EU aviation emission allowances headed from trading trouble, says report; thin liquidity feared

In the EU, the comment period on the proposed airline Emissions Trading Scheme (EU ETS) auctioning rules will close out next week, and the new EU regulations are set to be adopted no later than the end of June 2010 for airline operators who will fall under the Scheme in 2012. An analysis distributed during the comment period projected that 210 million EU Aviation Allowances (EUAAs) will be issued each year and 30 million EUAAs will be auctioned.

Groups have warned that non-transferability between the Aviation Allowances and General Allowances will lead to liquidity problems for the EUAAs -compared to the general EUAs. Airlines will be able to use EUAs to offset their aircraft emissions, but non-aviation companies under the ETS scheme will not be able to use EUAAs to cover other types of emissions. Accordingly, a separate auction will be required, and with the small number of auction allowances, the trading market for the allowances is likely to be poorly organized after the initial auction.

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