EU Airline Carbon Tax Friction Is Hint Of New Climate Politics

(The author is a Reuters market analyst. The views expressed are his own.)

By Gerard Wynn

LONDON, March 20 (Reuters) - Threats of retaliation by China and India against a European Union plan to charge airlines for their carbon emissions is misplaced, given their weak legal case and a drift towards more such unilateral climate action.

Countries in Durban at the end of last year topped off years of lumbering U.N. talks by agreeing that a new climate protocol should come into force by 2020, with more vagueness about exactly what that should be, leaving a vacuum in national action in the meantime.

That slow rate of progress underscores how multilateral climate action has faded over the past decade.

It also underlines why it would be madness to expect the U.N. body, the International Civil Aviation Organisation (ICAO), to galvanise global action to curb carbon emissions from passenger jets, as countries asked them to do 15 years ago.

It also explains why the European Union has grasped unilateral action to curb rapidly rising carbon emissions from aviation, and makes a nonsense of the central argument advanced by China, India, Russia and the United States, that ICAO should be given more time.

The broader failure of U.N. climate talks only makes such unilateral action more likely, if other countries - possibly including Australia, Japan, South Korea and Mexico - join the European Union in choosing to take firmer carbon curbs than those agreed internationally (if any).

In that sense, the airline dispute is an experiment in an alternative climate politics.

The possible alternative to an international climate protocol is a forging of emissions curbs by willing countries, which in turn take punitive, border action against the rest, to protect their own industry.



AVIATION

In the first case of such border action on carbon emissions, the European Union has walked into a minefield with its determination to charge for carbon emissions on flights beyond its borders.

Yet threats of retaliation underscore the weak legal case of opposed countries.

Chinese authorities have suggested delaying orders for European Airbus passenger jets, according to Airbus itself, the most serious escalation so far if carried through.

The air is also thick with talk of trade war, a posturing out of proportion to the impact of the EU scheme on flight ticket prices or airline profits.

India is poised to urge its airlines to boycott the European Union's carbon charge scheme, a senior Indian government official said.

The spat hinges on the EU's legal case for taking unilateral action, and the technical detail of counting emissions beyond its airspace.

From January this year the EU entered aviation into its emissions trading scheme, where polluters have to buy permits for their CO2 emissions above a certain quota which they get free.

That includes emissions from the entire flights of non-EU carriers landing in or departing from Europe.

The bloc wants to curb the climate impact of rising emissions from aviation but protect its own carriers from unfair competition by requiring carbon emissions permits of everyone.


LEGAL

The EU will almost certainly stand firm and foreign carriers will pay up. The main prospect for compromise would be for the EU to relent and not count emissions outside its airspace, which at present seems unlikely.

The EU says it must include all emissions on a flight because it's impractical to measure those only from the moment a plane enters European airspace. And that would also dilute the environmental purpose of the scheme since a large part of emissions are on take-off.

Regarding the notion that its charges are a tax on jet fuel (not allowed under the 1944 Chicago Convention on aviation), it says emissions permits are not the same thing because an airline can avoid paying at all if it undercuts its free quota by becoming more efficient.

On both these counts the bloc won a landmark case at the European Court of Justice in a judgment favouring Brussels against U.S. carriers last December.

The bloc of countries most wedded to a multilateral approach at the United Nations, the European Union, now feels compelled to use unilateral action.

The present spat could be a sign of things to come in climate politics, where progressive countries unite from the bottom up, at least until an over-arching treaty comes into force at the end of the decade.

(Reporting by Gerard Wynn; editing by Jason Neely)

Comments

[Ssebo]

04:33 PM on 03/27/2012

I still can't see what all the fuss is about. European countries have higher taxes on everything. The tax base of fuel is all costs which are included in the sales price - also the costs incurred in other countries. So not only costs incurred within the European Community in the production of fuels are taxed, all costs are taxed. So should we also retaliate against those taxes?

[George Hanshaw]

04:18 PM on 03/25/2012

"PARIS | Airbus and six European airlines have written to four EU leaders attacking the carbon tax imposed by the European Union, a source close to the dossier told AFP on Sunday.

Plane maker Airbus, British Airways, Virgin Atlantic, Lufthansa, Air France, Air Berlin and Iberia have written to the leaders of Britain, France, Germany and Spain to warn them about its economic consequences, the source said.

They argue the tax could cost them billions of dollars in lost orders and lead to the loss of the thousands of jobs.

French aerospace and defense group Safran and Germany’s MTU also put their names to the letters, to British Prime Minister David Cameron, French Prime Minister Francois Fillon, German Chancellor Angela Merkel and Spanish Prime Minister Mariano Rajoy. All four countries helped found Airbus.

“We question the unilateral nature of this measure,” said the source, adding that they wanted talks with all those affected, within the International Civil Aviation Organization (ICAO).

Their initiative was first revealed late Sunday in the Financial Times.

It comes after the head of the Airbus parent company EADS said Thursday that China had blocked purchases of Airbus planes by Chinese companies in reaction to the disputed tax.

According to a report on the website of the French economic daily Les Echos, China’s decision to freeze Airbus orders could cost the European aircraft company up to $12 billion."
http://www.washingtontimes.com/news/2012/mar/11/airlines-rally-against-eu-carbon-tax/

[Bryan Boru]

07:26 AM on 03/24/2012

Another good reason for Greece to leave the EU, and for Poland and others to hang back.

[Sebastian Pirot]

06:49 AM on 03/23/2012

Europe's not going to cave. Something has to be done and this is a way of trying to wake up the world. The US won't do anything, BRIC's all claim they have no fault so it's not their responsibility... I agree it may not be the best strategy, but something has to be done somewhere somehow. So what to do with this? Well....consumers, whom the bill will be forwarded to by the airlines, and the airlines can each go to the best lawyers around (in my humble opinion at least), Legal Eagles Global Group of Multispeciality Law Firms, but so can the EU itself. Consumers can go to private airlines like Cwiil Air (which is my personal favorite), but we all know even those prices would go up, right? ;) So....airlines and consumers are not powerless, they just have to make a choice.

[Bryan Boru]

07:36 AM on 03/24/2012

It's the EU and boneheads like you that need to wake up. It's like you're inside some kind of fantasy world where you are intelligently handling things and the rest of the world should be subservient to you. But they're NOT. Because you're NOT. Wake up! Nap time is over.

[Sebastian Pirot]

04:38 AM on 03/25/2012

Calling people boneheads says more about your than the person you are attempting to offend. Besides I stated that the EU won't back down as they have a history of stubbornly holding on to their own, and if you had read my message (correctly) you would've seen that I at no point state to agree with the EU on this. Maybe you should wake up before you start calling people names due to your own misunderstanding of their messages....

[muysuave41]

01:16 PM on 03/22/2012

The counter parties (USA, China and others) to this new EU bribery tax offered the tax be part of just the part over the EU airspace, not the entire flight. The EU has stubbornly refused this option and has advanced only their own proposal.

[slinkybro]

01:42 PM on 03/21/2012

This is simply a tax by Europe on international air travel for the sole purpose of making it more costly to deal outside the EU. Airlines can avoid paying the tax, if they just get more efficient. Like they haven't been doing what they can. Fuel is their biggest cost, so they are always trying to become more fuel efficient. But there is a practical limit of the technology. We are just starting to develop aircraft biofuels. And planes are becoming more efficient, but it takes 20 - 30 years to replace a fleet. And then that's only a 15% improvement.

Europe will back down because everyone is going to cancel their orders for Airbus planes.

[George Hanshaw]

02:42 AM on 03/21/2012

Other countermeasures considered were imposing additional levies on European carriers using the airspace of non-EU states, an idea that has attracted the interest of the Russians, Indians and Chinese. The meeting is scheduled to reconvene in Saudi Arabia within the next four months but China and Russia have already said their airlines will not comply with the emissions charge, which could keep their carriers from travelling across Europe altogether.

The US Congress has considered a similar measure.

This intensifying pressure has led Airbus and six European airlines to write to the leaders of Britain, France, Germany and Spain. They call for ETS to be "revisited", claiming the scheme will jeopardise more than 1,000 Airbus jobs and another 1,000 in support industries.

"Aircraft sales are different from selling wine or cars, you can't switch the sales button from off to on from one day to another. A red traffic light in aircraft sales can destroy years of sales efforts and damage-repair will take years," said Rainer Ohler, the head of Airbus public affairs and communications."

http://www.thenational.ae/thenationalconversation/industry-insights/aviation/eu-carbon-tax-law-flies-into-a-storm

My prediction?

Brussels caves......

[George Hanshaw]

02:42 AM on 03/21/2012

"n a series of announcements this month, Beijing cancelled orders for 45 Airbus A330 long-haul airliners, and 10 A380 superjumbos, worth more than US$14 billion (Dh51.4bn). Xinhua, China's national news agency, described the Emissions Trading Scheme (ETS) as a "trade barrier in the name of environmental protection". "It will be difficult to avoid a trade war focused on a carbon tax for airlines," it added. China is not alone.

"Every state will choose the most effective and reliable measures that will help to cancel or postpone the implementation of the EU emission trading system," said Valery Okulov, the deputy transport minister for Russia, at a meeting in Moscow last month held to draw up a "basket of counter measures" against the EU legislation.

More than 20 countries attended the meeting and retaliation, not negotiation, was on the agenda. Joining China in its opposition are Russia, India and the United States.

Proposals from the meeting included "issuing appropriate state regulation to prohibit national airlines to participate in EU ETS" and "mandating the EU carriers to submit similar flight details to the respective states as required by the EU in their scheme".

[George Hanshaw]

02:37 AM on 03/21/2012

http://www.hindustantimes.com/India-news/NewDelhi/India-to-urge-airlines-to-opt-out-of-EU-carbon-scheme/Article1-828157.aspx

India will urge its airlines not to take part in the European Union Emissions Trading Scheme (ETS), a senior official said, the latest salvo in an escalating row over an EU law requiring all flights in and out of Europe to pay for their emissions. China in February said its airlines were
barred from participating in the scheme unless they get government approval to do so. Beijing has also suspended the purchase of $14 billion worth of planes for Europe's Airbus due to the dispute.

India does not yet plan to ask airlines to cancel Airbus purchases, but that is a possibility if the dispute escalates, the Indian official said.

The official, with direct knowledge of talks between the EU and other countries on the issue, told Reuters that India would soon ask local airlines not to share emissions data with the bloc or buy any carbon credits.

If the European Commission retaliated by suspending Indian airlines from flying to Europe, India would make similar moves and consider charging an "unreasonable" amount for flying over India, the official said on Monday.

[George Hanshaw]

02:30 AM on 03/21/2012

"Airbus SAS’s (EAD) capacity to increase A330 production to 11 aircraft a month by 2014 from 9 is hostage to China, which may forego deliveries to protest Europe’s plan to tax carbon emissions, the head of the parent company said.

China has 35 A330s scheduled for delivery over the next few years, including 25 for which Airbus is already building parts, and the country may refuse to accept the planes to punish the European Union for taxing emissions, European Aeronautic, Defence & Space Co. Chief Executive Officer Louis Gallois said today in a briefing.
China is also threatening to block delivery of 10 A380 superjumbos that are on order with Hong Kong Airlines, Gallois said today. "

The A380 will NEVER make back it's R&D costs even with the ten on order for Hong Kong Air. Total produce to date are only about 90. Sales price is approx 300 million euros each.

Without those orders, EAD will lose many millions or Euros more, and when you consider the multiplier effect, several Billions of Euros. The EU has become an economic suicide pact.

Nice going, Brussels.....

[George Hanshaw]

02:04 AM on 03/21/2012

"Threats of retaliation by China and India against a European Union plan to charge airlines for their carbon emissions is misplaced, given their weak legal case "

Weak legal case? This isn't about law, it's about SOVEREIGNTY. Had the EU merely decided to charge a carbon tax for fuel burned within the borders of EU countries, it might have been accepted. But to expect that an aircraft departing Hong Kong would pay a carbon tax all the way from China when only a small fraction of that would be within the political boundaries of EU member states is simply ludicrous. Similarly, does anyone really expect an aircraft coming out of Chicago going to London Englan to pay a carbon tax for the whole 4000 miles, when they are only in the EU for about 50 miles of that?

Of COURSE this is going to spawn a trade war.and drivve one more nail in the coffin of the EU itself. With the Greek sovereign debt crisis not yet really behind it, and the crisis for Spain and Italy yet to come, this is something the EU doesn't really need. Unless the Chinese change their mind (and Chinese PRIDE is on the line here) the EU can only lose.

[This American]

11:59 PM on 03/20/2012

The benefits of CO2 have been well documented for well over one hundred years. It is the source of 100% of our food and higher concentrations mean more and cheaper food, along with the agricultural surpluses that are the precursors of all economic development. The dangers posed by CO2 look more and more to have been concocted for purely (socialist) political reasons.

IF it could be shown that the dangers of CO2 outweighed the benefits, a tax on carbon combustion would make sense. Using the same logic, if, as seems increasingly likely, these risks do not exist, economic efficiency and human well being could be maximized with a subsidy on carbon dioxide emissions.

It is time to drop the discussion of carbon taxes and cap and trade and move on, for the sake of the children, to a "Burn and Earn" program (financed with a tax on food) that would pay big $ bonuses annually to those with big carbon footprints.