The recent collapse of carbon credit prices within the European Union emission trading scheme (ETS) has raised doubts over its extension to aviation.

Following the European Com­mission’s proposal in September 2005 to include aviation in its ETS, a working group comprising experts from member states and key stakeholder organisations was set up to assess issues. It held its fourth and final meeting in April.

Under the ETS, polluting companies are given annual allowances in terms of tonnes of carbon they can release into the environment. Any unused allowances become carbon credits that other polluters can buy to offset their emissions.

Existing carbon contracts started to make losses on 25 April, when the Netherlands announced a 2005 surplus of 6.1 million allowances.

France, the Czech Republic, Estonia, and the Belgian region of Wallonia – together receiving about 25% of the total number of emissions allowances allocated for last year – all followed, reporting similar excess allowances for 2005, sending prices crashing.

Data on Europe’s biggest emitters are not known. Germany, Italy, Poland and the UK have remained silent, waiting for the 15 May publication by the EC of audited emissions data for each individual installation covered by the ETS.

A trading industry expert says: “This has led some market participants to ask whether too many emissions allowances were issued for the first period, while others see the surplus as proof that the EU ETS market is encouraging countries to cut their emissions.”

The Green Alliance’s Jeff Gazzard is not impressed: “Tumbling prices for CO2 just show the extreme volatility and therefore highly uncertain environmental performance that a badly managed ETS can lead to.

“Year-on-year reductions in national allocations, rising carbon prices and illiquid markets are vital for reducing greenhouse gas emissions, but we doubt that this kind of market will ever succeed in achieving these goals. Including aviation in the scheme might never happen given aviation’s political clout – the sheer uncertainty this market is showing will ring alarm bells in airline boardrooms everywhere and set off a new round of anti-ETS lobbying,” says Gazzard.

The working group results have been sent to the EC’s general review of the scheme, which will report in June whether the ETS should extend to other sectors.

Source: Flight International