Fri 26 Nov 2010 – With just four months left before the 31 March 2011 deadline for aircraft operators entering Europe’s Emissions Trading Scheme (EU ETS) to submit verified reports, the signs are that although most of the larger airlines are well-placed many smaller carriers remain unprepared and unsure of the requirements. Lack of clarity and commonality on certain compliance issues across the 27 EU Member States are also proving a headache for many. Operators are required to have their 2010 emissions and tonne-kilometre data audited by accredited verifiers before submission to their relevant Competent Authority and verifiers are gearing up for a busy period from the start of the New Year. A failure to comply with the deadline could see operators losing entitlement to valuable free emissions allowances.
According to Shaun Bainbridge, Director of verifier CICS, airline operators in general have been slower than expected to sign up with a verifier, perhaps as a result of a perception that the lobbying by industry associations and the legal challenge by US airlines against their inclusion in the Aviation EU ETS might have an effect on the timescales for the scheme’s implementation. However, faced with the impending deadline, such uncertainty has by necessity been put aside, he says.
“We are now seeing a flood of operators signing up with us and it is the ideal time to do this as it gives us the remainder of the year to ensure that operators are complying with the scheme and then during the first quarter of next year to verify the data and produce our report,” he says.
Bainbridge claims CICS was the first body accredited to provide verification for the wider EU ETS, now having verified $8 billion worth of CO2 to date. This week, the company announced it had been selected by Royal Brunei Airlines to carry out the carrier’s verification audit.
Guido Harling of German verifier ETSVerification agrees that optimism in some quarters that the scheme will be delayed has melted away. “The majority of airlines are trying to come to terms with the harsh realities of producing verifiable emissions and payload data,” he says. “However, there is growing concern from within the airline community that the remaining time left for verification will not be enough if major deficiencies in their data are discovered.”
The issue of choosing a suitable verifier, who must be accredited by the relevant body in each EU Member State to perform aviation-specific audits, has also proved to be a lengthy process for many operators.
According to Harling, operators are looking for an in-depth knowledge of aviation practices and pre-verification proficiency. “A high number of unskilled verifiers from the stationary sector are currently roaming the streets but they pose a significant risk because of their lack of aviation expertise,” he says. “Most airlines are looking for quality and a long-term commitment from a verification body. They want to avoid seeing a new face every year for the audit.”
Madlen King, Global Head of Climate Change and Sustainability at verifier Lloyds Register Quality Assurance (LRQA), has seen a recent increase in operators engaging with verifiers, largely driven, she believes, by recognition from regulators across the EU of the accreditation status of verifiers for the aviation sector.
“However, the level of engagement is not yet enough to ensure that the approximately 4,000 operators obligated under the scheme will be verified prior to the March 31 deadline,” she adds. “Verification resources are finite, so the more risk-averse operators have already booked time with their verifiers.”
Clare Robertson of SGS says urging operators to begin the verification process presents a major challenge.
“Although we’re beginning to get more requests for proposal, there continues to be reluctance in making swift decisions in selecting a verifier, hence delays in commencing the process,” she says. “Those that have signed up are not keen to start until December or January.”
On the other hand, Jeroen Kruijd of global accountancy firm PricewaterhouseCoopers (PwC) – who claims to have already contracted with 13 of the top 20 major international airlines and over half of the top 50 – says the leading airlines have started the process early, some even last year.
“All of them have put a great deal of effort in ensuring compliance,” he says. “Some of the smaller airlines though that didn’t start until mid-2010 seem to have underestimated the task.”
Kruijd says that airlines are still having difficulties with the requirements of some Competent Authorities. “Airlines seem to have a hard time in contacting and understanding those CAs who have not yet set their requirements, who are sometimes not able to deal with change requests to a monitoring plan or are not yet clear as to what is exactly to be reported.”
He said some EU Member States are still undecided on the accreditation requirements, or impose additional requirements and additional supervision, with various standards being used by the accreditation bodies.
A case in point is over whether those operators designated as small emitters will require a mandatory site visit, wherever they are in the world, to have their reports verified, as will be the case for the larger emitters.
“The lack of specific guidance from the Competent Authorities has been a significant obstacle for both operators and verification bodies,” says Shaun Bainbridge of CICS. “For example, under the existing EU ETS a site visit is mandatory unless it can be waived by the Authority following a risk assessment by the verifier.
“Under aviation, small emitters have firstly assumed from EU ETS rules that site visits are mandatory; they were then informed they were not needed and then finally they were told that they “may” be needed. This further complicates the verification planning process and associated costs.”
Julien Dufour of VerifAvia highlights the different positions across Europe:
- France: A site visit is not mandatory, provided the operator submits to the verifier a paper or electronic copy of any extract required data source used in the reports, and any other information requested to the satisfaction of the verifier.
- UK: A site visit for Aviation EU ETS small emitters is not a mandatory requirement, but may be required if appropriate.
- Ireland: Where the operator is eligible to use the simplified procedure for monitoring and reporting and has opted to use a Commission-approved tool, if the verifier in their strategic analysis and risk analysis has determined that a site visit is not necessary then this will be acceptable to the Competent Authority.
- Germany: The German DEHSt considers that an on-site visit is required.
- The Netherlands: There is no policy or criteria for waiving site visits for verification of emissions reports.
“Our view is that a site visit for small emitters is not required provided that it is agreed by the Competent Authority and the operator can provide all required data and document remotely,” says Dufour, whose organization is approved to handle Aviation EU ETS verifications in 20 European countries following its recently received ISO 14065 accreditation from UKAS, the UK’s accreditation body. To help in what could be a costly process, VerifAvia claims to offer small emitters the lowest available rates for verification.
However, Clare Robertson of SGS points out that whether a site visit is carried out or not, the time required to understand systems and procedures is likely to be the same.
“Where the Small emitter tool or other IT-based reporting systems are used, verifiers still need to verify areas of compliance and data inputs to systems and data manipulation,” she says. “From experience, where travel cost and time is not a significant factor, we believe that the verification process is more efficient if carried out on site. Therefore small emitter operators are urged not to assume site visit waivers until formal guidance is published by the EU. And where regulators endorse optional site visits, SGS will be happy to offer the option of remote verification.”
According to VerifAvia’s Dufour, the Compliance Forum – a task force of stakeholders, including policy makers and Competent Authorities, set up to implement the Aviation EU ETS directive – is preparing a verification guidance document that is hoped will sort out the anomalies.
PwC’s Jeroen Kruijd, who is a member of the Compliance Forum, says the document was due to be published in November but fears this will now be later, although there will then be an issue as to whether Member States will allow it to be used as a reference, he says.
Bainbridge of CICS points out that most reports will already be in the process of being finalized by the time the guidance is published. “CICS has the capacity and geographical spread to meet the requirements for both site visits and remote data verification but this lack of clear guidance creates confusion and may create a risk of not meeting deadlines for some operators.”
Having been pre-occupied so far with regulatory and compliance issues, airlines must now start to assess the business impact of the Aviation EU ETS as well as form carbon strategies, advises Kruijd.
Two seminars have taken place in Germany recently to highlight the importance for airlines of setting emissions trading strategies.
TÜV NORD Competence Center Aviation and Airpas Aviation, which advises and supplies airlines with software solutions for the recording and monitoring of emissions and tonne-kilometre data, held an event in Berlin titled ‘Identifying and benefiting from competitive advantages in emissions trading’, attended by over 40 representatives from national and international airlines.
“Aircraft operators who are able to recognize the strategic aspects of emissions trading today can increase their profit margins tomorrow, or can offer lower-cost tickets than their competitors,” says Georg Naumann, Project Manager for EU ETS at TÜV NORD. “With our workshop, we were able to support the process of preparation that is currently underway in our sector – and we also managed to shine a spotlight on some new aspects.
“Alongside efficient monitoring of emissions and identification of suitable strategies for reducing the risks associated with prices on the emissions trading market, we also included new approaches to reducing fuel consumption and potential ‘green’ marketing strategies.”
Last month, Eurex, the European derivatives exchange, held a conference in Frankfurt, ‘Emissions Trading and the Aviation Sector’ to discuss risk management and carbon trading for airlines.
TÜV NORD - Aviation
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