Expanding the EU ETS upstream

Emissions from aviation are not included in the Kyoto Protocol. Therefore reductions in aviation emissions cannot be taken as a credit to a country’s Kyoto Protocol compliance account. This means that airlines participating in the EU ETS will have to be allocated a new instrument, the Aviation European Union Allowance (AEUA). Airlines will be able to comply with their obligations under the EU ETS by surrendering AEUAs or EUAs, but other industries already in the EU ETS will not be able to use AEUAs for compliance.

This tweak allows emissions not covered by Kyoto to be incorporated in the EUETS.

A further expansion of the scheme is the inclusion of emissions outside the territory of the European Union, since emissions from all flights which land or take off at an EU aerodrome are included, even if the other end of the flight it outside the EU.

A similar approach could be used to internalize some of the cost of horrible things like oil from tar sands. According to the FT this oil results in greenhouse gas emissions of three to five times that of conventional crude because of the extraction processing and damage to important natural sequesters of carbon. We might also consider the additional emissions associated with liquefying LNG.

Importers and processors of fossil fuels would need to keep track of the blend of the fuels they trade, keeping a running total of the associated emissions. This might involve some complexity of calculations, but we are not talking about a system more complex or burdensome than, say, the UK tax system, the Hungarian language, or the analysis of seismographic information. Given that we have computers, it should not be too tricky to do this.

Now that oil is once again cheap, it is the perfect time to get users used to paying for some of the externalities associated with oil exploitation as well as its use.

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