EU Emissions Scheme Extends to Airlines, Sparking Trade Concerns

8 June 2011

Tensions are building over the EU's decision to extend their Emissions Trading Scheme (ETS) to aviation. Under the new plan, all airlines inbound to and outbound from the 27-member bloc would be covered under the system - an announcement that drew criticism from airplane groups and non-EU countries alike.

The inclusion of airlines, which became public on Monday, would be fully implemented from 1 January 2012 onward. As the 27 EU members, the European Parliament, and the European Commission have all adopted the ETS, EU Climate Commissioner Connie Hedegaard insists that including the airline industry is within the EU's rights.

In an article on 31 May for the Economic Observer, Hedegaard explained the need to bring aviation into the ETS: "as most other subjects are already subject to measures, it is only reasonable that this sector should also contribute to fight climate change."

The Emissions Trading Scheme would oblige airlines to pay for carbon permits if they exceeded a certain emissions cap. This requirement would apply to all flights entering the 27-member bloc, for both EU and non-EU airlines.

Before the announcement, the International Air Transport Association (IATA), the global body that represents over 230 airlines, had publicly supported carbon markets as a way to regulate emissions. However, it is now toeing a difficult line between backing its prior statements of support and voicing its current concerns over cost.

Paul Steele, the Director of Aviation Environment at IATA, insisted that his organisation was still in favour of the ETS: "IATA's position is very clear. We see emissions trading as a useful tool and we've not backed away from that at all." He then clarified that the issue "is not about the ETS as a mechanism, it's about the fact that the EU has probably overextended itself in the way it's trying to impose it."

Willie Walsh, head of International Airlines Group, which manages British Airways and Spanish airline Iberia, told British newspaper The Telegraph that he expected trade retaliation from non-EU countries, "whether in the form of imposing additional taxes on European airlines or restricting access to markets."

China, US express frustration

Recent statements from Chinese officials seemed to confirm Walsh's fear. Chai Haibo, vice president of the China Air Transport Association (CATA), stated that "if the EU presses ahead with its plan, the friendly relations between Chinese airlines and European airlines and aircraft manufacturers will surely be affected." The impact of the legislation on Chinese airlines could be up to €84.5 million in the first year, estimated the CATA.

According to the Wall Street Journal, several US airline carriers have also banded together to contest the decision's legality.

Despite the opposition, Hedegaard stood firmly by the ETS, arguing that any change in position would make Brussels appear uncommitted to climate change. "If someone says boo, we do not change our laws - that would not be serious," she told British newspaper The Guardian.

There are also alternatives available, should non-EU countries not want to participate in the trading scheme. If those countries can prove that they have taken "equivalent measures" to mitigate their airlines' emissions, then they would not be subject to the ETS.

ICTSD reporting; "Chinese Airline Group ‘Totally Opposes' EU's Emissions Plan," BLOOMBERG, 6 June 2011; "‘EU's scheme could blacken relations,'" CHINA DAILY, 8 June 2011; "Greener skies over Europe," FINANCIAL TIMES, 6 June 2011; "China threatens trade war over EU emissions trading scheme," GUARDIAN, 6 June 2011; "EU insists on right to curb airline CO2 emissions," REUTERS, 6 June 2011; "Airline group IATA says fully supports CO2 trading," REUTERS AFRICA, 7 June 2011; "IAG chief executive Willie Walsh: a European green tax could lead to a trade war," THE TELEGRAPH, 6 June 2011; "European Commission Stands Its Ground On Airlines Emissions," WALL STREET JOURNAL, 6 June 2011.

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