EU gambles with aviation levy

Shelving emissions tax on flights plying in and out of Europe would be seen positively by India and China, but the issue of aviation emissions remains unaddressed.

November 18, 2012:  

When the European Commission launched its controversial levy on airlines, by including aviation emissions in its emissions trading scheme from January this year, opposition was vociferous and surprisingly united.

Airlines and governments from the US to India to China joined forces to rail against what they labelled as a breach of sovereignty, even warning that the consequence could be a trade war.

At first the Commission stood firm, warning that threats of a trade war should not be made lightly. “It is not right that by threatening us they think they can make a democratic system change democratically made laws,” Connie Hedegaard, the EU’s Commissioner for Climate Action, told this paper in an interview back in March, insisting even if there were retaliatory action, the Commission would not back down.

EU CLIMBDOWN?

Eight months later, however, things have taken a surprising turn: last week Hedegaard announced that — subject to agreement by the EU’s 27 member states and the European Parliament — the Commission planned to “stop the clock” on enforcing the inclusion of aviation in the ETS for flights in and out of Europe until after the International Civil Aviation Organisation’s (ICAO) general assembly meeting next autumn.

Hedegaard said she had been encouraged by developments in that UN body’s council the week before, including an agreement to form a “high level group” to come up with recommendations on a global market-based measure scheme to address the issue of emissions.

“Finally we have a chance to get an international regulation on emissions from aviation…this is indeed progress,” she said during a press conference. “We have no guarantees, but we have seen developments in recent months in ICAO that indicate that more and more countries understand why we should try and get the international framework around these things, and why global market and regional market based mechanisms make sense.”

The announcement came with a warning, however, that should there be no progress by the time of the ICAO triennial meeting in 2013, then the ETS would be reinstated “automatically.” The Commission insists that its actions don’t amount to a climbdown. The moves were purely a result of the “positive developments” at ICAO and to create a “space for the negotiations,” says Hedegaard’s spokesperson, Isaac Valero-Ladron.

Still, not all are convinced by the Commission’s actions, fearful that it could take much-needed pressure off the global community to act. “It is a huge concession,” says Jean Leston, senior transport policy advisor at WWF. “At the moment they have a lot of leverage in the ICAO process, which they will start to lose by already giving away some of their bargaining position.”

Others are fearful that whatever is agreed at ICAO could be a long way from the European Commission’s current scheme. Rather than laying down of a globally-applied market based measure, it could simply result in some sort of “framework” with ground rules on how some sort of aviation ATS should be applied across regions.

“What we would like is a clear signal that this suspension is about a global market-based mechanism and not just a framework,” says Tim Johnson, director of the Aviation Environment Federation.

INCONSISTENT RULES

Complicating the matter further is the fact that in the interim there’s an imbalance between rules for flights within the EU, which will continue to be subject to the ETS, and those going in and out of the region.

As a spokesperson for the Association of European Airlines explained, this was, in fact, discriminatory, despite the EC’s insistence that it isn’t. (For example, an airline flying directly from Dubai straight to a German destination would not have the tax, while a European airline that offered a route with a stopover in another European destination would have one leg of the journey subject to the tax).

The association has expressed its concerns about this, though it is yet to decide what steps to take. Opposition and pressure from European airlines could impact the approval process that the commission’s latest proposals must go through.

However, the bigger question is whether the respite period will really change anything. The political pressure on the European Commission should not be underestimated.

Just this week, the US House of Representatives passed a Bill effectively banning the country’s airlines from participating in the EU ETS. Should the Bill get presidential approval, it will pose a major challenge to the EU if it were to reinstate the scheme in the future. Potentially more significantly, pressure has also come from the EU member states that would have to enforce the ETS and any penalties, should foreign airlines fail to comply.

Germany, Britain and France, in particular, are fearful that their airlines, and the aerospace sector (Airbus, for example) could lose out as a result of retaliatory action by foreign governments, and which could be damaging to their economy at a time when the region remains particularly vulnerable. (Earlier this year, the CEO of EADS Louis Gallois warned that the aviation ETS was already impacting orders from Chinese airlines).

EMISSIONS IMPACT

In the meantime, it’s worth recalling the persuasive case for the charges: global aviation emissions are predicted to rise by 70 per cent between 2005 and 2020, and currently account for around 2 per cent of greenhouse gas emissions.

The European Commission’s requirements are far from the onerous ones that many have suggested, requiring airlines to purchase just 15 per cent of their permits (82 per cent are allocated as free permits with allowances allocated to the airlines based on their emissions).

Barclays Capital had estimated the total cost for 2012 at 300 million euros, just a quarter of which would fall on non-EU airlines, and which could be passed on to passengers with a fare increase of 2 to 3 euros (Rs 140-210) a flight.

If there’s something positive to take out of the European Commission’s announcement, it’s that it has certainly diffused a lot of the existing tensions.

Whether it succeeds in pushing countries towards a specific global market-based measure, anything close to the one the European Commission had in mind, remains to be seen.

Eyes are likely to be on the US administration, and whether action on aviation emissions will fall within President Barack Obama’s pledges on climate change.

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