23 July 2024

GreenAir News

Reporting on aviation and the environment

NGOs challenge labelling of new aircraft as green under changes to EU Taxonomy rules

The EU Taxonomy Regulation, which entered into force in July 2020, is a classification system that establishes definitions of what is an ‘environmentally sustainable’ economic activity and is a tool to help investors and companies make informed decisions when determining the degree of sustainability of an investment. It is a cornerstone of the EU’s sustainable finance framework and aims to direct investments to the economic activities most needed for the green transition, in line with the European Green Deal objectives, and is intended to be updated regularly to reflect technological and policy developments. Last year, the European Commission signalled specific aviation-related activities such as aircraft leasing and the financing of new fuel-efficient aircraft could be labelled as ‘transition’ activities under the Taxonomy. However, a coalition of five environmental NGOs has launched a legal challenge to the Commission, requesting it to review the decision to label  “highly-polluting fossil-fuelled” planes, and also ships, as ‘green’ and therefore eligible for green finance.

“The Taxonomy is flying under the radar for most people, but if we don’t challenge it, these industries [aviation and shipping] will be allowed to rubber stamp planes and ships powered by fossil fuels as sustainable,” said Hiske Arts at Dutch NGO Fossielvrij. “This would mean money that is meant for climate solutions will end up fuelling climate disaster, as it encourages these polluting industries to sustain their unsustainable growth path.”

The NGOs point out that 100% of the aircraft books of low-cost European carriers Ryanair, easyJet and Wizz Air, and 90% of Airbus’ order books, could be considered ‘best in class’ under the Taxonomy criteria.

However, contends Moritz Nachschatt at Protect Our Winters Austria: “European airlines cannot be considered sustainable if they continue expanding the global fleet. The Taxonomy rules could allow them to get green finance to upgrade their fleets, while selling their old planes to other airlines, meaning the global fleet size – and global aviation emissions – actually increase.”

According to Barry Moss, an aircraft leasing expert and Co-Chair of aviation ESG consultancy PACE, while latest technology aircraft are 15-25% more efficient than those they replace, the growth of the world’s commercial fleet is outstripping ‘best in class’ aircraft fuel and emissions efficiencies. For example, he said, A320neo and Boeing 737 MAX aircraft will not become the predominant types in the world’s aircraft fleet until 2026-2028.

“That’s why EU Taxonomy transactions are subject to a cap on the world’s commercial aircraft fleet, requiring one old technology aircraft to be decommissioned for each latest technology aircraft financed or leased under the Taxonomy, and also require an increased use of sustainable aviation fuel over and above that mandated under the ReFuelEU Aviation regulation,” he explained.

On sustainable aviation fuel, from 1 January 2028, and in addition to the other criteria, an aircraft would need to be certified to run on 100% unblended SAF, and from 1 January 2030 the aircraft must be operated with 15% SAF, increasing by 2% annually thereafter.

The NGOs argue there is no robust scientific evidence for the criteria and that they potentially jeopardise climate mitigation efforts and the EU’s legally binding targets.

“All sectors and companies must be held accountable for their part in reducing emissions and the EU has a hugely important role in ensuring this,” said Carly Hicks, Chief Strategy and Impact Officer at aviation and shipping NGO Opportunity Green. “Instead this decision risks driving huge amounts of finance towards highly polluting activities. It is the worst kind of greenwashing. If the Commission doesn’t address the legal violations we believe we have identified, we will be forced to take action before the European Court of Justice.”

Central to the NGOs concerns is the ‘replacement ratio’ – the proportion of aircraft permanently withdrawn from use to aircraft delivered at the global level averaged over the preceding 10 years, which is to be calculated with independent data.

“For this policy to be truly sustainable, this should be the only application – a strict ‘one in, one out’,” Hicks told GreenAir. “However, allowing airlines to sell their old planes and apply the replacement ratio on their ‘best in class’ aircraft is problematic for a number of reasons. For example, no proof is required that an aircraft has actually been withdrawn from the global market and there is no transparency on the calculation or methodology of the ratio.

“Crucially, the Commission has not demonstrated what level of emissions will be reduced using the replacement ratio to justify the inclusion of this criteria. In light of the various loopholes and lack of clarity, we believe that the Taxonomy criteria for aviation activities fall far short of these standards and risk the achievement of the EU’s 2023 and 2050 climate goals.”

Having issued a request for internal review to the European Commission on the grounds that the decision contravenes environmental law, the NGO coalition expects a response by May or June.

A spokesperson for trade body Airlines for Europe told GreenAir: “European aviation is firmly committed to achieving Net Zero CO2 emissions by 2050. By rapidly adopting the latest aircraft technology, we will already make significant strides, cutting CO2 emissions by up to 25%. This approach aligns with the Commission’s Taxonomy objectives and establishes a stable and predictable financial framework for airlines to finance the innovative, far reaching and long-lasting developments that will change the face of the industry in the long term. In Europe, €820 billion of additional premium expenditures will be required in the next 26 years for the sector to decarbonise in line with the sector’s net-zero ambitions.”

The EU Taxonomy differentiates between what are classified as ‘green’ activities and those classified as ‘transitional’ activities, which the financing of aircraft falls into. Green activities are defined as economic activities that substantially contribute to one or more of the six environmental objectives defined in the EU Taxonomy regulation. For instance, says PACE, adopting technologies that reduce carbon emissions and promote climate change mitigation in aviation operations. Transitional activities are those that do not have a low-carbon alternative but are still considered to contribute to the environmental objectives of the Taxonomy. Transitional activities are associated with the climate change mitigation objective and are necessary for the transition to a low-carbon economy.

The Taxonomy applies to various aviation stakeholders, including airlines, airports, aircraft manufacturers, aircraft lessors, financial institutions and other related businesses such as suppliers, ground handling services and maintenance companies. In an article posted on its website in September, law firm Norton Rose Fulbright said an aircraft that would otherwise meet the compliance criteria would be excluded if it was to be used for private or commercial business aviation unless it had zero direct (tailpipe) CO2 emissions.

PACE’s Moss said financing and leasing aircraft under the Taxonomy is not compulsory and doubts if many deals under the rules will be done in the short term due to operational and supply issues currently affecting the market.

Disclosures by certain large EU companies on Taxonomy-eligibility will commence this year, with reporting on Taxonomy-alignment commencing in 2025 and 2026, said the NGOs. As such, they are asking the Commission for an urgent review.

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