “Joint Implementation track 2”: Only these units are created under the Kyoto Protocol and stringently regulated by the UNFCCC and therefore these should be the only offsets adopted by the aviation and shipping industries.

Other offset types should not be allowed: voluntary offset programs do not have the requisite integrity or transparency. Surplus units from over-supplied schemes such as the EU Allowances from the EU-ETS and Assigned Amount Units from the Kyoto Protocol should not be eligible because these units are the result of a combination of over-generous allocations and the recent downturn in economic activity and not specific steps to reduce GHG emissions.

A recent report by Bloomberg New Energy Finance suggests that using offsets would result in a tiny ticket price increase – less than between 0.3 per cent and 0.4 per cent in 2030 and 2 per cent to 4 per cent in 2050. Presumably the maritime industry could achieve something similar, though their emissions are significantly larger and the supply of allowances and credits is not unlimited.

The analysis by BNEF, while illuminating, is conducted all other things being equal, and therefore assumes that excess offsets and allowances remain available for ICAO (and IMO) to consume if they wish. If this were the case, and if carbon allowances and offsets can be purchased for such low pricespermanently into the future, then we will have failed to take adequate steps to secure the planet for our future generations.

We already need prices to be in the region of EUR 30 to 40 per tonne to drive technology change and fuel switching in the European Union. We need prices to be significantly higher to finance carbon capture and sequestration.

Emitting GHGs must become significantly more expensive in the future. The longer we delay action, the more drastic the emission reductions will need to be and therefore the more expensive it will be for consumers.

ICAO and IMO should combine a medium-term solution of using offsets with a long term goal to work out how they can continue to provide efficiently priced services when GHG emissions cost EUR 40 per tonne or more.