Bridges Weekly Trade News DigestVolume 16Number 7 • 22nd February 2012

Opponents of EU Aviation Carbon Law Agree on Possible Countermeasures

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Countries that oppose an EU rule requiring airlines to surrender carbon permits for the emissions they produce during all flights taking off or landing in the 27-country bloc now have an agreed set of options for retaliation. The 22 February announcement by Russian officials is the latest salvo in an ongoing row over the Brussels plan that some fear could escalate into a ‘trade war.’

The law’s opponents - a group of over 20 countries that includes the US, China, India, and Russia - met in Moscow on 21 and 22 February to discuss possible responses to the inclusion of aviation in the EU carbon scheme. Tensions over the controversial Brussels plan had built up quickly in advance of the Moscow gathering, with the EU holding firm in its stance ahead of the growing opposition.

The set of options agreed at this week’s Moscow meeting include barring airlines from participating in the Brussels plan; filing a formal complaint at the UN’s civil aviation body - the International Civil Aviation Organization, or ICAO; imposing levies or charges on EU airlines as a countermeasure; and stopping talks with EU carriers on new routes.

The basket of options also includes the option for countries to assess whether the EU Emissions Trading System (ETS) “is consistent with the WTO Agreements and [take] appropriate action.”

While the European Court of Justice ruled in December that the inclusion of aviation in the EU ETS was indeed compatible with international law, the court did not examine WTO law, as the WTO’s own adjudicative system has exclusive jurisdiction in this area. (See Bridges Weekly, 11 January 2012)

It will be up to each country to choose which of these measures they wish to use, Russian deputy transport minister Valery Okulov told reporters on Wednesday.

“Every state will chose the most effective and reliable measures that will help to cancel or postpone the implementation of the EU ETS,” Okulov said.

The announcement follows reports on Tuesday that Russia would consider a ban on its airlines participating in the EU Emissions Trading Scheme, along the lines of a Chinese ban announced earlier this month (see Bridges Weekly, 8 February 2012).

Under the EU Emissions Trading System, airlines are required to buy permits for 15 percent of the carbon they emit; permits for the remaining 85 percent will be provided to them for free.

Such a requirement, which entered into force on 1 January, would add approximately €1.5 to the cost of a trip from London to New York, or about €2 to a trip from Beijing to Frankfurt, according to EU officials.

Carriers will have to surrender permits for 2012 carbon production by 30 April 2013.

Airlines that fly to the 27-country EU bloc without complying with the scheme will face a fine of €100 for each tonne of carbon dioxide emitted and for which they have not paid allowances. Persistent offenders could face a blanket ban from all EU airports.

The nations opposing the inclusion of aviation in the ETS have already backed a working paper at the ICAO asking that foreign carriers not to be subject to the EU scheme (see Bridges Weekly, 9 November 2011).

The next meeting of the group of objectors will be hosted in Saudi Arabia this summer.

BASIC countries lambast “unilateral” measure; EU remains steadfast

Ahead of this week’s meeting, the environment ministers of the BASIC group - Brazil, India, China, and South Africa - issued a joint statement on 14 February condemning the EU aviation emissions policy, claiming that Brussels was “jeopardising international efforts against climate change” by acting unilaterally.

In response, EU Climate Commissioner Connie Hedegaard noted that Europe had already tried to work through the ICAO in an attempt to find a multilateral solution to curbing emissions from aviation.

“Everybody knows that Europe has been fighting for a multilateral system. Everybody knows that other parties blocked that,” she said.

However, Hedegaard urged the opponents of the ETS to take their complaints to the ICAO, where talks could help to diffuse the tensions over the scheme.

“Nobody has an interest in a trade war,” the EU climate chief stressed.

China is currently the only nation to have taken concrete action against the Brussels plan, having banned its airlines from taking part in the scheme.

The United States, for its part, has continued to threaten unspecified action if the measures are enforced. While the US House of Representatives passed a bill in October that would make it illegal for US airlines to comply with the EU scheme, the legislation still requires Senate and presidential approval to become law (see Bridges Weekly, 14 December 2011).

Meanwhile, the Indian government has asked its airlines to rebuff any mandatory requests from the EU for emissions data, which is necessary to calculate emissions payments.

Airlines caught in the middle

The International Air Transport Association (IATA) - a trade body that represents over 230 commercial airlines - has also been a vocal opponent of the EU’s decision to include aviation in its carbon scheme. Airlines have become wedged between conflicting domestic laws, association chief Tony Tyler stressed, noting that Chinese airlines are in an “intolerable” situation because of their country’s disagreement with the EU over the plan.

Speaking last week at a Singapore summit, Tyler insisted that the aviation industry can “ill afford to be caught in an escalating political or trade conflict over the EU ETS,” advocating instead for an ICAO-orchestrated solution.

IATA has also called for the EU to suspend the airline component of the carbon scheme. A suspension, the organisation argues, would allow the ICAO to develop a global framework ahead of its next assembly in the third quarter of 2013, without other states feeling “under duress from Europe.”

IATA officials were also present at this week’s Moscow meeting, according to Reuters.

EU carbon market struggling

As challenges to the EU aviation rule mount, the carbon market that underpins the entire ETS is facing its own set of difficulties. The market has become saturated with excess carbon permits, with the price of carbon dropping drastically as a result.

Carbon prices currently sit at around €8 per tonne, compared with its 2008 peak of nearly €30 per tonne. Many policymakers and analysts consider the current price of carbon to be well below the amount necessary to stimulate the levels of desired investment in green technologies.

In response, EU parliamentarians are expected to vote this month to increase pressure on the European Commission to remove some carbon allowances in order to increase the price of carbon. The current wording of the text does not specify an exact amount of allowances to be removed, asking only that the Commission implement measures that may include withholding the “necessary amount.”

ICTSD reporting; “Moscow air talks to debate measures against EU: draft,” REUTERS, 17 February 2012; “EU politicians agree compromise text on CO2 allowances,” REUTERS, 16 February 2012; “EU climate chief: would see merit in airline CO2 talks at UN,” REUTERS, 15 February 2012; “EU airline charge hurts climate fight - China, India,” REUTERS, 14 February 2012; “EU vows to keep airline-emission levies as China-India opposition mounts,” BLOOMBERG, 13 February 2012; “Emissions trading: Cheap and dirty,” FINANCIAL TIMES, 13 February 2012; “Airlines urge UN deal to avert carbon trade war,” REUTERS, 12 February 2012; “Nations agree options to fight EU airline CO2 rule,” REUTERS, 22 February 2012; “Russia leads attack against EU airline CO2 law,” REUTERS, 22 February 2012.

3 responses to “Opponents of EU Aviation Carbon Law Agree on Possible Countermeasures”

  1. Jeff Gazzard

    The statement from today’s Moscow meeting is vacuous posturing.

    An urgent reality check is needed to offset the notion that the entire aviation industry is a collection of anti-environment ETS-refuseniks. They aren’t: there are already a significant amount of global airlines in full compliance with the EU Aviation ETS regulations.

    In fact, “significant” in this case means 100%, as every single airline that flies in and out of the EU has already registered under every aspect of the ETS with their respective regulator in each EU member state; they have met every deadline along the way; and many are active in carbon markets. They have effectively already surrendered.

    And here is a snapshot of how ticket prices are already being impacted:

    • Etihad Airways, Abu Dhabi’s carrier, has increased the fuel surcharge on all its flights to Europe to counter the costs of the EU’s Emissions Trading Scheme by USD$3 per passenger for flights into and out of Europe and 0.03 cents per kilogram for cargo shipments.
    • Delta Air Lines, American Airlines, United Continental and US Airways say they have already added a $3 surcharge each way on tickets for flights between the United States and Europe
    • ryanair introduced a 0.25 Euro levy per passenger per flight from 17th January to cover its’ ETS costs
    • Air France/KLM, British Airways and Lufthansa have each added ETS costs to ticket prices via an increase in their existing fuel surcharge although the actual amount is a little opaque
    • and many other airlines, such as Thai Airways, have already been buying carbon permits, taking advantage of the current record low prices of around 7.9Euros per tonne of carbon.
    • and earlier this month, Qantas said it would raise fares by A$3.50 ($3.77) per passenger each way on flights to London and Frankfurt, to cover the cost of the EU ETS.

    These are low, low pass through levels that will not bring about the collapse of air transport as we know it! Now call me naive but this is compliance, is it not? It is sad but true that all the countries meeting in Moscow later this week appear simply to want to bring about the complete collapse of the EU ETS, nothing more, nothing less.

    We know today that growth in global aviation fuel use and emissions through to 2050 unfortunately outpaces the very best that airframe/engine technology, improved ATM systems and smart operational techniques have to offer. And this includes the rather witless promotion of unsustainable biofuels as part of the industry’s PR-led attempt to manufacture consent for unlimited growth. They have nothing to offer but a high carbon future. This is not a destination we should all be hurtling towards at 39,000 feet and 500 miles per hour.

    The EU rightly continues to stand firm to protect the integrity of the aviation ETS which clearly should be developed as the global market-based element in a worldwide programme to control and reduce damaging climate change emissions from civil aviation.

    Jeffrey Gazzard
    Board Member
    Aviation Environment Federation

  2. Jacky

    Thank ictsd for keeping us posted.
    So interesting! The declaration at Moscow includes a measure to look into WTO compliance.
    EU seems not serious or capable to have conducted genuine dialogue because it did not provide any negotiable alternative options.

  3. Rob Howse

    It is misleading to describe the threatened retaliatory action as “countermeasures”. Countermeasures are a response to an internationally wrongful act-a violation of either treaty or customary law. A more neutral description would be simply retaliation or sanctions. It is important to note that the EU aviation ETS has not be found to be internationally wrongful by any competent court or tribunal. To the extent that it may be alleged that the EU aviation ETS violates WTO law (and I do not think it does myself), it is arguable that the WTO Dispute Settlement Understanding is a lex specialis of state responsibility, such that any application of retaliatory measures for violations of WTO law should occur through the operation of the WTO dispute settlement system. See in this respect Article 23 of the DSU.

  4. Anonymous

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