The Emissions Trading Scheme

1. Explain briefly what the EU carbon charge on airlines is about. In your answer, include the following information: why was it set up, what is its historical background, when will it be enforced, who are the parties supporting it, who are the parties against it, and why they are against it. In addition, describe the status quo. (200-300 words)

The Emissions Trading Scheme (ETS) is a cap-and-trade scheme by the European Union to control carbon emissions under the Kyoto Protocol. It is a measure to reduce greenhouse gas emissions (GHG) at the least possible cost, through emissions trading, thereby reducing global warming.

The Kyoto Protocol, established in 2005 by the United Nations, states that if emissions exceed a limit, participating countries can trade carbon credits to balance out emission volumes.

The ETS rolled out Phase 1 in 2005 with the Protocol. 15 countries participated, trading 362 million tonnes of carbon worth € 7.2 billion. Industries covered include manufacturing, power generation, and bricks.

Phase 2, in 2008, added aviation to the ETS, disturbing non-EU nations, as they resented their carriers being taxed in non-EU airspace. Airlines were to open accounts by January 2012, and allocated free allowances by February. They were to submit carbon emission reports, verified by accredited 3rd party consultants, by March 31st, 2012.

The ETS is backed by EU members, who insist that including aviation, which accounts for 3% of GHG's, is required to reach the target of reducing emissions by 20% (from 1990 levels) by 2020. At the Moscow Conference in January 2012, 29 non-EU countries, including USA, Russia and BRIC, have signed a Joint Declaration opposing the ETS tax.

This "Coalition of the Unwilling" agrees that, while it is fair for the UN to impose legislation that benefits all, it must consider the pressures of populous non-EU developing countries that cannot afford trade as per their volumes. Aircraft manufacturers oppose the scheme, which increases their production costs, and decrease their sales volumes.

Presently, the non-EU members are boycotting the scheme, urging the International Civil Aviation Organization to introduce a more global plan that can level the playing field, but EU is adamant on the tax.

Sources:

www.economictimes.indiatimes.com

www.ec.europa.eu

www.livemint.com

www.reuters.com

www.greenaironline.com

www.neurope.eu 

2. Describe the perspective (Ex: USA government) that your group has been assigned. State the relevant facts. Based on your own analysis, what do you think is the economic issue involved here, if any. Explain what economic concepts or tools you used and how you