To recall, last November the Council and the European Parliament adopted a Directive amending Directive 2003/87/EC so as to include aviation activities in EU Emissions Trading Scheme. The Directive 2008/101/EC came into force last February.

The directive will apply to all airlines flying in and out of the EU, including airlines from third countries. Hence, all flights leaving and landing in the EU will be included in the EU Emissions Trading Scheme from 2012. The reduction of emissions from aviation is to be calculated on the basis of airlines' average annual emissions from 2004-2006.

In 2012 the aviation allowances will be capped at 97% of average CO2 emitted in 2004-2006 which will be decreased to 95% from 2013. Aircraft operators which exceed their CO2 allowances will have to buy extra permits from other companies. Moreover, 85 per cent of the emissions permits will be allocated for free thus 15 per cent of the airlines emission permits will be auctioned.

Under the Directive, the administering Member State must ensure that each aircraft operator presents to its competent authority a monitoring plan laying down measures to monitor and report emissions and that such plans are approved by the competent authority. Aircraft operators are, therefore, obliged, under the directive, to apply for an emissions plan to their regulator. Although there is no mandatory requirement to apply for a benchmarking plan, aircraft operators have to apply for it in order to receive a free allocation of allowances.

The Commission was supposed to announce, in August 2009, the average of the annual aviation emissions in the years 2004, 2005 and 2006, based on “best available data” but such decision was postponed. According to the European Voice, the Association of European Airlines (AEA) said that the “Commission's methodology is flawed and will leave airlines facing more demanding carbon cuts than they should do.”

In the meantime, the European Commission has started implementing the directive adopting a Regulation on the list of aircraft operators which performed an aviation activity listed in Annex I to Directive 2003/87/EC on or after 1 January 2006 specifying the administering Member State for each aircraft operator. The Commission has identified, in this regulation, the aircraft operators which are included within the scope of the new Directive and specifies which Member State is responsible for processing their ETS submissions The list of aircraft operators to be regulated by each Member State was recently published in the Official Journal of the European Union and will be updated every year. It contains around 4,000 airlines, including British Airways, Easyjet, Ryanair, Lufthansa, Alitalia, Quantas, US Airways. All these airlines must reduce their CO2 emissions from 2012 or face penalties which might culminate in a European airport ban.

The Directive will be transposed into UK law in two parts. The Aviation Greenhouse Gas Emissions Trading Scheme Regulations 2009 transpose in part the Directive 2008/101/EC and will enter into force on 17 September 2009. The Government has until 2 February 2010 to transpose the remainder of the Directive in a further statutory instrument.

The present Regulations will apply to aircraft operators allocated by the European Commission, in the abovementioned list, for regulation by the UK. According to that list around 890 aircraft operators will be regulated by the UK.

The present Regulations set up a procedure to allow UK operators to apply for a free allocation of allowances. Aircraft operators will have until 31 December 2009 to apply for a benchmarking plan to their UK Regulator. According to the Regulations the application fee will be £830. Moreover, the Regulations, as required by the Directive, impose obligations on aircraft operators to apply for an emissions plan and to monitor and report emissions to their regulator. Aircraft operators are therefore required to present an application to the regulator for an emissions plan, describing the method that they intend to follow to monitor the emissions from their aviation activity. The application fee will be £750. Aircraft operators must monitor emissions, according to a plan agreed by the regulator, in each year from January 2010, as well as to submit a verified report to the regulator of the monitored emissions. In order to do that, aircraft operators will have to put in place monitoring systems which, obliviously, entail further costs. Moreover, operators would have to bear the verification of emissions costs.

Aircraft operators included on the EU ETS will, therefore, incur on additional costs in order to comply with the Directive’s requirements.

Last August, the Government publish an Impact Assessment of First Stage Transposition of EU Legislation to Include Aviation in the European Union Emissions Trading System (EU ETS). It is important to bear in mind that this Impact Assessment solely covers those elements of Directive 2008/101/EC transposed into UK law by the Aviation Greenhouse Gas Emissions Trading Scheme Regulations 2009. Hence, further costs will come up once the Directive is fully transposed.

According to the Government's Impact Assessment the total fees that aircraft operators regulated by the UK will have to pay to regulatory bodies, on emissions and benchmarking plans, are estimated at around £0.7-1.4 million. The total additional compliance costs for the aircraft operators might be around £6.2 to £10.7 million in the first year and around £2.7 to £6.2 million in ongoing annual operational costs in the following years. However, this is an indicative estimate. The administrative and compliance costs are very likely to be higher. Moreover, the total set up costs for the Government and regulatory bodies are estimated to be around £1.3 million over the three year period (2009-2012).

Member States are required to ensure that aircraft operators comply with the requirements of this Directive. Thus, they must introduce penalties applicable to infringements of this Directive which “must be effective, proportionate and dissuasive.” Hence, aircraft operators regulated by the UK which do not comply with the Regulations 2009 obligations will be liable to a civil penalty. The amount of the financial penalty varies depending on which regulation the operator has failed to comply with. For instances, if the operator fails to apply for an emissions plan within 8 weeks of the entered into force of the Regulations, the civil penalty will be £500 for a failure before 1 January 2012 and £50 for each day that the application is provided late following the service of a notice. However, if it is after 1 January 2012, the financial penalty will be £1500 and £150 for every day it is late. The civil penalties will be the same if the operator fails to monitor aviation emissions from 1 January 2010. The aircraft operators which fail to report verified aviation emissions by 31 March 2011, and every year thereafter, will face a civil penalty of £1,250 for a failure before 1 January 2012 and £125 for every day they are late. If the failure is after 1 January 2012, the civil penalty will be £3,750 and £375 for every day they are late.

This directive will have terrible consequences for the aviation industry which is likely to pass their costs to the consumer therefore the price of ticket flights would raise. The European Low Fares Airline Association (ELFAA) Secretary General, John Hanlon, has said "There is a huge risk that the legislation will impose unnecessary costs that do nothing to achieve its environmental objectives." According to ELFAA it would be harder for airlines to invest in clean technologies as their will not have the financial means.