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

5. Step four – Assessment

As set out above, the aviation and maritime sectors might face additional financial pressures as:

• For the aviation sector, the phase out of AFA will require operators to purchase all their UK ETS allowances for their verified emissions instead of receiving a percentage for free; and
• For the maritime sector, the inclusion of vessels over 5000GT in the UK ETS means that those lifeline ferry operators that meet the threshold will have to start complying with the UK ETS (i.e., by purchasing allowances equivalent to their verified emissions).

5.1 Impacts on flight services

Flight services are decided and operated on a commercial basis, and any possible changes to services in the short to medium term will be influenced by a range of commercial factors, which could include UK ETS compliance costs. The Scottish Government has no visibility or control over such commercial decision-making, and it would be inappropriate to speculate on how operators will react to the changes.

It is therefore not possible to assess the exact impact due to the phase-out of the AFA but, in general, operators respond to increased operating costs by:

• Seeking to reduce their UK ETS compliance costs, by lowering their emissions through investment in sustainable aviation fuel and technological and operational efficiencies.
• Absorbing the costs without changing their operations.
• Changing the frequency, timings, ticket pricing or operations of certain services.

The Scottish Government, together with the rest of the Authority and the Department for Transport, will continue to monitor any changes that the phase out of AFA could have on service availability and pricing and will implement mitigation strategies as appropriate. Further analysis of the impacts on the aviation sector can be found in the Scottish Government BRIA on the UK ETS (see footnote 7) and the Authority’s impact assessment on the back of the Government Response publication.^[12]

5.2 Impacts on ferry services

Regarding the changes to the maritime sectors, the operators of Scotland’s publicly funded lifeline ferry services are decoupled from commercial considerations, given the high level of government subsidy support in place to enable these services. The contractual arrangements between the ferry operators and Scottish Ministers mean that all additional costs to lifeline ferry operators arising from the UK ETS would be passed on to the Scottish Government. A range of measures would require consideration in order to cover the additional costs, such as raising fares above the standard CPI-linked measure, or potential cuts to ferry services.

5.3 Assessment conclusions

Given the above, it is difficult to conclusively assess the impact of these UK ETS changes on island communities. This is because the primary impact is on operators, and the impact on communities would depend on commercial decisions those operators take. Those decisions will be influenced by a range of factors wider than these policy decisions.

However, due to the potential effect on island communities, the Scottish Government has raised with the Authority the possible risks to these communities. As such, the Authority has agreed to establish a working group to identify adequate mitigation strategies within and outside of the UK ETS to protect island connectivity, besides the existing policies and programmes in place that support the island communities more broadly.

Should the Scottish Government become aware of any significant effects, consideration will be taken on whether this ICIA can be reviewed and updated, or a further ICIA will need to be produced.