EU Regulation 2018/208 (the Regulation) was adopted by the EU Commission on 12 February, and applies with effect from 1 January 2018. The Regulation’s purpose is expressed to be to protect “the environmental integrity of the EU ETS”, effectively against a hard Brexit on 29 March 2019.
The Regulation was considered necessary by the EU because, in the absence of any future agreement between the EU and the UK, EU law will cease to apply in the UK with effect from the designated Brexit date of 28 March 2019. Following this date, the UK’s compliance (and that of its aircraft operators) can no longer be guaranteed because they will no longer be subject to EU ETS obligations under English law.
Aviation was included in the EU Emissions Trading Scheme (the EU ETS) in 2008, with 2012 as the first full compliance year. The EU ETS sets a cap on permitted greenhouse gas emissions for the aviation sector and then allocates tradeable "aviation allowances" available to aircraft operators based on that cap. An aircraft operator is obliged to surrender aviation allowances in a sufficient number to cover its greenhouse gas emissions. It can obtain the allowances by means of an initial free allocation, auctions or via the secondary markets. Since the 2013 “Stop The Clock” Decision, the EU ETS has only applied to flights operated within the European Economic Area.
The principal obligations of an aircraft operator are:
- to submit an emissions monitoring plan setting out measures to monitor its aviation emissions for approval by the designated agency in its allocated Member State (in the UK, the Environment Agency is responsible for administering the scheme);
- to monitor its aviation emissions in accordance with its approved emissions monitoring plan and submit annually verified reports to, in the case of UK operators, the Environment Agency by 31 March in the year following each scheme year; and
- by 30 April in the year following each scheme year to surrender allowances equal to its total reportable emissions for the preceding calendar year.
The Regulation amends Regulation 389/2013, which created a central Union Registry with accounts managed by the individual Member States, which remained responsible for their allocated aircraft operators.
It provides that any 2018 allowances which are created by a Member State which has notified the European Council of its intention to withdraw from the EU under Article 50 TEU or which are to be auctioned on a platform appointed by such a Member State will be identified by a country code and distinguishable by their year of creation.
These allowances may only then be surrendered if (a) EU law would not cease to apply in that Member State by 30 April 2019 or (b) it is sufficiently ensured that the surrender of allowances will take place in a legally enforceable manner by no later than 15 March 2019.
The Regulation was considered necessary by the EU because, in the absence of any future agreement between the EU and the UK, the UK and its aircraft operators would cease to be bound by their EU ETS obligations under English law with effect from 29 March 2019.
The timing was key because the deadline for the surrender of allowances for a calendar year is 30 April of the following year, meaning that UK operators would be under no legal obligation to surrender allowances for their 2018 emissions.
Given the continuing uncertainty regarding any transitional arrangements following 28 March 2019, the UK would be unable to commit that EU law “does not yet cease to apply in that Member State by 30 April 2019”.
The UK’s response was therefore to pass The Greenhouse Gas Emissions Trading Scheme (Amendment) Regulations 2017, which entered into force on 27 December 2017. These provide for reporting obligations in respect of the 2018 scheme year to be brought forward to 11 March 2019 and for surrender of 2018 allowances to be brought forward to 15 March 2019.
As such, aircraft operators administered by the UK has been granted certainty for the 2018 scheme year.