(Updates with estimate of offset use in sixth paragraph.)
Oct. 8 (Bloomberg) -- Europe may need to let airlines use United Nations credits to meet pollution caps after countries spurned the bloc’s plan to apply its carbon market to overseas flights, according to the biggest emissions trading lobby group.
“There’s an opening for the European Union to negotiate with other countries” on airlines’ compliance with its greenhouse-gas limits, said Dirk Forrister, the president of the International Emission Trading Association in Geneva. One option is to allow flights from developing nations to use credits created from UN-overseen projects to reduce emissions, he said in a phone interview yesterday.
The UN’s International Civil Aviation Organization on Oct. 4 approved steps toward a market to cut emissions in the $708 billion airline industry starting 2020. The UN agency declined to back the EU’s plan to include flights into and out of Europe in the bloc’s trading system before a global program starts, even after it limited the scope to flights within its airspace.
The EU’s carbon market, the world’s biggest, started in 2005 and allocates tradable emission permits to polluters, which must surrender them to cover discharges or pay fines. The bloc expanded its program last year to cover airlines, triggering protests from Saudi Arabia to the U.S. that prompted it to suspend the carbon curbs on foreign flights for a year.
Airlines in the EU could use cheaper UN credits to meet as much as 15 percent of their emission obligations for 2012 and 1.5 percent for the following eight years. That share may need to increase if the bloc wants to include international air traffic in its market before 2020, Forrister said.
Use of credits by airlines in the eight-year period through 2020 may amount to about 10 million tons of carbon dioxide equivalent, assuming international flights remain out of the market, according to Itamar Orlandi, a London-based analyst at Bloomberg New Energy Finance. The total supply of new CERs was 11.2 million tons last month, UN data show.
EU permits for December, the benchmark contract, fell 2 percent to close at 4.88 euros ($6.62) a metric ton on ICE Futures Europe in London. That’s more than eight times the 58 euro cents a ton for UN Certified Emission Reductions, or CERs, created from greenhouse-gas reducing projects in developing nations.
China and India, the top two producers of CERs, are among countries that protested the EU’s inclusion of overseas flights in its carbon market.
“We have always said that the EU was ready to amend its legislation to reflect the outcome of a global deal,” Isaac Valero-Ladron, a spokesman for the commission on climate in Brussels, said yesterday in an e-mailed response to questions. EU lawmakers will now determine what they want for the bloc’s carbon market through 2020, he said.
Other ways the EU could encourage voluntary inclusion into its emissions market may include setting aside some revenue from sales of carbon allowances for climate-protection research, Forrister said.
A diluted draft recommended by a majority of states in the 36-nation ICAO Council last month allowed the EU to continue its program for flights within its airspace. The original version that was suspended covered emissions from the whole length of journeys into and out of the bloc.
While the EU proposal wasn’t endorsed by ICAO last week, the EU still has the right to cap airline emissions within its airspace before a global market starts, EU Transport Commissioner Siim Kallas said Oct. 4.
“If the EU can correct some of the shortcomings in its emissions trading system design, there is scope to find agreement” with its trading partners on keeping some international flights, Daniel Rossetto, the managing director of Climate Mundial Ltd. in London, said by phone in an Oct. 4 interview.
There’s a “better-than-even” chance the bloc is willing to forgo charging for emissions outside its airspace, he said.
--With assistance from Ewa Krukowska in Brussels and Jonathan Stearns in Strasbourg, France. Editors: Andrew Reierson, Rob Verdonck