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CO2 Emissions
A focus on offsets and cap & trade.

Last month- I shed some light on carbon dioxide (CO2) emissions and the effect that taxing or buying/selling emissions may have on business aviation. This month I will discuss the potential impact on our industry of these emission limits.

CO2 emissions from business and general aviation in the US were estimated to be 18.2 million metric tons in 2008- based on FAA estimates of fuel consumed by aviation. This is a large number- but it represents only about 0.04% of all man-made CO2 emissions- according to the Report of the UN Intergovernmental Panel on Climate Change (IPCC).

CO2 emissions are claimed by many scientists (but not all) to be the main contributor to global warming. Many who believe the CO2 emissions/global warming linkage also believe that those who generate this CO2 should pay for its mitigation. One way to accomplish this mitigation is through the purchase of CO2 offset credits which are then used to finance various projects that increase renewable energy resources- increase energy efficiency- or absorb/sequester CO2.

These offsets are available from numerous organizations. A Google search for ‘CO2 Offsets’ will bring up numerous vendors- directories and more. These show the cost of carbon offsets range from as low as $3 to a high of about $100 per metric ton of CO2- with the vast majority in the $15 to $25 per ton range. The average is about $20 per ton- which equates to about $0.20 per gallon.

Buying and selling of CO2 offsets has become big business. According to Wikipedia the sale of carbon offsets in the mandatory market (i.e. where the law requires carbon offsets) reached about $5.5 billion in 2006 while the sale of voluntary offsets equaled just under $100 million.

Many potential buyers of these offsets are concerned about the legitimacy of the offset projects. Many projects are located in remote areas of various countries and may be used to finance new technology or research. In general- the projects' benefits are hard to verify by the average person. In addition- the unscrupulous could easily sell the same carbon offset multiple times.

To address these concerns- the Kyoto Protocol established the basic standards for verification and certification. The protocol established the Clean Development Mechanism (CDM)- which validates and measures projects to ensure that they produce real- measurable benefits and that an offset is only sold once. There are at least half a dozen organizations that provide this verification and certification and the vendors of CO2 offsets normally list which certifications they have obtained for their projects.

Another way to deal with CO2 emissions is through mandatory ‘cap and trade’ emission limits. These are rapidly becoming reality in the western world. The European Union has already adopted legislation that has CO2 caps and requires carbon offset mitigation and payments. Aviation in the EU will be affected starting January 1- 2012. Australia was intending to implement cap and trade legislation this year but had to postpone this until 2011 because the needed votes in parliament were not there.

Last- but hardly least- the US Congress is considering cap and trade legislation with a bill being considered this year. With any cap and trade legislation- the amount of total CO2 emissions for the country is capped by law. The producers of CO2 are issued emission permits up to the established cap for their industry. Then if they exceed the cap- they must acquire additional emission permits to cover the excess between what they actually emit and the cap. If a producer emits less CO2 than the cap they can sell the emission permits they don't need through one of the marketplaces (such as the Chicago Climate Exchange (CCX) or the European Climate Exchange) where these emission permits can be bought or sold.

Depending on how the legislation is written- part or all of the emission offsets needed to meet the caps can also be purchased from the existing CO2 offset vendors. The goal of these cap and trade laws is to steadily reduce CO2 emissions. This is done by reducing the cap each year. The EU cap and trade legislation - the EU Emissions Trading Scheme (EU-ETS) - will apply to all aircraft that use EU airspace- including non-EU aircraft. The probable cost of the emission offsets will more than likely be reasonable- at least in the early years.

However- analysis by the European Business Aviation Association shows the paperwork burden has the potential to be excessive- particularly for a small operator. For example- although the effective date of the ETS is 2012- the EU-ETS administrators sent letters in April to all non-EU operators that have recently used EU airspace with a request to inform the EU-ETS administrators no later August 31- 2009 how they intend to comply with the ETS requirements!

The US legislative process is just starting. In mid-May- a 900+ page bill (HR 2454) was released for consideration and debate this summer. The goal is to pass it this year. The proposed legislation has a potential profound impact on business and general aviation because of the proposed future caps. The overall goal is to reduce CO2 emissions in 2050 to 17% of what they were in 2005. The intermediate goals are as follows:

* 2012 = 97% of 2005 CO2 levels
* 2020 = 80%
* 2030 = 58%
* 2050 = 17% of 2005 CO2 levels.

To get a sense of the impact of these goals- Conklin & de Decker calculated the projected growth of the US fleet of business jets using the newly released FAA forecast through 2025 as a base and projected that to 2050. Then we applied to that the average of the projected fuel usage using the FAA forecast (1% improvement in fuel efficiency per year) and the 2.3% improvement in fuel efficiency we discussed in last month's article.

Next we computed the resulting CO2 emissions without the constraints of the cap and trade goals. Then we calculated the allowable CO2 emissions as shown in the proposed legislation. The result shows the impact of the proposed legislation that will be felt as early as 2012. By 2020 the permitted CO2 emissions are less than half of the projected unconstrained CO2 emission and by 2050 they are 6% of the unconstrained emissions.

According to the champions for this legislation- bio-fuels and CO2 offset credits will solve this problem - but at what price to general and business aviation? The business and general aviation trade associations in the US (NBAA- NATA- HAI- GAMA- etc.) are gearing up for this battle. The EBAA is already deeply involved. Given the stakes- all of us need to get involved by supporting our trade associations and contacting our Representatives and Senators to make sure that whatever legislation comes out of this is something our industry can live with.

Bill de Decker is cofounder & president of Conklin & de Decker. The mission of Conklin & de Decker is to furnish the general aviation industry with objective and impartial information in the form of professionally developed and supported products and services- enabling its clients to make more informed decisions when dealing with the purchase and operation of aircraft. With over 1-800 clients in 90 countries around the world- Conklin & de Decker combines aviation experience with proven business practices.

More information from www.conklindd.com; Tel: +1 508 255 5975

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