Air wars: airline loses big legal battle over carbon emissions

Connie Hedegaard – not backing down

The war of words goes on: global trade war fears brought up again

The recent ruling at the European Court of Justice that the EU can indeed tax the emissions of airlines flying to and from the 27 member countries is just the latest step in a growing war between the airlines and the EU – with no holds barred.

Non-EU carriers say the charges are illegal under international law, and recently the US Secretary of State Hillary Clinton said America would respond with "appropriate action" if the scheme went ahead.
From 1 January any airline that wishes to land or take off inside the EU must take part in the regional bloc's emissions trading scheme.

This is a first for a sector that, since the Chicago Convention of 1945, pays no tax on its fuel or its emissions.

"It's really very straightforward," says James Cameron from Climate Change Capital, which invests in the carbon market.

"This is an important sector of the economy that produces significant greenhouse gas emissions. We have found it necessary as a society to regulate those emissions, so this sector is covered."
The EU Emissions Trading System was established in 2005 and currently regulates over 10,000 installations within Europe with net heat excess of 20MW in the energy and industrial sectors. This represents some 40% of  Europe’s greenhouse gas emissions and close to half of its CO2 emissions

Environmentalists hope it will now set a benchmark, eventually forcing global transport industries – such as airlines and shipping companies – into reducing their emissions.

"The whole aviation emissions debate is almost a microcosm of what is happening on the world stage with efforts to reduce climate change," says June Ashton from the WWF environmental campaign group.

Connie Hedegaard EU Climate Action Commissioner has shown no signs of backing down

The UN IPCC (Intergovernmental Panel on Climate Change) estimates that aviation accounts for 3% of total carbon dioxide emissions – and this is likely to rise.

According to tourism and climate change guru Professor Stefan Gossling this is very much at the lower end of estimates which he puts at over 5%.

Moreover it is now becoming increasingly clear that airplane emissions at high altitudes are much more damaging than those at ground level due to the effect of ‘Radiative Forcing’.

Shipping, which accounts for a similar amount, may eventually also be brought within the scheme.
The latest ruling is the result of legal action American airlines, backed by the US Air Transport Association, brought against the plans at the European Court of Justice.

There are persistent reports that China was stalling on a Hong Kong airlines order with European planemaker Airbus because it was unhappy that its airlines would have to buy credits to fly to the EU.
Four Chinese airlines have opposed the scheme which they say could cost them 95m euros ($124m, £79m).

The EU responded: "We don't work on the basis of threats, but on discussions," said commission spokesman Isaac Valero Ladron, a position it has stuck to ever since.

The International Air Transport Association (IATA) and its affiliates in the US, Asia and China have all declared their opposition to the plan.

International airlines have paid no tax of any sort on fuel since 1945

The Chinese Air Traffic association has also threatened the EU with legal action.

In the US, the bipartisan congressional transportation committee has passed a bill which would make it illegal for US airlines to take part in the scheme.

In Europe, Airbus and some national carriers are urging the EU to modify its plans to avoid a costly trade war.

Airbus head Tom Enders said it was "madness to risk retaliation" on the issue.

But is this a tax or an incentive?

The main objection is to the EU's plans to tax all airlines, even if they are flying to or from Europe. "From the moment they made that decision, we've felt it was unhelpful," said IATA's Chris Goater. “Our estimate is that it would add one billion euros to the industry's costs”

IATA says the move is in effect a tax imposed on airline emissions and so may break international conventions – in particular the Chicago Convention of 1945.

They also claim it is "extra-territorial", imposing EU law on airlines flying in international airspace.
The EU disagrees on all points.

"This is not a tax, it's a pollution saving," says the EU's Mr Valero.

Under the scheme, he explains, a pot of carbon credits will be created, set at 97% of the aviation industry's 2004-6 emissions.

These will be divided up between carriers according to how much pollution their flights caused in 2010.
Airlines will get 85% of their permits free, with the remaining 15% being auctioned.

Because so many are given away, the EU says the whole scheme will add just over £2 to a London-to-New York flight.

If airlines want more, they have to buy them, but equally if they have too many, they can sell them to other carriers.

"For example, British Airways, if they emit less than the cap, they have extra allowances which they can sell to make a profit," said Mr Valero.

The aviation industry does not think this outcome will be very common. The latest figures from IATA show air passenger traffic grew by 8.2% in 2010.

"Our estimates are that it would add close to one billion euros ($1.4bn, £862m) in the first year on to the industry's costs and this is an the industry running on a margin of 0.7%," said Mr Goater from IATA.

If the cost of carbon rises, or airlines need to buy more credits because of their expansion, the cost per passenger will rise too.

The scheme has also been criticised for penalising fast-growing airlines, which will have to buy credits to expand. This may be partly why the Chinese and Asian carriers have objected so strongly.

"The fastest-growing sources of aviation emissions are in exactly those developing countries who are seeking to have the headroom to grow," says the WWF's June Ashton.

The WWF wants the scheme modified to ensure developing countries receive financing for renewable energy and climate change mitigation.

IATA is calling for the EU to abandon the measure entirely in favour of an as yet-to-be-created international solution

A UN body, ICAO, has been charged with coming up with such a deal since 1997. The ICAO is the organization which, in 1945 set out the rules by which international airlines are regulated including prohibiting air fuel taxes (The Chicago Convention)

IATA claims airlines have already reduced their emissions by 80% per passenger through more fuel-efficient jets.

"We don't intend to back down, modify, withdraw or amend our legislation at all," says Mr Ladron in response, echoing the stance of his holidaying boss, Climate Action Commissioner Connie Hedegaard who has been advocating a solution that would give any country introducing its own steps to reduce aviation emissions by the same amount exemption under the EU's rules.

This may offer a possible compromise with China. It has already said it wants to reduce aircraft emissions by 22% compared with what would have happened if it did nothing.

At the end of the day, with forecasts of growing air transport and consequently growing emissions, the problem is unlikely to go away. Even though biofuels, eco-friendly flight paths, high load factors and technical advances may all assist, the problem is too many passengers paying too little money.

See also:http://www.bbc.co.uk/news/business-15571107

Valere Tjolle
Valere is editor of the Sustainable Tourism Report Suite Get your copy at a special offer price: HERE