Airlines feel the EU’s unilateral decision to levy a carbon tax will trigger a trade war that will cripple an industry already struggling to stay afloat
A TRADE war, having the potential to result in global air fares soaring, is in the offing between the European Union and non-EU countries. This is due to Europe’s unilateral and extra-territorial extension of Emission Trading Scheme (ETS) to international aviation effective 2012.
A conclave of 33 nations, including India, the US, Russia and China, held in Moscow, decided last week on a series of retaliatory measures against EU if it refuses to abrogate its law requiring airlines flying to Europe to pay for greenhouse gas emissions. The potential measures include lawsuits, barring national airlines from participating in the ETS, suspending talks with European carriers on new routes, reviewing bilateral service and open skies agreements with EU countries and imposing retaliatory levies.
The tough stance came after EU displayed its stubbornness in rejecting arguments put forth by non-EU countries and IATA, the representative body of airlines, that the issue of climate change needs to be handled by the International Civil Aviation Organisation (ICAO).
The legal challenge presented by the Airlines of America, IATA and the National Council of Canada in the Court of Justice of the EU (CJEU) arguing that ETS contravened the Chicago Convention, which prohibited such taxation of international aviation, also yielded no result. While dismissing the petitions, the CJEU ruled that the Chicago Convention did not bind the EU, which is not a signatory (but European countries are) and that the ETS does not violate any other aspect of international law. Even though the decision represents a European legal interpretation of EU ETS, the success of Europe’s plan will depend on how non-European countries view its legal and political acceptability. As of now, there is global opposition to it and 43 countries have publicly objected to EU plans.
It isn’t that the aviation industry is not addressing the environmental concerns. Airlines, airports, air navigation service providers and manufacturers have made commitments to improve fuel efficiency by 1.5 percent annually by 2020; to cap net emissions from 2020 and cut the emission by half by 2050 (compared to 2005 levels) through a four-pronged strategy of investment in new technology, more efficient infrastructure, making operations more effective and introducing positive economic measures.
Airlines account for 2 percent (650 million tonnes) of man-made carbon emissions while carrying 2.8 billion passengers and 46 million tonnes of cargo. In 2050, while proposing to carry 16 billion passengers and 400 million tonnes of cargo, airlines are targeting to account for only 320 million tonnes of man-made carbon emissions.
Forty-three nations have objected to EU plans of levying carbon tax on foreign airlines
It is surprising to see EU display its lack of faith in ICAO’s ability to address the issue because about a decade ago, ICAO achieved a globally accepted balanced approach to noise that averted a conflict over Europe’s unilateral plans. ICAO should be expected to do the same for climate change. In 2010, the ICAO had in fact made a beginning by agreeing to 15 principles for economic measures besides committing itself to developing a framework for a global trading or compensation scheme by 2013, which is only a year away.
Ironically, the airlines are already burdened with payments of €4 billion as departure tax in UK, Germany and Austria. These levies were said to be environmental measures. It is interesting to note that at current market price for UN-issued certified emissions reductions, €4 billion is good enough to offset the world’s aviation CO2 emissions one-and-a-half times over. Under the ETS, 85 percent of the airlines’ carbon permits in 2012 will be handed out for free, while 15 percent will be auctioned. Certificates for 1 tonne of emissions would cost €14; the fine for ignoring, €100 per tonne, and the airlines that refuse to pay would be banned from crossing the EU borders. The cost of buying carbon permits in 2012 is estimated at $1.2 billion.
Considering the difficult phase that the global aviation industry is going through, a trade war triggered by ETS is the last thing needed as it will serve the interests of none, but harm all.
Jitender Bhargava is Former Executive Director, Air India.