By Vriddhi Sujan, Transatlantic Community Analyst
The road to combating climate change has been far from smooth, and continues to spark disagreement among countries – particularly in the aviation industry. On January 1st, 2012, the European Union Emissions Trading System (EU ETS) introduced a measure that will require all airlines operating to and from European airports to purchase “allowances” for their carbon dioxide emissions, beginning in the spring of 2013.
The ETS was launched in 2005 and now operates in 30 countries as the largest international scheme for curbing greenhouse gas emissions. The ETS functions on the “cap and trade” principle, which gives factories, power plants, and other installations in the system a “cap” on the amount of greenhouse gases they are permitted to emit. Each company can then buy or sell emission allowances from each other, depending on their needs. By reducing the number of allowances over time, the scheme seeks to reduce emissions by 21% by 2020. If companies exceed this amount in output, heavy fines are imposed, encouraging them to budget their emissions and to trade emission allowances when necessary.
EU aviation law is an extension of this scheme and is intended to give airlines an incentive to invest in more modern, fuel-efficient technology to minimize pollution. In the beginning, the EU will provide airlines with 85% of the allowances for free and require them to purchase the remaining 15%. The number of free allowances granted by the EU will reduce gradually over time. The idea is that airlines will pass the cost of emissions to consumers through ticket prices, and as they do not have to buy 85% of the permits from the EU just yet, use the profit they make to improve their technology. A similar scheme was adopted for several European industries in 2005.
It is about time that the ETS extended cap and trade to airlines, as aviation alone contributes 2-3% of global carbon dioxide emissions. The “carbon tax,” however, has been met with adamant opposition by 17 countries that met in Washington at the end of July to discuss an alternate global solution to address the issue. The main point of contention is over sovereignty, as airlines are required to purchase permits to cover emissions for the entirety of flights, and not just for the period spent in European airspace. There is further disagreement about airlines profiting from the aviation law. A report by the Center for American Progress found that airlines would increase profits by 20-30% per year, gaining them between $380 million and $570 million. In 2009, an American trade association launched a lawsuit to dispute the legality of the ETS initiative; however, in 2011 the European Court of Justice overruled the concern as invalid.
Weeks after the ETS introduced the “carbon tax,” China’s government banned all Chinese airlines from purchasing permits or compensating for it to abide the European legislation. It views the system as a disguised trade barrier that runs contrary to the UN Convention on International Civil Aviation (1944), which regulates the freedom of airspace. A U.S. Senate committee approved a bill at the beginning of August that would similarly forbid all U.S. airlines from participating in the scheme. Airlines in the U.S., China, and other countries that opt out could find themselves banned from all EU airports. Non-EU countries that are looking at alternate options to reduce carbon emissions would be forced to impose comparable measures against European airlines, thus triggering an unnecessary trade war. In fact, India has already warned Brussels about banning European airlines from its airspace if the EU pursues the policy. In a time of globalization and economic uncertainty, such changes would be counterproductive.
The only alternative the EU has agreed to thus far is for the UN’s International Civil Aviation Organization (ICAO) to propose a comparable way to decrease carbon emissions from the aviation industry. The opposing countries are keen to collaborate with ICAO to address the issue, however they have not yet settled on anything concrete. The pressure is now on ICAO as both sides push for a solution. But with time running out, it is questionable whether they will be able to satisfy everyone before airlines start being charged for allowances in April 2013.
The European Commission is insistent on implementing the scheme to mitigate the long-term environmental impact of emissions, regardless of the negative repercussions it would have on a number of sectors in an already struggling economy, and despite opposition to it. Yet if the EU goes ahead with the plan and does not take non-EU countries’ concerns into account, it would likely result in a series of overlapping measures that would not only further politicize the issue, but would also be unnecessarily messy and difficult to effectively implement. This raises the question of whether those countries disputing the ETS’ extension to airlines have legitimate reason to do so, or if they can put aside their differences to address the more critical issue at hand.