Tankering strategies for evading emissions trading in aviation

Which actors in the aviation sector ought to be obliged to participate in emissions trading? The European Commission opted for the aircraft operator in their proposal for a Directive. A major drawback is that non-EU aircraft operators might legally challenge their inclusion in this scheme and, if the challenge was successful, discrimination between EU and non- EU operators would undermine the scheme. An alternative would be to place an obligation on fuel suppliers to prove possession of allowances, thus avoiding discrimination. However, emissions trading can be evaded to some extent by increased refuelling beyond EU boundaries (tankering). Typical city pairs were used to analyse the conditions under which such tankering strategies are economically attractive. The analysis shows that the attractiveness of tankering depends substantially on the relationship between fuel prices and allowance prices. If the price relation as of March 2006 is taken as a basis, tankering would be attractive within a radius of up to 4,000 km especially on southbound and eastward routes. Emissions trading could, under unfavourable conditions, be evaded for up to 20% of the total fuel consumption in aviation with the help of tankering. Although this value is only a theoretical upper limit, more than 10% of fuel consumption could be affected by tankering.