UK Emissions Trading Scheme: Island Communities Impact Assessment (ICIA)

3. Step two – Gather data and identify stakeholders

3.1 Phase-out of AFA by 2026

3.1.1 Data available on current situation and stakeholders

The phase-out of AFA will capture operators that provide services to the Highlands and Islands. Hence, there is potential for this decision (alongside the maritime changes below) to negatively impact island communities, especially as there are no alternative modes of transport available (i.e., road and rail) for most of these communities compared to other regions in the UK.

The Authority and the Scottish Environment Protection Agency (SEPA) have data about the compliance obligations and the impact of free allocations for the one aircraft operator regulated in Scotland under the UK ETS. The Scottish Government has not published any of this data or analysis as it is commercially sensitive information for that one operator. The Scottish Government does not hold any information about businesses’ commercial decisions or other factors impacting them.

3.1.2 Ways the public sector currently supports aviation across island communities

The Authority has already ensured that flights performed by an aircraft with a certified maximum take-off mass of less than 5,700 Kg are exempt from the UK ETS. Based on public information on operators’ websites, the following scheduled passenger flights to island communities are currently exempt under this requirement. The UK ETS therefore does not currently impose any costs on airlines for operating these services:

• Tingwall-Fair Isle
• Tingwall-Foula
• Kirkwall-Papa Westray
• Kirkwall-North Ronaldsay
• Kirkwall-Westray
• Kirkwall-Sanday
• Kirkwall-Stronsay
• Kirkwall-Eday
• Oban-Coll
• Oban-Tiree
• Oban-Colonsay
• Coll-Tiree
• Oban-Islay (service due to stop in September 2023)
• Glasgow-Tiree
• Glasgow-Barra

Additionally, the following support is already provided for the associated costs of some island services:

• Public Service Obligations (PSOs): Government can use PSOs to subsidise the provision of an air service under certain circumstances. Currently the Scottish Government funds PSOs between Glasgow and Tiree/Barra. Local authorities fund other PSOs, including Benbecula-Stornoway and those within the Shetland and Orkney archipelagos. All the services currently operated under PSOs to and from Scottish islands use aircraft under the 5700kg exemption limit, meaning they are exempt from the UK ETS (with the exception of the Benbecula-Stornoway service).
• Air Passenger Duty (APD): All scheduled passenger services departing from airports in the Highlands and Islands are exempt from paying APD, which is set by the UK Government.
• Highlands and Islands Air Discount Scheme (ADS): The Scottish Government funds the ADS, which provides residents of Shetland, Orkney, the Western Isles, Islay, Jura, Colonsay, Caithness, and north-west Sutherland with a 50% discount on the core airfare on eligible services. The scheme aims to tackle high airfares and improve social inclusion in the most peripheral parts of the Highlands and Islands.

3.2 Inclusion of domestic maritime in the UK ETS

3.2.1 Data available on current situation and stakeholders

This scope expansion would capture 11 vessels currently operating in Scotland, which provide an essential lifeline service for island connectivity.

As of the publication of this ICIA, the operating lifeline ferries that would be covered by this inclusion are:

3.2.2 Ways the public sector currently supports maritime transport across island communities

Most island ferry services in Scotland are provided under public service contracts, or similar, and adequate service and fare levels are dependent on high levels of support from the Scottish Government and local authorities. One example of the existing support is the freezing of fare levels on the Northern Isles and the Clyde and Hebrides ferry networks - now extended for a further six months from October 2023 until the end of March 2024 - and supported directly by Scottish Ministers. This policy follows an initial freeze introduced for the first three months of 2023.

The Scottish Government is aware that UK ETS policy changes to the aviation and maritime sectors increase risks to island communities. Therefore, we are establishing, with the rest of the Authority and the Department for Transport, a working group to identify adequate mitigation strategies either with policies within or outside of the UK ETS, including changes to the existing support models to ensure island communities are not put at a disadvantage from these changes.