Environment briefing. Michael Gill, Director Aviation Environment. 12 December 2018

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1 Environment briefing Michael Gill, Director Aviation Environment 12 December

2 Key developments CORSIA implementation Sustainable aviation fuel 2 key areas to cover off: 1. CORSIA implementation 2. SAF 2

3 CORSIA Type of measure Carbon pricing instrument Environmental impact Binding defined target & benefits measurable Scope Global (emissions from international aviation) Transparency/traceability Financing of GHG mitigation projects. List of projects used for CORSIA will be published Side effects Many projects bring social, environmental or economic benefits relevant to sustainable development and support local communities Green taxes Type of measure Carbon pricing instrument Environmental impact No defined target & benefits not measurable Scope National or subnational Transparency/traceability No traceability of revenues; no guarantee they are used for environmental purposes Side effects" Negative impacts on local economies through reduction in trade and tourism. Makes air transport less affordable As Alexandre said, CORSIA is an essential component of our strategy for delivering carbon-neutral growth. Before I explain more about how CORSIA is progressing, I d like to briefly state why CORSIA is the right measure. A market-based measure was always envisaged as part of our four-pillar strategy for emissions. A market-based measure has numerous advantages over other fiscal measures, particularly taxes. CORSIA and Green taxes are both carbon pricing instruments: they give an economic signal and give airlines the choice between reducing their emissions or paying for them. There are however important differences between the two measures: - CORSIA has a defined target of carbon neutral growth, and the CO2 mitigation achieved through the scheme will be measurable. In contrast, it is not possible to set a defined target under carbon tax and it is very hard to measure the reductions that are achieved through its implementation. A carbon tax merely requires companies to pay for their emissions, without any guarantees that the payment will lead to any emissions reductions. - Scope: CORSIA is a global scheme. As a result, CORSIA will overall result in a greater CO2 mitigation in international aviation than any domestic policy for aviation can achieve. - Transparency and traceability: we will know exactly where the money from CORSIA goes. Airlines will need to report to their authorities in which projects they have invested and a list of projects used for CORSIA will be published by ICAO. It is important to note that only projects which are certified under a robust set of environmental criteria will be eligible. In contrast, no ones really knows where the money collected through taxes ends up. 3

4 - The side effects are also very different. There are many ways to achieve CO2 reductions that can be used as offsets, many of which bring other social, environmental or economic benefits relevant to sustainable development. Such offsets can be sourced from various types of project activities, including, for example, wind energy, clean cook stoves, methane capture, forestry and other emissions-reducing or avoidance projects. In contrast, a tax negatively impacts local economies through a reduction in trade and tourism. Passengers are also negatively impacted as air transport becomes more expensive. 3

5 CORSIA at key implementation stage Carbon-neutral growth is an effort by the industry to acknowledge that many countries want to continue their aviation development to ensure trade and tourism into the future but that we need to balance that with climate action. The concept allows us to keep feeding economic activity and also cap our emissions. This goal will be addressed not only through the technological, operational and infrastructural advancements we have already discussed, but most importantly through the development of a global market-based measure at the UN s International Civil Aviation Organization (ICAO), which was agreed at the 2016 ICAO Assembly. We are now firmly into the implementation phase of the CORSIA scheme. 4

6 Adoption of CORSIA standards ICAO Council adopted CORSIA SARPs on 27 June as Annex 16, volume IV SARPs apply in all ICAO member states from 1 January 2019 In June 2018, the ICAO Council adopted the technical standards for the monitoring, reporting and verification of aircraft emissions under CORSIA. Those standards will be applicable in all ICAO member states from 1 January In accordance with the Chicago Convention, all ICAO member states will be required to comply with the SARPs and bring their own regulations into full compliance with the SARPs. Nevertheless, states which find it impracticable to comply in all respects with the SARPs may implement different requirements, provided they notify ICAO of such differences. IATA will continue to advocate for the full implementation of the CORSIA SARPs and for the withdrawal of any other market-based measures applicable to international aviation. Formally, the First Edition of Annex 16, Volume IV 5

7 76 volunteering states Since June, 4 ICAO member states have announced their decision to volunteer in CORSIA: Equatorial Guinea, Dominican Republic, Guyana and Cameroon. Many States are ready and we should congratulate States like Canada, India, Kuwait, Mexico, Namibia, Turkey or Vietnam - to mention just a few - which have already passed legislation or published draft legislation. We also know that many other States including South Africa and China are close to finalizing their implementing regulations. 6

8 NOT FOR DISTRIBUTION Global vs regional scope 400,000,000 CO 2 mitigated annually under CORSIA and EU ETS (intra-eea) 350,000, ,000, ,000, ,000, ,000,000 EU ETS CORSIA 100,000,000 50,000,000 0 The success of a CO2 reduction measure should not be assessed on the basis of the compliance cost for operators, but on the basis of the CO2 mitigation achieved. CORSIA is a global scheme. As a result, CORSIA will overall result in a greater CO2 mitigation in international aviation than any domestic policy for aviation can achieve. With today s 76 volunteering states (as of 17 October 2018), aviation will have to mitigate an annual average of 164 million tonnes of CO2 under CORSIA. Annual offsetting requirements are forecast to increase from around 18 million tonnes in 2021 to 336 million tonnes by In contrast, the emissions reductions achieved through an intra-eea EU ETS range from 15.9 million tonnes in 2013, to a forecast of 70 million tonnes by 2035 (assuming a future growth in intra-eea emissions of 2.2%).

9 While all flights are subject to MRV requirements, only flights between volunteering states will be subject to offsetting requirements between 2021 and Therefore, the objective of all stakeholders should be to achieve the greatest coverage in CORSIA s offsetting requirements. If all ICAO member states volunteer for CORSIA by 2021, over 3.2 billion tonnes of CO2 an annual average of million could be mitigated through the scheme. 7

10 The global state of play Copyright 2018 IATA Current state of play: 5 pathways 6 billion litres in forward purchase agreements 145,000 flights since 5 airports Still a drop in the bucket. What are some of the major barriers to increased deployment? Most policies favour the ground transport sector, especially ethanol and renewable diesel Hence more economic to produce for ground transport Higher production cost of HEFA SAF relative to Renewable Diesel Aviation seeks a global policy solution to prevent competitive distortion Limited experience for equity investors and debt providers to understand business case risk Policy momentum is improving in almost every part of the world 8

11 Waste streams as a feedstock are being increasing assessed and secured The demand side (Airlines) need to think strategically about how to be positioned for access to larger volumes of sustainable fuel during the 2020s decade 8

12 The SAF leadership group Offtake agreements Substantial projects with benefit to the industry Copyright 2017 IATA A number of airlines have taken a strong lead in this area and put significant resources into their projects. We should pay tribute to them for driving ahead with these important investments and commitments. We call these the leading edge of the new energy revolution and commend all their work to drive the industry forward. Sustainable aviation fuels are going to be the deciding factor in allowing aviation to continue our sustainable growth journey in the long term. ICAO analysis shows that we could see 2% of all aviation fuel coming from sustainable sources by 2025 the available feedstock is there it just needs to be harnessed. That will likely be around seven billion litres of fuel. We believe that at around 2% of the global fuel supply, a tipping point will be 9

13 reached where the flow of SAF can start sustaining itself economically 9

14 Thank you Michael Gill