Apart from the economic crisis, the biggest story in town for the Brussels media in recent months has been the row over the inclusion of aviation in the EU ETS. After a failed challenge to the ETS in the courts, the airlines – supported by the US, China and India leading the so-called “coalition of the unwilling” – have stepped up their rhetoric saying that the EU action is misplaced and the only legitimate measure on aviation emissions must be developed through the International Civil Aviation Organisation (ICAO).

Twenty years after the Rio conference, ICAO is still struggling to meet the climate change responsibilities bestowed on it by Kyoto. Having turned its back on developing a global market based measure in 2004 in favour of regional action, ICAO’s 36-member strong Council took a u-turn late in 2011, by deciding that global action was needed: Last month’s Council asked its expert group to step up the work commenced at the beginning of this year, as the initial deadline , December 2012, has now slipped well into 2013. A decision on a proposal for a market based measure had been planned for the Sept/Oct 2013 38th ICAO Assembly. Work has narrowed down to two principal approaches; global offsetting – with airlines paying for their emissions to a central fund that will finance the offsets – or a global ETS, again with airlines rather than member states’ emissions likely being regulated.

Industry will press hard for the offsetting option because offsets are cheap and many airlines have existing voluntary programs but many questions still remain on the mechanics and particularly over the environmental integrity of many offset projects. If they are not well managed or in fact would have happened anyway, then there are in reality no offsetting emission reductions. With a global ETS, the main questions, besides the way of establishing and administering the scheme and the auctioning, concern the use of any revenues generated. Airlines and ICAO would like to use them to finance the greening of the sector, perhaps by partially funding more fuel-efficient aircraft or other environmental upgrades. The UN Secretary General’s climate finance report on the other hand recommended using the revenues of a global market based measure to help the developing countries tackle climate change.

The main argument of those opposed to the EU’s inclusion of aviation in the EU ETS is that only a global approach through ICAO is fair and acceptable. Europe agrees, provided that such an ICAO scheme has a similar level of environmental effectiveness. But what a fair and acceptable global approach will actually consist of remains unclear at this point. The EU ETS caps EU aviation emissions at 95% of 2005 levels. IATA and many in ICAO are talking of carbon neutral growth in 2020 i.e. 15 years of growth later.

Another thorny issue is the scope of a market based measure. The 2010 ICAO Assembly called for exempting from any MBM all countries below a certain threshold of global aviation activity (the threshold originally suggested was 1%). That idea remains but presents increasing complications around competitive distortions. This is a key problem that ICAO needs to resolve now, together with the related question of “Common but Differentiated Responsibility” (CBDR(, whereby binding obligations should be only imposed on developed countries). The CBDR debate drum has begun to beat in the background and rather more loudly at recent ICAO Council meetings. Exempting small countries through a de minimis provision may be acceptable but suggestions to exempt all developing countries, puts at risk the possibility of reaching a global compromise through ICAO.

The US strongly oppose CBDR in ICAO and have led the fight against the EU ETS but now face a period of policy uncertainty pending the November presidential elections. It was therefore surprising to see that Washington has convened another meeting of the coalition of the unwilling ostensibly to plan an approach towards ICAO. US motives are unclear but excluding EU participation might give an indication. The US faces difficult questions concerning any global measure; could they agree to an international mechanism where revenues from US citizens flow to an international body? If an ICAO agreement requires a new global treaty (it well might), would the US Senate ever ratify such a Treaty – never having ratified Kyoto? Its not immediately clear that the global measure it calls for in ICAO really suits the US.

To sum up, the next 6 to 12 months will be a deciding test as to how relevant ICAO is to addressing climate change from the most carbon intensive form of transport.

Last month, after three years of tortuous deliberations ICAO finally agreed on the method to measure emissions as part of developing a CO₂ standard for new aircraft. The result is not ideal. Now comes the even harder part – agreeing stringency. A strong standard which requires manufacturers to push the technology and design envelope and build new aircraft that are more efficient than would have been the case without a standard in place is a central element in efforts to reduce aviation emissions. Getting governments to require industry to put fuel-efficiency ahead of the commercial need to fly further, faster and heavier is a tough ask, but one that has to be confronted.