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Aviation Directive

VIEWS: 4 PAGES: 36

									  Aviation and Emissions Trading Scheme Directive




                   Regulatory Impact Analysis




                                                                    Climate Change Policy Section
                                                                   Department of the Environment,
                                                                   Heritage and Local Government
                                                                                        May 2010



Aviation and Emissions Trading Scheme Directive (RIA) (May 2010)                       page 1 of 36
                      Summary of Regulatory Impact Analysis (RIA)
Department:                             Title of Legislation:
Environment, Heritage and               European Communities (Greenhouse Gas Emissions Trading)
Local Government                        (Aviation) Regulations 2010
Stage: Signing of Regulations                            Date: May 2010
Related Publications: Aviation Directive (2008/101/EC), other related publications are referred to within
the text of the RIA
Available to view or download at:
http://www.environ.ie and other papers at http://ec.europa.eu/environment/climat/aviation/index_en.htm
Contact for enquiries:                                   Telephone:
climatechangeinfo@environ.ie                             (01) 8882472
What policy objectives are being pursued?
The objective of the Aviation Directive is to reduce the climate change impact attributable to aviation by
including emissions from aviation activities in the EU Emissions Trading Scheme (ETS). This will lead to
a reduction of CO2 across the EU.


The purpose of the Aviation Directive is not to prevent or limit people travelling, rather it is a means of
addressing the growing climate change impact of aviation emissions and a means of incentivising airlines
to reduce their emissions.


What policy options have been considered?
The Aviation Directive extends the already existing EU ETS to the aviation sector. Achieving the
objective of including aviation emissions in the EU ETS in a harmonised way is not possible without
amending the existing legislative framework. The following 3 options were considered:


Option 1. Do Nothing/No Policy Change


Option 2. Extend the ETS to Aviation by amending the existing suite of ETS Regulations


Option 3. Extend the ETS to Aviation by providing separate standalone Regulations


The preferred option was Option 3. Understanding the new regulatory regime would be marginally more
costly for aircraft operators under Option 2 as more complex Regulations would need to be interpreted.
Option 3 would deliver benefits for operators in terms of easing the regulatory burden. With regard to
impacts, there is no difference between Options 2 and 3.




     Aviation and Emissions Trading Scheme Directive (RIA) (May 2010)                   page 2 of 36
                                                    OPTIONS
         COSTS                               BENEFITS                                  IMPACTS
1 No direct costs but       None                                          - Possible impact on national
  significant                                                               competitiveness
  penalties/fines                                                         - No impact on the socially
  could result from                                                         excluded and vulnerable groups
  non-transposition of                                                    - Negative impact on the
  the Directive.                                                            environment
                                                                          - No significant policy change in an
                                                                            economic market including
                                                                            consumer and competition
                                                                            impacts
                                                                          - No impact on the rights of citizens
                                                                          - No impact on compliance
                                                                            burdens
                                                                          - Negative Impact on North-South
                                                                            and East-West relations as UK
                                                                            authorities are transposing the
                                                                            Directive
2 Costs will be             - Reduction in greenhouse gas                 - Possible negative impact on
  incurred by:                emissions                                     national competitiveness
  - Competent               - Reduction in climate change impact of       - No impact on the socially
    Authority (EPA)           aviation                                      excluded and vulnerable groups
  - Exchequer               - Improved quality of the environment         - Positive impact on the
  - Aircraft operators      - Improved sustainable development of           environment
  - Consumer                  air transport                               - No significant policy change in an
                            - Facilitating the efficient functioning of     economic market including
   The costs for              aviation's inclusion in the EU ETS            consumer and competition
   operators will be        - Implementation of the 'polluter pays'         impacts
   marginally higher          principle                                   - No impact on the rights of citizens
   than Option 3            - Meeting our obligations under EU            - No significant impact on
   because of more            Treaties                                      compliance burdens for those
   complex                  - Marginally greater regulatory burden          who comply
   Regulations.               on aircraft operators                       - Positive impact on North-South
                                                                            and East-West relations
3 Costs will be             - Reduction in greenhouse gas                 - Possible negative impact on
  incurred by:                emissions                                     national competitiveness
  - Competent               - Reduction in climate change impact of       - No impact on the socially
    Authority (EPA)           aviation                                      excluded and vulnerable groups
  - Exchequer               - Improved quality of the environment         - Positive impact on the
  - Aircraft operators      - Improved sustainable development of           environment
  - Consumer                  air transport                               - No significant policy change in an
                            - Facilitating the efficient functioning of     economic market including
                              aviation's inclusion in the EU ETS            consumer and competition
                            - Implementation of the 'polluter pays'         impacts
                              principle                                   - No impact on the rights of citizens
                            - Meeting our obligations under EU            - No significant impact on
                              Treaties                                      compliance burdens for those
                            - Marginally easier regulatory burden on        who comply
                              aircraft operators                          - Positive impact on North-South
                                                                            and East-West relations




     Aviation and Emissions Trading Scheme Directive (RIA) (May 2010)                       page 3 of 36
         Regulatory Impact Analysis - Aviation and Emissions Trading Scheme




1.      INTRODUCTION

1.1     The purpose of this document is to outline the approach being adopted in
        transposing the Aviation Directive and to seek views of interested parties and
        stakeholders on the draft Regulations transposing the Directive. The draft Aviation
        Regulations are outlined in a separate document.

1.2     The Aviation Directive (2008/101/EC) extends the EU Emissions Trading Scheme
        (ETS) to aviation activities. The key features of the Aviation Directive are outlined in
        Appendix 1 and a copy of the Directive is available on the Department's website
        (www.environ.ie), on the Environmental Protection Agency's website (www.epa.ie),
        and on the European Commission's website
        (http://ec.europa.eu/environment/climat/aviation/index_en.htm).

1.3     EU Member States are required to bring into force the laws, regulations and
        administrative provisions necessary to comply with the Aviation Directive by 2
        February 2010. However, aspects of the Directive required an earlier transposition in
        view of particular obligations on aircraft operators with respect to the submission of
        monitoring plans to the competent authority by end August 2009. Further details
        about this are outlined in Appendix 1.

1.4     The Aviation Directive is being transposed in two phases: the first phase of the
        transposition provided the necessary measures so as to facilitate the submission of
        monitoring plans to the competent authority by end August 2009; and the second
        phase provides for the transposition of the remaining provisions of the Directive.

1.5     The first phase of the transposition was completed at the end of July 2009 and was
        the subject of a separate consultation and details are outlined in section 7 below.
        The second phase of the transposition incorporates and revokes the first phase
        Regulations and provides for the full transposition of the Directive. This Regulatory
        Impact Analysis (RIA) relates to the second phase, and the draft Regulations now
        being consulted are the outcome of that phase.

1.6     The Department established a working group made up of the key stakeholders to
        assist in the transposition process. The Working Group comprises representatives
        of: the Department of the Environment, Heritage and Local Government; the
        Department of Transport; the Environmental Protection Agency; the Irish Aviation
        Authority; the two main airline operators in Ireland, Aer Lingus and Ryanair; as well
        as the Federation of Aerospace Enterprises in Ireland (FAEI), and RBS Aviation
        Capital.



Aviation and Emissions Trading Scheme Directive (RIA) (May 2010)                     page 4 of 36
2.      DESCRIPTION OF POLICY CONTEXT AND OBJECTIVES

2.1     Policy Context
        EU ETS
2.1.1   Directive 2003/87/EC of the European Parliament and of the Council established a
        scheme for greenhouse gas emission allowance trading within the European
        Community. This EU Emissions Trading Scheme (ETS) came into operation on 1
        January 2005.

2.1.2   The aim of the EU ETS is to help EU Member States achieve their commitments to
        limit or reduce greenhouse gas emissions in a cost-effective way. Allowing
        participating companies to buy or sell emission allowances means that emission cuts
        can be achieved at least cost.

2.1.3   The EU ETS is the cornerstone of the EU's strategy for fighting climate change. It is
        the first international trading scheme for CO2 emissions in the world. It currently
        covers over 10,000 installations in the energy and industrial sectors which are
        collectively responsible for close to half of the EU's emissions of CO 2 and 40% of its
        total greenhouse gas emissions.

2.1.4   The EU ETS is a 'cap and trade' scheme, that is to say it caps the overall level of
        emissions allowed but, within that limit, allows participants in the scheme to buy and
        sell allowances as they require. These allowances are the common trading
        'currency' at the heart of the scheme. One allowance gives the holder the right to
        emit one tonne of CO2 or the equivalent amount of another greenhouse gas. The
        cap on the total number of allowances creates scarcity in the market. The EU ETS
        has put a price on carbon and proved that trading in greenhouse gas emissions
        works.

2.1.5   The rationale behind emissions trading is that it enables emission reductions to take
        place where the cost of the reduction is lowest, thus lowering the overall costs of
        combating climate change. More abatement will be undertaken by operators with
        lower abatement costs, therefore reducing the overall costs of meeting the emissions
        target (cap) set by any trading scheme.

        Aviation and EU ETS
2.1.6   Air transport has become an integral part of society in the 21st century, enabling both
        passengers and freight to travel long distances at an unprecedented speed and
        contributing to European and global integration. Unfortunately, aviation also
        contributes to climate change.

2.1.7   On 27 September 2005 the Commission adopted a Communication on Reducing the
        Climate Change Impact of Aviation. The key conclusion drawn in the Communication
        was that, in view of the likely future growth in air traffic, further policies and measures


Aviation and Emissions Trading Scheme Directive (RIA) (May 2010)                      page 5 of 36
        are needed to address the climate impact of aviation. Having analysed a number of
        options, the Commission decided to pursue a new market based instrument at
        Community level in preference to other financial measures such as tax and charges
        and considered that "…the best way forward from an economic and environmental
        point of view, lies in including the climate impact of the aviation sector in the
        [Community] scheme".

2.1.8   The European Commission published a draft legislative proposal for including
        aviation in the EU ETS on 20 December 2006 and they also published their impact
        assessment of the proposal. This proposal was altered throughout the EU legislative
        process. The Council adopted its Common Position on 18 April 2008. The European
        Parliament adopted a compromise package on 8 July 2008 which had been agreed
        with the Council in view of reaching a second reading agreement. Subsequently, the
        Council approved the European Parliament's amendments to the common position
        on 24 October 2008 and the Directive was deemed to have been adopted in the form
        of the common position as amended.

2.1.9   The Aviation Directive to include aviation in the EU ETS from 2012 was published in
        the Official Journal of the European Union on 13 January 2009 and it entered into
        force on 2 February 2009.

       Legislating the EU ETS
2.1.10 The Aviation Directive, 2008/101/EC provides for the extension of the EU ETS to the
       aviation sector. The 2008 Directive provides amendments to the ETS Directive,
       2003/87/EC. However, the 2003 ETS Directive was amended in 2004 by the Linking
       Directive, 2004/101/EC, and more recently, the 2003 ETS Directive was substantially
       amended by the revised ETS Directive, 2009/29/EC. Details of the suite of EU
       legislation governing the EU ETS are outlined in Appendix 2. Aspects of the existing
       legislation are applicable to the aviation sector.

2.1.11 The 2003 ETS Directive and the 2004 Linking Directive were transposed into Irish
       law by the European Communities (Greenhouse Gas Emissions Trading)
       Regulations 2004 (S.I. No. 437 of 2004), the European Communities (Greenhouse
       Gas Emissions Trading) (Amendment) Regulations 2005 (S.I. No. 706 of 2005), and
       the Kyoto Protocol Flexible Mechanisms Regulations 2006 (S.I. No. 244 of 2006).
       Further details are outlined in Appendix 2. As such, this suite of national legislation
       governing the EU ETS is subject to further substantial amendments in light of the
       need to transpose the Aviation and the revised ETS Directives into Irish law. The
       transposition of the revised ETS Directive is being considered separately.

       Offsetting Official Air Travel
2.1.12 In response to the Programme for Government and commitments in the National
       Climate Change Strategy 2007 - 2012, the Department of the Environment, Heritage
       and Local Government developed the principles of a scheme to offset greenhouse
       gas emissions from official air travel. The scheme operates on an annual basis and
       commenced in 2009. Each Department is required on an annual basis to calculate


Aviation and Emissions Trading Scheme Directive (RIA) (May 2010)                  page 6 of 36
        their CO2 emissions and associated offsetting costs based on total air kilometres
        travelled. The scheme applies to all Government Departments and Offices, and
        covers all flights by Ministers and officials on both commercial airlines and
        Government passenger aircraft. It also applies to bodies under the aegis of
        Departments and it is a matter for individual Departments to decide which bodies are
        to be included in the scheme.

2.1.13 The price of offsetting a tonne of carbon in each year is determined by the
       Department of the Environment, Heritage and Local Government to reflect the
       average price in the voluntary offsetting market as the basis for Departments to
       calculate their offsetting costs. The overall cost of the scheme, estimated at some
       €420,000 per annum, is considered modest relative to the benefits likely to accrue.
       The Renewable Energy and Energy Efficiency Partnership will seek to invest the total
       offsetting funding in small scale "gold standard" energy efficiency and renewable
       energy projects in Ireland’s priority Overseas Development Aid countries in Africa.

2.1.14 The inclusion of Aviation in the EU ETS will obviate the need for this offsetting
       scheme with effect from 31 December 2011 as commercial airlines and Government
       passenger aircraft will be included in the EU ETS from 1 January 2012.



2.2     Objectives
2.2.1   The objective of the Aviation Directive is to reduce the climate change impact
        attributable to aviation by including emissions from aviation activities in the EU ETS.
        This will lead to a reduction of CO2 across the EU.

2.2.2   Extending the EU ETS to aviation has been considered as being the most cost-
        efficient and environmentally effective option for controlling aviation emissions. Like
        the industrial companies already covered by the EU ETS, aircraft operators will be
        able to sell surplus allowances if they reduce their emissions and will need to buy
        additional allowances if their emissions grow.

2.2.3   The purpose of the Aviation Directive is not to prevent or limit people travelling, rather
        it is a means of addressing the growing climate change impact of aviation emissions
        and a means of incentivising airlines to reduce their emissions.




3.      IDENTIFICATION AND DESCRIPTION OF OPTIONS

3.1     The Aviation Directive extends the already existing EU ETS to the aviation sector.
        Achieving the objective of including aviation emissions in the EU ETS in a
        harmonised way is not possible without amending the existing legislative framework.
        As such, it would not be appropriate, as part of the RIA process to consider
        alternatives to regulations such as taxes or subsidies or alternative forms of
        regulations such as self/co/performance based regulation. As such the regulatory


Aviation and Emissions Trading Scheme Directive (RIA) (May 2010)                      page 7 of 36
        options are limited and there is only scope to consider the manner in which the
        existing legislative framework is amended so as to achieve the objective. These are
        explored below.



        Option 1: Do Nothing/No Policy Change
3.2     This option is primarily being included for benchmarking purposes. Therefore it will
        not be examined in great detail as part of this RIA because it is not envisaged that
        this option will be pursued in practice. To take no action would mean a failure to
        comply with our EU obligations and could result in prosecution by the European
        Commission and imposition of sanctions by the European Court.



        Option 2: Extend the ETS to Aviation by amending the existing suite of ETS
                   Regulations
3.3     This option would involve amending the existing suite of national legislation
        governing the EU ETS to provide for the extension of the ETS to the aviation sector.

3.4     It could be argued that the advantage of this option would result in an extending suite
        of Regulations applying to the ETS sectors.

3.5     On the contrary, it could be argued that the disadvantage of this option from an
        aviation sector point of view would be interpreting complex regulations which contain
        aspects which have little relevance to the aviation sector as they relate specifically to
        installations. In addition, this could have the potential to cause confusion for existing
        installations as they are not generally affected by the Aviation Directive but the
        legislation governing them would be changing to accommodate aviation activities.
        This could be difficult and potentially a source of confusion as different regimes apply
        to the different sectors within the ETS. For example a greenhouse gas permitting
        system is applicable under the existing national legislation for installations such as
        power generators and industrial plants, but such a permitting system is not being
        applied in the same way to the aviation sector. To add to the complexity of the issue,
        it is noted that the suite of national legislation will be subject to further substantial
        revisions in the foreseeable future to accommodate the transposition of the revised
        ETS Directive, 2009/29/EC.



        Option 3: Extend the ETS to Aviation by providing separate standalone
                     Regulations
3.6     This option would involve preparing separate standalone Regulations which would
        provide for the extension of the ETS to the aviation sector. These standalone
        Regulations would exist in parallel to the national legislation governing the EU ETS
        installations, and these new Regulations would essentially mirror the relevant
        aspects of the existing legislation.




Aviation and Emissions Trading Scheme Directive (RIA) (May 2010)                     page 8 of 36
3.7     It could be argued that the advantage of this option would result in one set of
        Regulations applying to the aviation sector and thereby easing the regulatory burden
        on that sector. It would also mean that the other ETS sectors would not be affected
        by this approach in that the legislation governing their respective sector would not be
        amended at this juncture.

3.8     On the contrary, it could be argued that the plethora of legislation governing the EU
        ETS would be increasing and across the sectors (installations and aviation).
        However, it is intended that the amalgamation and consolidation of the legislation
        governing the aviation sector and other sectors within the ETS will be considered, as
        appropriate as part of the transposition of the revised ETS Directive, 2009/29/EC.




4.      ANALYSIS OF COSTS, BENEFITS AND IMPACTS FOR ALL OPTIONS

4.1     Costs

        Option 1
4.1.1   There are no direct costs associated with Option 1 but Ireland would face significant
        penalties/fines imposed by the EU for the non transposition of the Aviation Directive.

        Options 2 and 3
4.1.2   The costs identified below are relevant to both Options 2 and 3.

        Competent Authority - EPA
4.1.3   Costs will be incurred by the EPA in fulfilling its duties under the Aviation Directive.
        The costs incurred include costs associated with:
         - "setup" costs;
         - resources required to implement the Directive;
         - setting up appropriate systems and procedures to: consider and approve
             monitoring plans for emissions and tonne-kilometre data; consider and review
             reports of emissions; ensure that monitoring plans and reports are prepared and
             verified in accordance with the provisions of the Directive; consider applications
             for allowances to be issued free of charge and from the special reserve; and
             manage the issue, holding, transfer and cancellation of allowances;
         - developing and providing advice and guidance for those on which the Aviation
             Directive will impact;
         - training staff in all aspects of the implementation of the Aviation Directive
             (administrating, assessing and monitoring);
         - enforcing requirements;
         - monitoring the implementation of the Directive and reporting to the Department
             and the Commission; and
         - other administrative work that may arise out of implementation of the Directive.




Aviation and Emissions Trading Scheme Directive (RIA) (May 2010)                    page 9 of 36
4.1.4   The EPA already has expertise in the EU ETS and aspects of this expertise will be
        crucial to the extension of the ETS to the aviation sector. Some aspects of the
        existing ETS with respect to installations are common to the aviation sector such as
        the issue, holding and transfer of allowances. In addition, principles associated with
        monitoring and reporting are common but the detailed guidelines differ for
        installations and aviation. The aviation sector within the ETS is not treated the same
        as other sectors in the ETS as greenhouse gas permits are not required for aviation
        activities. As such, the EPA is required to develop new expertise and systems to
        accommodate this.

4.1.5   Under the existing EU ETS, over 100 installations are dealt with by the EPA, while
        under the extended ETS, in excess of 220 aircraft operators will be dealt with by the
        EPA. In view of the number of aircraft operators that will come within the scheme
        and the extent of the new system and procedures to be accommodated, it was not
        considered possible to fund the new EPA functions that will arise out of existing
        funding available for the administration of the EU ETS1. As such, under the first
        phase of transposition, it was decided to impose an administration fee for the
        approval of monitoring plans. This fee would be determined by the EPA and would
        be subject to a minimum fee of €200 and a maximum fee of €500, and be in
        proportion to the size of the aircraft operator and its business. Aircraft operators
        whose annual emissions are estimated to be less than 10,000 tonnes are required to
        pay a fee of €200 for the approval of its monitoring plan for annual emissions and a
        fee of €200 for the approval of its monitoring plan for tonne-kilometre data; other
        aircraft operators are required to pay a fee of €500 for the approval of their
        monitoring plans for annual emissions and tonne-kilometre data, respectively. In the
        period to 2012, it is envisaged that aircraft operators would be submitting to the EPA
        for their approval one monitoring plan for emissions (mandatory) and one monitoring
        plan for tonne-kilometre data (optional). Of the 229 operators to be administered by
        Ireland, it is estimated that 6 aircraft operators have emissions above 10,000 tonnes
        and therefore will be required to pay the higher fee. It is considered that the fees
        associated with this were necessary and reasonable to help cover administration
        costs and would not put operators at a competitive disadvantage in relation to their
        counterparts in other EU Member States. It was agreed at the time of the first phase
        of transposition that these fees would be reviewed.

4.1.6   The EPA would be in a position to recover some administration costs from aircraft
        operators in the period to 2012 i.e. the fees as mentioned above. The EPA's initial
        setup costs to implement the Directive will be significant and are not recoverable by
        means of the fees. It had been intended that from 2012 onwards, the EPA's
        administration costs would be fully covered by the proceeds of auctioning. However,
        the Department of Finance has signalled serious reservations regarding this
        approach.

1
  The EPA's costs of administering the EU ETS (excluding aviation sector) is currently being met
through the sale or auctioning of a portion of allowances for the installation sector and further details
are provided in Ireland's National Allocation Plan for Emission Trading 2008 - 2012 available on
www.epa.ie


Aviation and Emissions Trading Scheme Directive (RIA) (May 2010)                              page 10 of 36
4.1.7   The Directive (Article 3d(4)) provides that it shall be for Member States to determine
        the use to be made of the revenues generated from the auctioning of allowances and
        it considers that such revenue should be used to cover the cost of administering the
        Community Scheme in addition to other climate change projects. It is estimated that
        the share of allowances to accrue to Ireland is about 450,000. The actual revenue
        arising will vary each year in accordance with the price of aviation allowances at the
        time of auctioning. (Further details on this aspect are outlined in Appendix 1.)

4.1.8   However, in concluding the negotiations on the Directive, Ireland along with a
        number of other Member States, stated that the identified Member States "interpret
        the provisions of Article 3d(4) as not imposing legally-binding requirements on the
        Member States". On this basis, the draft Regulations do not provide for the
        transposition of Article 3d(4).

4.1.9   The Directive does not make any provision for charging fees. It is considered that
        primary legislation would be necessary to introduce any provisions for the payment of
        substantial fees i.e. an annual fee or fees associated with covering the costs of
        administering the scheme.

4.1.10 As such, consideration will have to be given as to how to meet the EPA's costs of
       administering the aviation aspect of the EU ETS from 2012 onwards.

4.1.11 It is proposed therefore that as part of the transposition of the revised ETS Directive
       (2009/29/EC) to consider further the issue of fees and the costs of administering the
       EU ETS. It will be clear at that stage what the Commission's approach will be to the
       Auctioning Regulation and the auctioning of aviation and other allowances provided
       for in the Aviation Directive and in the revised ETS Directive. (Further details on this
       aspect are outlined in Appendix 1.)

4.1.12 Other costs that may be incurred by the EPA include legal costs where aircraft
       operators initiate legal reviews of the EPA's decisions or directions issued by them.



       Exchequer
4.1.13 The costs associated with implementation of the Directive would primarily be met by
       the Exchequer through funding of the EPA. Some administration costs may be
       recovered from aircraft operators as noted above. Consideration will have to be
       given as to how to meet the full costs from 2012 onwards.



       Aircraft Operators
4.1.14 The route length, age of the aircraft and size of the payload contribute to the relative
       fuel-efficiency of the aircraft and the extent to which the ETS will impose costs on
       operators. Clearly, aircraft operators are likely to be faced with costs arising from the
       implementation of the Directive and its requirements particularly in relation to


Aviation and Emissions Trading Scheme Directive (RIA) (May 2010)                    page 11 of 36
        complying with monitoring plans and reporting requirements. The level of such costs
        for aircraft operators will vary across the sector. Larger aircraft operators would
        normally be in a better position than smaller aircraft operators to absorb such costs.
        The airline community has indicated that they will have to absorb a large proportion
        of these costs as they will not be able to pass them on to consumers in the form of
        higher fares, paragraphs 4.1.21 to 4.1.24 below also refer.

4.1.15 The cost of monitoring and reporting of emissions will impose costs on aircraft
       operators as they will have to collate accurate and verifiable data of their activity and
       report it in the required format at the appropriate time. This will require resources
       and the costs will depend on the information already held by aircraft operators and
       the extent to which the Directive's requirements will necessitate the production of
       new information for them. Not all aircraft operators will apply for free allowances
       because of the cost of making an application and having the data verified compared
       to the anticipated cost of buying a few hundred allowances. Some aircraft operators
       are also not eligible for free allowances because they are not transporting
       passengers or goods (e.g. positioning flights made by the aircraft leasing industry).

4.1.16 Any additional fees that may need to be levied, over and above the existing fee being
       charged for the approval of monitoring plans would fall to be met by aircraft operators
       and would impose additional costs on aircraft operators. Paragraph 4.1.9 above also
       refers. It could be argued that the application of additional fees could be perceived
       as double charging as the Directive already provides for a portion of allowances to be
       auctioned with revenue accruing to Member States.

4.1.17 Further costs may arise in relation to the sale/purchase of allowances. A number of
       free allowances will be allocated to certain aircraft operators (i.e. those operators
       who applied for such allowances and are eligible to receive them) on the basis of a
       harmonised efficiency benchmark and this has yet to be determined by the
       Commission. (Further details about the benchmark and allocation of allowances are
       outlined in Appendix 1.) The performance by aircraft operators against that
       benchmark will ultimately determine whether the aircraft operator is required to
       purchase additional allowances (where their emissions have grown) or is in a position
       to sell surplus allowances (where they have reduced their emissions). The market
       price for such allowances at the time of sale/purchase will determine further costs
       associated with participation in the EU ETS. However, most of this information will
       not be known until aircraft operators commence trading in the EU ETS in 2012 and
       surrender allowances in 2013.

4.1.18 For some aircraft operators, compliance with the Directive's requirements would be
       more costly either because they do not currently have mechanisms in place to
       provide the information required of them or because the Directive places a
       disproportionate administrative burden on them given their available resources

4.1.19 Where an aircraft operator chooses not to comply with their obligations under the
       Directive, and where the EPA initiates enforcement proceedings against it, the


Aviation and Emissions Trading Scheme Directive (RIA) (May 2010)                    page 12 of 36
        aircraft operator would probably be liable for the enforcement costs. Depending on
        the practical implementation of the Directive and the extent of compliance by aircraft
        operators, the enforcement costs incurred by the EPA should be kept to a minimum.
        In the main, the costs of enforcement would be likely to fall on non-compliant aircraft
        operators against whom the EPA was obliged to take action.

4.1.20 Understanding the new regulatory regime would be marginally more costly for aircraft
       operators under Option 2 as more complex Regulations would need to be
       interpreted. The extent of the administrative costs for aircraft operators is not known.



       Consumer
4.1.21 It is not clear what the extent of the cost implications will be for consumers arising
       from the Directive's implementation. In 2006, the Commission estimated that
       assuming airlines fully pass on any extra cost to customers, by 2020 the price of a
       typical return flight within the EU could rise between €1.80 and €9. Due to their
       higher environmental impact, long-haul trips could increase by somewhat more,
       depending on the journey length - for example the Commission estimated that a
       return flight to New York might cost an additional €8 to €40 depending on the market
       price for CO2 allowances. The Commission also expected that this would only have
       a small effect on forecasted demand growth from business as usual levels of 142%
       to a minimum of 135% over the period 2005 to 2020 for all departing and arriving
       flights. The Commission concluded in its impact assessment on the proposed
       Directive that the benefits from the aviation sector accounting for its fast rising CO2
       emissions, through incorporation into the EU ETS with a reasonable environmental
       goal of stabilising at 2005 emission levels, seem to significantly outweigh the costs.
       The Commission also note that emissions trading can be used to achieve an
       environmental benefit at a lower cost than other means and is therefore the most
       cost-effective way of addressing greenhouse gas emissions from aviation.

4.1.22 It could be argued that a substantial imposition on aircraft operators could result in a
       pass-through of costs to air fares, further impacting on highly price elastic inward
       tourism in Ireland. A pass-through of costs to air freight would also be likely, thus
       having adverse competitiveness impacts for Irish exports using air to transport high-
       value goods overseas in an already challenging economic environment.

4.1.23 The suggestion that airlines operating within the EU ETS will be able to pass on, to a
       large extent or even in full, the cost of participating in the ETS to their customers has
       been contested by the airline community. It has also been argued by the airline
       community that in view of price elasticity applicable to air fares, airlines will be forced
       to absorb a large portion of the additional costs arising from ETS. The airline
       community note that this has been their experience with the Air Travel Tax in that
       they have been unable to pass it on to passengers in the form of higher fares.




Aviation and Emissions Trading Scheme Directive (RIA) (May 2010)                     page 13 of 36
4.1.24 While the Commission estimated that airlines would fully pass on any extra costs to
       consumers, the airline community dispute this and the costs to consumers arising
       from the Directive's implementation are not known.



4.2     Benefits

        Option 1
4.2.1   There are no benefits associated with Option 1.

        Options 2 and 3
4.2.2   The following benefits are relevant to both Options 2 and 3:
        -       reduction in greenhouse gas emissions;
        -       reduction in climate change impact of aviation;
        -       improved quality of the environment;
        -       improved sustainable development of air transport;
        -       facilitating the efficient functioning of aviation's inclusion in the EU ETS;
        -       implementation of the 'polluter pays' principle; and
        -       meeting our obligations under EU Treaties.



4.3     Impacts

        Impacts on national competitiveness
4.3.1   The Commission, in their impact assessment envisaged that all airlines would be
        treated equally and that competition between airlines and airports would not be
        expected to be significantly affected because of the geographical scope of all
        departing and arriving flights. "The main difference between airlines is the length of
        journey undertaken, the age of the aircraft used and the payload carried. Therefore
        carriers travelling shorter distances, using older aircraft or carrying fewer passengers
        or less freight would be affected to a greater extent than more fuel efficient carriers."
        In addition, the Commission considered that aviation's inclusion in the EU ETS would
        only have a marginal effect on profitability since aircraft operators would be able to
        pass on most or all of the extra cost to customers. As mentioned above, this
        conclusion has been contested by the airline community, and indeed it is believed
        that airlines will have to absorb a significant proportion of costs associated with the
        ETS.

4.3.2   In relation to tourism, the Commission considered that impacts are estimated to be
        limited and they would likely be decreased with the largest geographical scope.
        However, it is noted that in the past year, Ireland has witnessed a massive 12% drop
        in tourism numbers. That amounts to 600,000 less visitors travelling to Ireland in
        2009 compared to the same period in 2008. It could be argued that this is most likely
        due to two factors: falling incomes and a perception that Ireland does not represent
        good value for money. Short-hop weekend breaks continue to dominate Ireland’s
        inward tourism, especially those from the UK, and analysis indicates that this type of


Aviation and Emissions Trading Scheme Directive (RIA) (May 2010)                       page 14 of 36
        tourist is more price sensitive than others (there was a 25% fall in UK visitors in
        2009). On this basis, it could be argued that the Aviation Directive may impact
        adversely on tourism numbers in Ireland, especially in the price-elastic short-break
        segment.

4.3.3   With regard to remote and isolated regions, the Commission acknowledged that
        some of the regions were relatively close to the European mainland so special
        provisions for these regions could introduce distortions of competition vis-à-vis the
        mainland. It considered that any special treatment should be addressed within the
        existing framework regulating subsidies to air transport.

4.3.4   It is noted that aircraft operators flying newer fleets will have a substantial advantage
        over their competitors because some newer models emit 30% less carbon than
        comparatively older models that are still being flown.

4.3.5   Given Ireland's status as a peripheral island which implies a disproportionate reliance
        on air travel for both tourism and trade, it could be argued that Ireland will experience
        a relative competitiveness disadvantage from the aviation sector's inclusion in the EU
        ETS because of the price increases that will arise with respect to air transport. As
        such, imports and exports requiring air transport may be more expensive and there
        may also be implications for the movement of people and tourism. On the other
        hand, it could also be argued that because the EU ETS is being implemented across
        the EU, other countries could have similar experiences and cost increases and this
        could potentially limit the impact on Ireland's competitiveness.

4.3.6   The Aviation Directive does not provide any scope for a derogation or otherwise for
        island nations because of their reliance on air transport for movement of goods and
        tourism. However, the Directive does provide a review mechanism to consider the
        implications of the Directive on islands and peripheral regions following a five year
        implementation period.

4.3.7   By adopting Option 1, aircraft operators based and operating from Ireland would not
        be in a position to participate in the EU ETS. As such, these aircraft operators could
        potentially opt to move their business elsewhere thereby affecting Ireland's
        competitiveness. In addition, adopting Option 1 could harm Ireland's transport
        connectivity as well as national competitiveness.

4.3.8   By adopting Options 2 or 3, aircraft operators would become part of the EU ETS
        along with their counterparts in other Member States. It would seem appropriate that
        Irish based airlines would ensure that they operate in accordance with the terms of
        the EU ETS so as to ensure that they do not incur unnecessary costs such as having
        to buy extra allowances which could have the potential to harm their competitiveness.
        As outlined above, both Options 2 and 3, may impact negatively on national
        competitiveness.




Aviation and Emissions Trading Scheme Directive (RIA) (May 2010)                     page 15 of 36
        Impacts on the socially excluded and vulnerable groups
4.3.9   There would be no impact on the socially excluded or vulnerable groups by the
        adoption of Options 1, 2 or 3.

       Impacts on the environment
4.3.10 Option 1 would have a negative impact on the environment in that aircraft operators
       in Ireland would not have an additional incentive to reduce their emissions.

4.3.11 Adopting Options 2 or 3 would give effect to the 'polluter pays' principle, would give
       airlines an additional incentive to reduce emissions and as such would have a
       positive impact on the environment.

       Whether there is a significant policy change in an economic market including
       consumer and competition impacts
4.3.12 By adopting Options 1, 2 or 3, there would be no significant policy changes in an
       economic market. In relation to impacts on consumers, it is envisaged that
       consumers may have to pay more for their travel but as noted above, it is not clear
       what the extent of such costs will be and the impact that this would have on travel.

       Impacts on the rights of citizens
4.3.13 By adopting Options 1, 2 or 3, there would be no impact on the rights of citizens or
       other members of the public.

       Impacts on compliance burdens
4.3.14 Option 1 would have no impact as compliance burdens would not arise.

4.3.15 Adopting Options 2 or 3 should not impact on the majority of responsible aircraft
       operators who comply with the terms of the EU ETS but it would impact on those who
       do not adhere to the scheme. As such, the compliance burden for the latter group of
       aircraft operators would be significant but not unjust or disproportionate.

       Impacts on North-South and East-West Relations
4.3.16 Option 1 would have a negative impact on North-South, East-West relations as the
       UK Government is in the process of transposing the Aviation Directive to cover
       Northern Ireland, Scotland and Wales.

4.3.17 Adopting Options 2 or 3 would give airlines an additional incentive to reduce
       emissions and as such would have a positive impact on the people in Northern
       Ireland and in the UK, in general.



4.4     Summary of Costs, Benefits and Impact

4.4.1   The table below summarises the costs, benefits and impacts of each of the 3 options.




Aviation and Emissions Trading Scheme Directive (RIA) (May 2010)                 page 16 of 36
4.4.2   Understanding the new regulatory regime would be marginally more costly for aircraft
        operators under Option 2 as more complex Regulations would need to be
        interpreted. Option 3 would deliver benefits for operators in terms of easing the
        regulatory burden. With regard to impacts, there is no difference between Options 2
        and 3.

4.4.3. Option 3 is the preferred option.

                       Summary of the Costs, Benefits and Impacts of the 3 Options
              Costs                    Benefits                        Impacts
 Option 1     No direct costs but      None                            - Possible impact on national
              significant                                                competitiveness
              penalties/fines could                                    - No impact on the socially
              result from non-                                           excluded and vulnerable
              transposition of the                                       groups
              Directive.                                               - Negative impact on the
                                                                         environment
                                                                       - No significant policy change in
                                                                         an economic market including
                                                                         consumer and competition
                                                                         impacts
                                                                       - No impact on the rights of
                                                                         citizens
                                                                       - No impact on compliance
                                                                         burdens
                                                                       - Negative Impact on North-
                                                                         South and East-West relations
                                                                         as UK authorities are
                                                                         transposing the Directive
 Option 2     Costs will be incurred   - Reduction in greenhouse       - Possible negative impact on
              by:                        gas emissions                   national competitiveness
              - Competent Authority    - Reduction in climate change - No impact on the socially
                (EPA)                    impact of aviation              excluded and vulnerable
              - Exchequer              - Improved quality of the         groups
              - Aircraft operators       environment                   - Positive impact on the
              - Consumer               - Improved sustainable            environment
                                         development of air transport  - No significant policy change in
              The costs for operators - Facilitating the efficient       an economic market including
              will be marginally         functioning of aviation's       consumer and competition
              higher than Option 3       inclusion in the EU ETS         impacts
              because of more          - Implementation of the         - No impact on the rights of
              complex Regulations.       'polluter pays' principle       citizens
                                       - Meeting our obligations       - No significant impact on
                                         under EU Treaties               compliance burdens for those
                                       - Marginally greater regulatory   who comply
                                         burden on aircraft operators  - Positive impact on North-South
                                                                         and East-West relations




Aviation and Emissions Trading Scheme Directive (RIA) (May 2010)                       page 17 of 36
                      Summary of the Costs, Benefits and Impacts of the 3 Options
              Costs                   Benefits                       Impacts
 Option 3     Costs will be incurred  - Reduction in greenhouse      - Possible negative impact on
              by:                       gas emissions                  national competitiveness
              - Competent Authority   - Reduction in climate change - No impact on the socially
                (EPA)                   impact of aviation             excluded and vulnerable
              - Exchequer             - Improved quality of the        groups
              - Aircraft operators      environment                  - Positive impact on the
              - Consumer              - Improved sustainable           environment
                                        development of air transport - No significant policy change in
                                      - Facilitating the efficient     an economic market including
                                        functioning of aviation's      consumer and competition
                                        inclusion in the EU ETS        impacts
                                      - Implementation of the        - No impact on the rights of
                                        'polluter pays' principle      citizens
                                      - Meeting our obligations      - No significant impact on
                                        under EU Treaties              compliance burdens for those
                                      - Marginally easier regulatory   who comply
                                        burden on aircraft operators - Positive impact on North-South
                                                                       and East-West relations




5.      CONSULTATION

5.1     The European Commission engaged in an extensive consultation process as part of
        the development of the proposal for legislation to include aviation in the EU ETS.
        Further details about the consultation are outlined in the Commission's impact
        assessment on the proposed legislation which is published on their website,
        www.ec.europa.eu/enviornment/climat/aviation/legislation_en.htm.

5.2     In June 2009 and following the development, by the Working Group, of the
        Regulations to transpose the first phase of the Directive, the Department engaged in
        a consultation process on the draft Regulations. In addition, the Department
        participated and presented at the EPA's Workshop for aircraft operators on
        implementation of the Aviation Directive on 30 June 2009 (further details are outlined
        on www.epa.ie). A summary of the responses to the June 2009 consultation is
        detailed at Appendix 3. The Regulations were subsequently signed by the Minister
        and came into effect on 23 July 2009 - the European Communities (Greenhouse Gas
        Emissions Trading) (Aviation) Regulations 2009 (S.I. No. 274 of 2009).

5.3     In March 2010, the draft Regulations transposing the second and final phase of the
        Aviation Directive along with the draft RIA were placed on the Department's website
        and circulated to key stakeholders. A summary of the responses to that consultation
        is detailed at Appendix 4.




Aviation and Emissions Trading Scheme Directive (RIA) (May 2010)                     page 18 of 36
6.      ENFORCEMENT AND COMPLIANCE

6.1     The EPA is designated as the competent authority, responsible for implementing,
        ensuring compliance and enforcing the EU ETS in Ireland. The EPA is also the
        competent authority for the extension of the EU ETS to the aviation sector.

6.2     The ETS Directive establishes a Community-wide scheme for greenhouse gas
        emissions allowance trading in order to promote reductions of greenhouse gas
        emissions in a cost effective and economically efficient manner. Article 16 of the
        Directive requires Member States to lay down rules on penalties applicable to
        infringements of the Directive and to ensure that these are implemented. Such
        penalties are required to be effective, proportionate and dissuasive.

6.3     At the time when the Aviation Directive, amending the ETS Directive was agreed, the
        enforcement provisions were strengthened to ensure a harmonised, consistent and
        robust enforcement of the Directive's provisions. Such sanctions include restricting
        particular airlines from flying in EU skies. In accordance with the Directive, it is
        necessary to provide additional sanctions to secure effective, proportionate and
        dissuasive enforcement of the Directive.

6.4     The Directive specifically provides in Article 16 that where an aircraft operator fails to
        comply with the Directive's requirements and where all enforcement options are
        exhausted and they have failed to ensure compliance, the Member State may
        request the Commission to decide on the imposition of an operating ban on the
        aircraft operator concerned. Such a request is required to be accompanied by a
        report of the action taken by the competent authority in enforcing the Directive's
        requirements and the justification for the implementation of an operating ban. It is
        intended to transpose this aspect of the Directive in accordance with Article 16.

6.5     It is not intended to separately provide for the banning of an aircraft operator or for
        the grounding or detaining of an aircraft by the EPA or by any other authority. Any
        banning of an aircraft operator will only arise on foot of a decision of the EU in
        accordance with Article 16(10).

6.6     The draft Regulations provide that the EPA may issue directions as it considers
        necessary for the purposes of ensuring that aircraft operators comply with the
        Directive. In situations where an aircraft operator fails to comply with a direction of
        the EPA or any requirement in the Regulations, injunctive relief may be sought
        whereby the EPA will have power to seek a High Court order to direct the aircraft
        operator to comply with the direction or requirement and to make any other
        provisions including the payment of costs. Any such applications will be permissible
        regardless of whether or not there has been a prosecution or an intention to
        prosecute.

6.7     The draft Regulations provide that it will be an offence for an aircraft operator not to
        comply with a direction of the EPA; and an offence not to comply with the


Aviation and Emissions Trading Scheme Directive (RIA) (May 2010)                     page 19 of 36
        requirements of the Directive. Provision is being made for the prosecution of
        summary and indictable offences, and the EPA is being provided with the power to
        initiate and prosecute summary offences, as in the case of other similar
        environmental protection legislation.

6.8     The experience gained in implementing and enforcing environmental protection
        legislation generally has shown that criminal prosecutions through the courts are time
        and resource intensive for business and for regulators; the outcome of such
        prosecutions do not necessarily change the behaviour of the offender; the fines
        imposed are often small compared to the economic benefits of non-compliance; the
        low financial penalties may be seen by some business as an acceptable risk
        particularly for those who have chosen to be deliberately non-compliant; and the level
        of fines, in some cases, tend to be small in relation to the size and financial position
        of large businesses.

6.9     As such, the prosecution of offences under these Regulations will be pursued in
        accordance with the Environmental Protection Agency Act 1992, as amended. The
        level of fines imposed will be at the same level as those provided by the
        Environmental Protection Agency Act 1992, as amended i.e. €3,000 for summary
        convictions or 12 months imprisonment or both; and €15,000,000 for conviction on
        indictment or 10 years imprisonment or both. In addition, daily fines for the continued
        contravention of the draft Regulations is also being provided. The draft Regulations
        also provide for the payment of the costs and expenses incurred by the EPA in taking
        a prosecution as well as the payment of fines to the EPA.

6.10    In summary, it is considered that the sanctions for aircraft operators who do not
        comply with the provisions of the Aviation Directive will ultimately achieve: a change
        in their behaviour; an elimination of any financial gain or benefit from non-
        compliance; a responsive reaction; and a proportionate response to the nature of the
        offence; as well as a deterrence of future non-compliance.

6.11    There are no specific compliance targets proposed in the Aviation Directive or in the
        draft Regulations.




7.      REVIEW

7.1     In accordance with Article 21 of the 2003 ETS Directive, Ireland is required to report
        annually to the Commission on the application of the Directive. Although that Article
        was not amended by the Aviation Directive, per se, Article 21 is also applicable to the
        aviation sector. The EPA is required, under the proposed draft Regulations to
        provide an annual report to the Commission on the implementation of the Directive,
        with respect to aviation.




Aviation and Emissions Trading Scheme Directive (RIA) (May 2010)                    page 20 of 36
7.2     Article 30 of the 2003 ETS Directive provides for review and further development of
        the ETS. That Article was amended by the Aviation Directive and it specifically
        provides in Article 30(4) that the Commission shall review the functioning of the
        Directive in relation to aviation activities by 1 December 2014. It identifies the
        specific aspects for which the Commission is required to give their consideration,
        these include:

        -        the implications and impacts of the Aviation Directive as regards the overall
                 functioning of the Community scheme;

        -        the impact of the Community scheme on the aviation sector, including issues
                 of competitiveness, taking into account in particular the effect of climate
                 change policies implemented for aviation outside the EU; and

        -        the impact of the Community scheme on the structural dependency on
                 aviation transport of islands, landlocked regions, peripheral regions and the
                 outermost regions of the Community.

7.3     It is considered that both these milestones will provide an opportunity for the EPA
        and the Department to consider issues and to review the Regulations, as
        appropriate.     Such issues should include the impacts of the Directive's
        implementation on Ireland as a peripheral island nation and its national
        competitiveness including tourism and trade. This review should be undertaken in
        consultation with key stakeholders and in particular the Department of Enterprise,
        Trade and Innovation, the Department of Tourism, Culture and Sport as well as
        Forfás, Tourism Ireland, Fáilte Ireland (the National Tourism Development Authority)
        and the Central Statistics Office, as well as representatives of the airline industry and
        aircraft operators. The outcome of that review, and in particular where there is
        evidence of a negative impact of the Directive's implementation on Ireland's
        competitiveness, as well as other industry concerns, should be communicated to,
        and factored into, the Commission's review.



8.      PUBLICATION

8.1     This RIA is being published on the Department's website, www.environ.ie.




Climate Change Policy Section
Department of the Environment,
Heritage and Local Government
May 2010




Aviation and Emissions Trading Scheme Directive (RIA) (May 2010)                     page 21 of 36
                                              Appendix 1

                             Key Features of the Aviation Directive



       The Directive provides that aircraft operators will receive tradeable allowances to
        emit a certain level of CO2 per year from their flights; and after each year operators
        must surrender a number of allowances equal to their actual emissions in that year.

       Aircraft operators have the most direct control over the type of aircraft in operation
        and the way in which they are flown. Aircraft operators should therefore be
        responsible for complying with the obligations imposed by this Directive, including the
        obligation to prepare a monitoring plan and to monitor and report emissions in
        accordance with that plan and in accordance with the monitoring and reporting
        guidelines - Commission Decision 2009/339/EC on the inclusion of monitoring and
        reporting guidelines for emissions and tonne-kilometre data from aviation activities.
        A copy of these guidelines is available on the European Commission's website
        (http://ec.europa.eu/environment/ climat/aviation/index_en.htm).

       Aircraft operators are assigned to Member States in accordance with Article 18a of
        the Directive. Commission Regulation No. 748/2009 as amended by Commission
        Regulation No. 82/2010 provides details of the list of aircraft operators and specifies
        their administering Member State. A copy of these Regulations is available on the
        European Commission's website (http://ec.europa.eu/environment/
        climat/aviation/index_en.htm).

       The Directive applies to aviation activities with some exemptions. Essentially all
        flights arriving at and departing from EU airports will be included in the scheme from
        2012 onwards. The exemptions are identified in Annex I(c) of the Directive. Further
        details are outlined in Commission Decision 2009/450/EC on the detailed
        interpretation of the aviation activities listed in the Annex I to Directive 2003/87/EC.
        A copy of this Decision is available on the European Commission's website
        (http://ec.europa.eu/environment/ climat/aviation/index_en.htm).

       While aviation activities come within the scope of the EU ETS from 2012, monitoring
        of emissions is required to commence in 2010. Annual reporting of such monitoring
        is to commence in 2011, with the first report in respect of 2010 to be submitted by 31
        March 2011.

       Emissions from aviation will be capped at 97% of their average 2004-2006 level in
        2012. This will decrease to 95% from 2013. Any growth in aircraft emissions above
        these levels will only be possible through abatement or by purchasing allowances
        from the market.




Aviation and Emissions Trading Scheme Directive (RIA) (May 2010)                    page 22 of 36
       Aircraft operators may apply for an allocation of allowances that are to be allocated
        free of charge and 82% of emission allowances will be allocated for free in 2012 (i.e.
        82% of the cap - the total quantity of allowances). The allocation of allowances will
        be based on a harmonised efficiency benchmarking methodology.

       A special reserve of free allowances is being provided for new entrants and fast
        growing airlines - 3% of the total quantity of allowances is being set aside in a special
        reserve.

       15% of allowances are to be auctioned in 2012 in accordance with rules being
        developed by the European Commission. The Commission initiated a consultation
        on auctioning in June 2009 and details are provided on the European Commission's
        website (http://ec.europa.eu/environment/climat/emission/auctioning_en.htm).
        Further details are set out below.

       Aircraft operators are required to surrender a number of allowances equal to the total
        emissions during the preceding calendar year. The first year for surrendering
        allowances will be 2013 in respect of the monitoring of emissions during 2012.

       For the 2012 period, up to 15% of the number of allowances required to be
        surrendered may use the flexible mechanisms - Certified Emission Reductions Units
        (CERs)/Emission Reduction Units (ERUs). It is noted that EU Allowances (EUAs) for
        aviation cannot be used for compliance purposes by stationary installations but EUAs
        from stationary installation operators can be used by aircraft operators.

       A new mechanism has been introduced to ensure consistent and robust enforcement
        throughout the EU. As a last resort, Member States could ask for an operator to be
        banned from operating in the EU if it persistently fails to comply with the scheme and
        other enforcement measures have proven ineffective.

       The competent authority for the EU ETS in Ireland is the EPA and they will also be
        the competent authority for the purposes of the Aviation Directive. The EPA has
        published details about the Directive and its implementation, and this is available on
        the EPA's website (www.epa.ie).

       The European Commission has published information about the Directive, its
        implementation and ongoing developments relating to the Directive, and this is
        available on its website (http://ec.europa.eu/environment/climat/aviation/index_en.htm).

       Some of the amendments outlined in the Aviation Directive serve the purpose of
        restructuring the ETS Directive and to make distinctions between those Articles of the
        Directive relating to aviation and to stationary installations.




Aviation and Emissions Trading Scheme Directive (RIA) (May 2010)                     page 23 of 36
Monitoring and Reporting

       Article 1(4) of the Aviation Directive provides for the insertion of Article 3g in the ETS
        Directive to deal with monitoring and reporting plans. That Article requires Member
        States to ensure that each aircraft operator submits to the competent authority a
        monitoring plan in accordance with the monitoring and reporting guidelines.

       The Commission's Monitoring and Reporting Guidelines for emissions and tonne-
        kilometre data from aviation activities were adopted in 2009 and it provides that
        "aircraft operators shall submit their monitoring plan to the competent authority for
        approval at least 4 months prior to the start of the first reporting year". The first
        reporting year is 2010 in accordance with Article 1(12)(b) of the Directive. As such
        aircraft operators are required to submit monitoring plans before the end of August
        2009. To facilitate this and to ensure compliance, it was necessary to legislate for
        this aspect in advance of the August 2009 deadline.




Auctioning and Proceeds

       The Directive provides for auctioning of aviation allowances in the 2012 period and
        for each year in the 8 yearly periods from 2013 onwards. The amount to be
        auctioned in these periods is 15% of allowances, although the percentage in the
        period from 2013 onwards may be increased as part of a general review of the ETS
        Directive. The amount to be auctioned in each year from 2012 is estimated to
        correspond to some 30 million allowances.

       Ireland's share of aviation allowances to be auctioned based on our proportionate
        share of the total attributed aviation emissions is estimated to be 1.53% of the 30
        million allowances to be auctioned in 2012. It is estimated that the share of
        allowances to accrue to Ireland is about 450,000. The actual revenue arising will
        vary each year in accordance with the price of aviation allowances at the time of
        auctioning. It is not possible to estimate the portion of this revenue that will have
        resulted from sales/purchases of allowances by Irish aircraft operators, as this will
        depend on the level of their emissions in the period and the allowances issued to
        them.

       Aviation allowances (EUAAs) are somewhat different to the other EU ETS
        allowances (EUAs) currently in use by installations. Aircraft operators will be able to
        surrender either EUAAs or EUAs to meet their compliance obligations. However,
        installation operators may not use EUAAs. As a result the demand for EUAAs will
        not be as great as that of EUAs and as such this will affect the market price of
        EUAAs.



Aviation and Emissions Trading Scheme Directive (RIA) (May 2010)                      page 24 of 36
       The Directive also provides for the adoption of an Auctioning Regulation which is to
        contain detailed provisions for the auctioning by Member States of allowances not
        required to be issued free of charge. That Auctioning Regulation will determine the
        manner in which allowances will be auctioned across the EU and the infrastructure to
        facilitate this. It will deal with the auctioning of allowances under both the revised
        ETS Directive and the Aviation Directive. The draft Regulation is currently under
        consideration by Member States.




Aviation and Emissions Trading Scheme Directive (RIA) (May 2010)                  page 25 of 36
                                              Appendix 2

                             EU ETS - EU and Domestic Legislation

        EU Legislation
       Directive 2003/87/EC of the European Parliament and of the Council of 13 October
        2003 establishes a scheme for greenhouse gas emission allowance trading within
        the Community and amends Council Directive 96/61/EC

       Directive 2004/101/EC of the European Parliament and of the Council of 27 October
        2004 amends Directive 2003/87/EC establishing a scheme for greenhouse gas
        emission allowance trading within the Community, in respect of the Kyoto Protocol's
        project mechanisms

       Directive 2008/101/EC of the European Parliament and of the Council of 19
        November 2008 amends Directive 2003/87/EC so as to include aviation activities in
        the scheme for greenhouse gas emission allowance trading within the Community

       Regulation (EC) No 219/2009 of the European Parliament and of the Council of 11
        March 2009 adapting a number of instruments subject to the procedure referred to in
        Article 251 of Council Decision 1999/468/EC with regard to the regulatory procedure
        with scrutiny also amends Directive 2003/87/EC with respect to the committee
        procedure.

       Directive 2009/29/EC of the European Parliament and of the Council of 23 April 2009
        amends Directive 2003/87/EC so as to improve and extend the greenhouse gas
        emission allowance trading scheme of the Community

       A consolidated version of Directive 2003/87/EC has been published on the
        Commission's website as a documentation tool, however, this version does not have
        any legal status.

       The technical and operational requirements concerning the standardised and
        secured registries system are governed by Commission Regulation (EC) No
        2216/2004 as amended by Commission Regulation (EC) No 916/2007 and
        Commission Regulation (EC) No 994/2008. Further amendments were recently
        approved by the Climate Change Committee and have been submitted to the
        European Parliament and Council for scrutiny before adoption by the Commission.
        The purpose of these amendments is to accommodate the introduction of aviation
        activities into the EU ETS from 1 January 2012.

       Decision No 280/2004/EC establishes a mechanism for monitoring and reporting
        greenhouse gas emissions and for implementing the Kyoto Protocol.




Aviation and Emissions Trading Scheme Directive (RIA) (May 2010)               page 26 of 36
       A copy of these Directives, Regulations and Decision are available on the
        Department's website, www.environ.ie and on the Commission's website,
        http://ec.europa.eu/environment/climat/emission/implementation_en.htm



        Domestic Legislation
       Directive 2003/87/EC was transposed into Irish law by the European Communities
        (Greenhouse Gas Emissions Trading) Regulations 2004 (S.I. No. 437 of 2004),

       Directive 2004/101/EC was transposed into Irish law by the European Communities
        (Greenhouse Gas Emissions Trading) (Amendment) Regulations 2005 (S.I. No. 706
        of 2005), and the Kyoto Protocol Flexible Mechanisms Regulations 2006 (S.I. No.
        244 of 2006).

       Directive 2008/101/EC was partially transposed into Irish law by the European
        Communities (Greenhouse Gas Emissions Trading) (Aviation) Regulations 2009 (S.I.
        No. 274 of 2009).

       Directive 2009/29/EC was partially transposed into Irish law by the European
        Communities (Greenhouse Gas Emissions Trading) (Amendment) Regulations 2010
        (S.I. No. 161 of 2010).

       A copy of these Regulations is available on the Department's website,
        www.environ.ie.




Aviation and Emissions Trading Scheme Directive (RIA) (May 2010)             page 27 of 36
                                              Appendix 3

      Phase 1: Consultation on the Legislation to Transpose the Aviation Directive
                                Summary of Responses

1. Introduction
   In June 2009, the Department of the Environment, Heritage and Local Government
   initiated a consultation on the legislation transposing the Aviation Directive
   (2008/101/EC). A consultation document outlining the approach to transposition of the
   Directive, the background and key features of the Directive; a guidance document
   providing an overview of the Regulations; and the draft Regulations for the first phase of
   transposition of the Directive were published on the Department's website
   (www.environ.ie). Comments were invited from interested parties.

    At the same time, the Department invited comments and circulated a copy of the
    consultation documents to over 170 relevant stakeholders including Government
    Departments/Offices, State Agencies, Regulatory Authorities, environmental NGOs,
    representative groups and associations, and private enterprises.

    This document is a narrative overview of responses received as part of that consultation.
    It does not purport to be a comprehensive summary of those views, but rather it identifies
    common points and issues which have implications for transposition. Interested parties
    are advised to read the full text of respective responses to get a comprehensive account
    of the views expressed by the various respondents.



2. Overview of Responses
   17 responses were received by the Department of the Environment, Heritage and Local
   Government in response to the consultation.

    The full list of respondents is outlined at Appendix A. The respondents are categorised
    as follows:

        Government Departments/Offices (9);
        State Agencies/Regulatory Authorities (4);
        Representative Groups/Associations (1); and
        Private Enterprises (2).

    The acronyms used in referring to some of these respondents are also detailed in
    Appendix 1.

    In general, the responses welcomed the opportunity to comment. The comments mainly
    focussed on the implications of the Aviation Directive for Ireland and on the legal and
    operational issues associated with transposition of the Directive. Further details on
    these issues are provided below.



Aviation and Emissions Trading Scheme Directive (RIA) (May 2010)                  page 28 of 36
3. Implications of the Aviation Directive for Ireland
   Chambers Ireland, DAST, and Forfás emphasised the importance of aviation to the Irish
   tourism sector and our dependence on aviation as a means of transport. They felt that
   Ireland's unique geographical situation should be taken into account when transposing
   the Directive.

    DAFF similarly emphasised the reliance of the Irish food and drinks sector on aviation for
    distribution of its products. In particular, DAFF considered that cognisance should be
    taken of the serious and disproportionate impacts that an increase in aviation costs will
    have on the Irish food and drinks exports, and that such issues should be taken into
    account when transposing the Directive.

    Enterprise Ireland considered that environment related measures should be
    implemented in the most efficient and cost effective manner possible so as to ensure an
    appropriate balance with Ireland's competitive concerns.



4. Legal and Operational Issues
   The EPA and Aer Lingus commented on specific provisions of the draft Aviation
   Regulations relating to powers of the EPA, greenhouse gases, administration fees,
   directions, appeals and offences . DCRAGA and DoT commented on the interpretation
   of aviation activities - exemptions and flight codes, respectively. CSO commented on
   the potential data requirements associated with aviation emissions.

    Enterprise Ireland considered that new regulations, charges and initiatives should be
    introduced with sufficient lead in time to allow companies in the enterprise sector to plan
    effectively for implementation.

5. Conclusion
   The Aviation Directive is being transposed in two phases. The first phase provides the
   necessary measures so as to facilitate the submission of monitoring plans to the
   competent authority by end August 2009; and the second phase will provide for the
   transposition of the remaining provisions of the Directive. It is intended that the second
   phase Regulations will revoke and incorporate the first phase Regulations and provide
   for full transposition of the Directive.

    A Regulatory Impact Analysis (RIA) will be prepared as part of the second phase of the
    transposition process. Some of the comments above relating to the Directive's
    implications for Ireland will be addressed in that RIA. The RIA and the draft Regulations
    transposing the second phase will be subject to a further consultation process later in
    2009.

Climate Change Policy: National
Department of the Environment, Heritage and Local Government
July 2009


Aviation and Emissions Trading Scheme Directive (RIA) (May 2010)                   page 29 of 36
                                              Appendix A

                                        List of Respondents



The following are the list of those who submitted comments in response to the consultation
on the legislation to transpose the Aviation Directive

            Acronyms                  Respondents
                                      Aer Lingus
                                      Air Routing International
            CSO                       Central Statistics Office
                                      Chambers Ireland
            DAFF                      Department of Agriculture, Fisheries and Food
            DAST                      Department of Arts, Sport and Tourism
            DCRGA                     Department of Community, Rural and Gaeltacht Affairs
                                      Department of Defence
                                      Department of Health and Children
                                      Department of Social and Family Affairs
            DoT                       Department of Transport (Coast Guard)
                                      Enterprise Ireland
            EPA                       Environmental Protection Agency
                                      Forfás
                                      Jet Aviation
                                      Revenue Commissioners
                                      Pacific Coast Forecasting



The Department of Defence, the Department of Social and Family Affairs, the Department of
Health and Children, and the Revenue Commissioners responded to the consultation but
noted that they had no observations to offer.

The response from Air Routing International, Jet Aviation, and Pacific Coast Forecasting
related to the list of operators coming within the Emissions Trading Scheme.

A copy of individual responses are available on request from: Climate Change Policy:
National, Department of the Environment, Heritage and Local Government, Custom House,
Dublin 1. (email: climatechangeinfo@environ.ie)




Aviation and Emissions Trading Scheme Directive (RIA) (May 2010)                   page 30 of 36
                                              Appendix 4

      Phase 2: Consultation on the Legislation to Transpose the Aviation Directive
                                Summary of Responses



1.    Introduction
      The Aviation Directive is being transposed in 2 phases. The first phase of the
      transposition was completed at the end of July 2009 and was the subject of a separate
      consultation.

      On 31 March 2010, the Department of the Environment, Heritage and Local
      Government initiated a consultation on the second phase of the legislation to
      transpose the remaining provisions of the Aviation Emissions Trading Scheme
      Directive (2008/101/EC). A draft Regulatory Impact Analysis (RIA) outlining the
      approach to the transposition of the Directive and the draft Regulations were published
      on the Department's website (www.environ.ie).           Comments were invited from
      stakeholders and interested parties.

      At the same time, the Department invited comments and circulated a copy of the
      consultation documents to over 285 relevant stakeholders including Government
      Departments/Offices, State Agencies, Regulatory Authorities, environmental NGOs,
      representative groups and associations, and public and private enterprises.

      This document is a narrative overview of responses received as part of that
      consultation. It does not purport to be a comprehensive summary of those views, but
      rather it identifies common points and issues which have implications for transposition.



2.    Overview of Responses
      13 responses were received by the Department of the Environment, Heritage and
      Local Government in response to the consultation. The full list of respondents is
      outlined at Appendix B.

      In general, the responses welcomed the opportunity to comment.

      The JOC considered that the consultation period to provide comments on the draft RIA
      and Regulations was not sufficient given the technicalities of the Directive, it also
      commented on the differences between the RIA and the UK Government's Impact
      Assessment on the Aviation Directive.

      Unfortunately, in view of the tight time frame for transposing the Directive and to avoid
      breaching EU obligations, only a short period of time was afforded to stakeholders for
      consultation on the second phase of transposition.




Aviation and Emissions Trading Scheme Directive (RIA) (May 2010)                   page 31 of 36
      Other comments by respondents mainly focussed on the implications of the legal and
      operational issues associated with the Directive's transposition. Further details on
      these issues are provided below.



3.    Tourism and National Competitiveness
      Both the Dev Ag and the D/TCS emphasised the importance of aviation to the Irish
      tourism sector and Ireland's dependence on aviation as a means of transport. In their
      comments they made reference to Ireland's unique geographical location and the
      importance of competitive and convenient air access to the island of Ireland. They
      considered that the transposition of the Directive could be of critical significance for the
      Irish tourism industry and that Ireland could experience a relative competitiveness
      disadvantage from the aviation sector's inclusion in the EU ETS because of the price
      increases that may arise with respect to air transport. The impact for Irish exporters
      using air to transport high-value goods overseas in an already-challenging economic
      environment was also highlighted. They felt that the impact on Ireland's
      competitiveness due to our peripheral location was possibly negative and that this
      should be reflected in the RIA, as appropriate.



4.    Costs for Aircraft Operators and for Consumers
      Concern was expressed by the Dev Ag, the D/TCS and the EPA about the impositions
      on aircraft operators and the resulting administrative and financial burdens for them.
      This could result in a pass through of costs to air fares, impacting on price elasticity
      and possible competitiveness issues as referred to above.

      The Dev Ag considered that an assessment should be carried out to provide more
      details on the administrative costs for operators arising from transposition while the
      JOC requested that a more precise quantification be given of the projected increase in
      air fares for passengers.

      As outlined in the RIA, the Commission estimated that airlines would fully pass on any
      extra costs to consumers but the airline community have rejected this. The Dev Ag
      commented on the divergence of views between the Commission and the airline
      community, and they questioned the environmental benefits of the scheme.

      The RIA notes that aircraft operators are likely to be faced with costs arising from the
      implementation of the Directive and its requirements particularly in relation to
      complying with monitoring plans and reporting requirements. It identifies difficulties in
      ascertaining such costs for aircraft operators across the sector. The airline community
      consider that they will be forced to absorb a large portion of the additional costs arising
      from the implementation of the EU ETS and Aer Lingus in their response reiterated this
      view. Ryanair, in its response to the consultation, considered that it would be very
      difficult to quantify the cost to airlines at present.




Aviation and Emissions Trading Scheme Directive (RIA) (May 2010)                     page 32 of 36
      The JOC recommended that airlines should be required, on a statutory basis, to
      specify on their tickets the costs to passengers and exporters resulting from the
      Directive's implementation, as well as providing an automatic refund of the carbon cost
      to those passengers who failed to travel. It also recommended that airlines should be
      encouraged to develop a voluntary carbon offset scheme for passengers wishing to
      make an additional contribution towards the impact of their travel. However, the
      Directive advocates for a harmonised ETS to be implemented across the EU and it
      does not provide scope for the recommendations proposed by the JOC. As such, it
      would not be appropriate to provide on a statutory basis for such details as part of the
      transposition of this Directive.



5.    Auctioning, Administrative Costs and Annual Fees
      The EPA in their submission considered that using a portion of the proceeds from
      auctioning is the appropriate method of covering the costs of administering the scheme
      because it is recommended in the Directive and it is in keeping with previous
      Government policy. The JOC suggested that airlines should be contributing more
      towards meeting the additional costs incurred by the EPA in securing the full
      implementation of the Directive. On the other hand, the EPA considered that the
      charging of additional fees to cover the administrative cost of the scheme would put an
      additional cost burden on aircraft operators and this would also entail a high
      administrative and cost burden for the EPA given that many of the aircraft operators
      assigned to Ireland are very small with approx 80% of them emitting less than 1,000
      tonnes of CO2 per annum and many of them mainly based outside the State. The Dev
      Ag also indicated their concerns about the substantial imposition on airline operators of
      fees and the possible resulting pass-through of costs to air fares.

      As outlined in the RIA, the Directive does not make any provision for charging fees and
      it is considered that primary legislation would be necessary to introduce any provisions
      for the payment of substantial fees by aircraft operators i.e. an annual fee or fees
      associated with covering the costs of administering the scheme.

      The JOC sought clarity on the estimate of the level of auctioning revenue that each of
      the main airlines in Ireland would have to pay to the Exchequer in the period to 2020.
      The RIA notes that Ireland's share of aviation allowances to be auctioned based on
      our proportionate share of the total attributed aviation emissions is estimated to be
      1.53% of the 30 million allowances to be auctioned in 2012. It is estimated that the
      share of allowances to accrue to Ireland is about 450,000. The actual revenue arising
      will vary each year in accordance with the price of aviation allowances at the time of
      auctioning. It is not possible to estimate the portion of this revenue that will have
      resulted from sales/purchases of allowances by Irish aircraft operators, as this will
      depend on the level of their emissions in the period and the allowances issued to
      them.




Aviation and Emissions Trading Scheme Directive (RIA) (May 2010)                   page 33 of 36
6.    Data Collection
      The CSO indicated their interest in the data arising from monitoring plans, reporting of
      emissions and tonne-kilometre data, and the validation/verification of this data. It
      recommended that the EPA rather than aircraft operators should aggregate the data
      and apply the formulae so as to reduce the burden on aircraft operators and facilitate
      greater consistency of approach. It also made suggestions with respect to how the
      EPA should record the data and it sought the inclusion of other specific data.

      It is noted that the monitoring and reporting obligations for aircraft operators, the
      verifiers of the data as well as the obligations on the EPA in submitting applications
      and reporting to the Commission are detailed in the Aviation Directive, its Annexes IV
      and V and in the Commission's Monitoring and Reporting Guidelines. Public access to
      the data is provided for in the Directive having regard to specific confidentiality
      requirements detailed in the aforementioned Guidelines. It would not be appropriate to
      amend the Directive's specific provisions or those contained in the Guidelines and as
      such transposition has been in accordance with the Directive's provisions.



7.    Review Mechanism
      As outlined in the RIA, the Directive provides that the Commission should review the
      functioning of the Directive by 1 December 2014. Both the Dev Ag and the D/TCS
      welcomed this and requested that the National Tourism Development Authority be
      added to the list of stakeholders involved in the review being undertaken in Ireland as
      mentioned in the RIA. They considered that any evidence of a negative impact of the
      Directive on Ireland’s competitiveness as well as other industry concerns should be
      passed on, and factored in, to the Commission's review. A statutory basis for this
      review was also sought. However, as the Directive does not place any obligations on
      Member States, it would not be appropriate to provide a statutory basis for the review
      mechanism.



8.    Working Group
      As outlined in the RIA, the Department established a working group made up of the
      key stakeholders to assist in the transposition process. That group comprises
      representatives of: the Department of the Environment, Heritage and Local
      Government; the Department of Transport; the Environmental Protection Agency; the
      Irish Aviation Authority; the two main airline operators in Ireland, Aer Lingus and
      Ryanair; as well as the Federation of Aerospace Enterprises in Ireland (FAEI), and
      RBS Aviation Capital. The JOC acknowledged the representation of 2 airlines on the
      Group and considered that the views of other airlines in particular Aer Arann and City
      Jet should also be taken into account.

      In the consultation on both the first phase and second phase of transposition, all
      aircraft operators assigned to Ireland were consulted on the draft Regulations. In
      addition, the Department participated and presented at the EPA's Workshop for aircraft


Aviation and Emissions Trading Scheme Directive (RIA) (May 2010)                  page 34 of 36
      operators on implementation of the Aviation Directive on 30 June 2009. The views of
      those aircraft operators who submitted views on the consultation have been taken into
      account.

      The JOC also sought the expansion of the Working Group to cover the implementation
      of the Directive and its establishment on a statutory footing. In view of the
      arrangements for the review mechanism referred to above, the potential for further
      added value from the establishment, at this stage of such a Group is not considered
      viable.



9.    Conclusion
      The draft RIA circulated in April 2010 for stakeholder consultation has been updated
      and expanded to reflect the views submitted. The draft Regulations have also been
      updated to incorporate the amendments, as appropriate, arising from the consultation
      process. The final version of the RIA will be published on the Department's website
      along with the Regulations signed by the Minister for the Environment, Heritage and
      Local Government in due course.

      As outlined in the RIA, the amalgamation and consolidation of the Regulations
      governing the aviation sector and the other Regulations governing the other sectors
      within the EU ETS will be considered as appropriate as part of the transposition of the
      revised ETS Directive, 2009/29/EC. The second phase of that transposition is due to
      be completed by end December 2012.




      Climate Change Policy Section
      May 2010




Aviation and Emissions Trading Scheme Directive (RIA) (May 2010)                 page 35 of 36
                                              Appendix B

                                        List of Respondents



The following are the list of those who submitted comments in response to Phase 2 of the
consultation on the legislation to transpose the Aviation Directive (2008/101/EC)

Acronyms        Respondents
                Aer Lingus
CSO             Central Statistics Office
D/TCS           Department of Tourism, Culture and Sport
Dev Ag          Development Agencies (joint response from Forfás and Enterprise Ireland)
EPA             Environmental Protection Agency
JOC             Joint Oireachtas Committee on Climate Change and Energy Security
                Ryanair

The Department of Defence, the Department of Justice Equality and Law Reform, the
Department of Transport, IBEC, RBS Aviation Capital, and the Revenue Commissioners
responded to the consultation but noted that they had no observations to offer.

A copy of individual responses are available on request from: Climate Change Policy
Section, Department of the Environment, Heritage and Local Government, Custom House,
Dublin 1. (email: climatechangeinfo@environ.ie)




Aviation and Emissions Trading Scheme Directive (RIA) (May 2010)                 page 36 of 36

								
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