August 24, 2016

On July 25, the Environmental Protection Agency (EPA), operating under authority given to the agency in the Clear Air Act, determined that greenhouse gas (GHG) emissions from airplanes contribute to climate change, thus endangering the environment and the health of Americans. This deliberation allows the EPA to eventually regulate the GHG emissions of airplanes and set standards for them, just like they do for automobiles and heavy trucks. According to the EPA, U.S. aircraft emit 12% of GHG from the U.S. transportation sector (or 2% of overall U.S. emissions) and 29% of worldwide aviation emissions.

As the EPA mentioned in its press release, the International Civil Aviation Organization (ICAO) – the United Nations agency for international aviation – is working on its own sets of rules, which they plan to get approved later in the year and formally implement in 2017. The EPA also notes that they can adopt standards that are “at least as stringent as ICAO’s standards”.

The ICAO standards are expected to apply to new models entering production in 2020, and to new deliveries of existing models starting in 2023. The production of all airplanes not complying with the standards should be phased out by 2028.

It should be noted that these ICAO standards are the only international effort currently dealing with the issue of aviation GHG emissions, as in the Paris Agreement aviation was deliberately excluded from the final agreement with the expectation that ICAO would act on the issue.

This move by the EPA is not what the U.S. aviation industry wants to hear. Although in general the aviation industry has been pushing for international standards and has a “carbon neutral growth” objective for 2020-onwards (without it, emissions are expected to triple by 2050), this push has come for two reasons.

First, the establishment of international standards would preempt many governments from acting unilaterally. With these international standards, national governments would be less likely to impose national standards (the big concern for U.S. airlines is that a government, say from Asia, imposes a standard that would apply for all carriers that fly in or out that country).

Second, the prospective international standards, although not without costs for the industry, are expected to mostly fall in line with expected improvements in environmental performance that would happen anyway. As technology evolves and demands for better fuel efficiency increase, manufacturers have been reducing the environmental impact of airplanes, even without mandatory standards. The expectation from the industry is that foreseeable improvements for the years to come are already within what is expected from the ICAO standards – for example, Reuters has reported that new single aisle aircraft released by Airbus (A320neo) this year and to be released by Boeing (737MAX) in 2017 already comply with the new standards.

This move by the EPA, determining that they are indeed within their right to regulate GHG emissions from airplanes and that they can set standards for those emissions, will worry the U.S. aviation industry. If the EPA imposes more stringent standards than ICAO, the U.S. aviation industry will complain that costs of compliance will hamper their business, at a time when they have just began to be consistently profitable, and will create an unfair competitive landscape, as foreign airlines will not be subjected to the same standards.

On this last point, it should be noted that if the U.S. indeed imposes more stringent standards, given the size of the U.S. market, all new airplanes released by manufacturers will tend to comply with those, as most airplane manufacturers cannot create an airplane that has zero chance of being sold in the United States.