EU sets CO2 limit for airlines (source : spacemart.com)

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Brussels with the cap, which will drop to 208.5 million tons of CO2 per year in 2013, aims to fight global warming at a time when the aviation industry is booming. It will affect all flights to and from the 27-member bloc's airports. The limits are based on a benchmark of 220 million tons the sector emitted on average during the past years.

Emissions from aviation are growing faster than from any other sector and all forecasts indicate they will continue to do so under business-as-usual conditions," European Climate Commissioner Connie Hedegaard said in a statement, adding that "firm action" was needed.

Including aviation in the EU ETS, the world's biggest carbon market, means that airlines that exceed their CO2 limit will have to buy spare permits from more efficient businesses or face a fine. Brussels in 2008 decided to include airlines in trading after emissions from the sector doubled since 1990. They account for around 3 percent of the EU's total CO2 footprint.

The commission estimates that the EU ETS by 2020 will reduce plane CO2 emissions by 183 million tons per year, twice the annual output of Austria and a 46 percent reduction compared with business as usual.

"Some of these reductions are likely to be made by airlines themselves," the commission said. "However, participation in the EU system will also give them other options: buying additional allowances on the market -- i.e. paying other participants to reduce their emissions -- or investing in emission-saving projects carried out under the Kyoto Protocol's flexible mechanisms."

Airlines have warned that including aviation in the EU ETS will drive up air fares, sap profits and damage the overall competitiveness of the European aviation industry.

The commission said the decision would have a "minor impact" on fares. The price for a round-trip ticket from Brussels to New York, based on current carbon prices at roughly $20 per allowance, would increase by less than $17, Brussels said.

The decision foresees 82 percent of allowances to be allocated for free, 15 percent auctioned, and another 3 percent placed on hold for new airlines or those that expand their business.

The EU ETS covers emissions from power plants, oil refineries and steel works, as well as factories making cement, glass, lime, bricks, ceramics, pulp, paper and board. It generated sales of more than $120 billion in 2010, with most allowances traded in future markets.

Brussels urged member states to improve security of trading platforms after a series of frauds last year. Citing a lack of money, several governments didn't implement changes.

In January, 2 million carbon allowances worth an estimated $38 million were stolen in the biggest fraud targeting the EU ETS.