Airlines Shouldn’t Crater to the E.U. Carbon Caper

Following collapse of a crusade to extend the Kyoto Protocol last December, the E.U. came up with a new anti-carbon battle plan aimed at all airlines flying to and from Europe. Effective as of January 1st, Brussels imposed a $135/ton tax on airline carbon emissions exceeding established E.U. limits.

Operating under rules established by their Emissions Trading Scheme (ETS), each airline will be allocated pollution permits slightly less than its average historical emissions record over their entire routes until they touch down in Europe. If a carrier exceeds its limits it can buy permits from others that have emitted less than allowed. They threaten that those refusing to pay will be banned from Europe altogether. But consider…with their economy already in shambles, wouldn’t that be really, really dumb?

Some countries are calling their bluff. The China Air Transport Association (CATA) representing Air China, China Southern Airlines, China Eastern Airlines and Hainan Airlines has announced an intent to ignore the ban, claiming that the plan could cost their industry an extra $124 million annually.

China has also warned that it may implement retaliatory measures against such a levy. Beijing has floated a proposal to cut Airbus purchases, and Chinese carriers are launching a lawsuit challenge. Russia is considering cancellation of Airbus orders as well, along with a massive fuel tax on E.U. airlines plus a territorial over-flight charge for those carriers.

Russia also cautions that it reserves the right to reject requests from E.U. carriers that seek to increase flights through Siberian airspace. They point out that this will be a fair consequence of costs imposed upon their European airline flights resulting from emission penalties that may amount to 20 million to 25 million euros annually.

India may respond by imposing their own payback tax and placing some restrictions on a current horizontal aviation agreement which allows any European airline to operate between India and any E.U. member country. Commenting at the last G20 meeting, Finance Minister Pranab Mukheriee stated: “India believes that some of the measures like carbon export optimization tax…violate the principles of the Convention [United Nations Framework Convention on Climate Change] as their incidence falls entirely on developing countries and these cannot be recognized as a source of new and additional finance for climate change.”

The U.N.’s International Civil Aviation Organization (ICAO) council, of which India is a member, has also criticized the E.U. plan. Last September the ICAO unanimously adopted a “Delhi Declaration” opposing it as being “inconsistent with applicable international law” and urged the E.U. to refrain from imposing the tax.

The E.U. move is also being strongly opposed by the International Air Transport Association. Speaking to the BBC, IATA Director General Tony Tyler said: “The money being raised through this measure, along with all the money being raised by other taxes that are imposed on the industry in the name of the environment, none of it gets spent on anything that’s going to reduce emissions.”

IATA estimates that the rule will cost $1.35 billion this year, and $4.2 billion annually by 2020. That’s a big deal for an industry that expects to turn a total $4.725 billion 2012 profit. Even though much or all of that extra cost will be passed on to travelers, it is bound to dampen consumer demand, particularly for European flights. Two U.S. airlines, United and Delta, have already raised their fares in response to the disputed E.U. ruling.

On February 22, following a two-day meeting in Moscow, officials from 23 nations agreed to coordinate potential trade retaliations. This was a follow-up to a joint understanding reached last September which declared that “…the unilaterally imposed [European] measures were inconsistent with international legal regimes.” This was centrally premised upon a 1944 Chicago convention on aviation that gives every signatory “…complete and exclusive sovereignty over airspace above its territory.” Yet a ruling from the European Court of Justice rejected a challenge brought by American and Canadian airlines arguing that while all E.U. nation members had indeed ratified the convention, the E.U. can’t be bound by it since it didn’t exist at that time.

In a letter sent last year to the European Commission, Secretary of State Hillary Clinton and Transportation Secretary Ray LaHood expressed strong legal and policy objections to the move, and warned that Washington “…will be compelled to take appropriate action” if the E.U. doesn’t back down. Such measures could include a tax on European airlines that fly into the U.S.

It doesn’t appear likely, however, that the current White House will impose very aggressive sanctions. According to a New York Times article authored by Andrew Kramer last week, the Obama administration actually supports global rules on greenhouse gas emissions by airlines on international flights. It only opposes the European measure due to possible violations of existing aviation treaties and because it could delay work on a more sweeping worldwide agreement in the U.N.Isaac Valero-Ladron, the E.U. spokesman for climate action, insisted that they aren’t particularly concerned about any sanctions, stating: “we’re not modifying our law and we’re not backing down. We’re confident that companies will comply. The penalties are much higher (than complying).”

Yet the most costly penalties of all are likely to be those visited upon the E.U. through a united international response to their global warming-predicated folly. As China’s state-owned news agency Xinhua reported: “This is a trade barrier in the name of environmental protection, and it constitutes an attack on interests of travelers and the international aviation industry. It will be difficult to avoid a trade war focused on a ‘carbon tax’ for airlines.” China’s CATA deputy secretary-general Cai Haibo urged:, “If governments like the U.S., China and Russia launch strong and forceful retaliatory measures, this will form enormous pressure and we hope could make the E.U. change its mind.”

The last thing that we want to see is a trade war,” said Giovanni Bisignani, head of the International Air Transport Association, adding that the E.U. had to heed a “growing chorus of countries strongly opposing an illegal extraterritorial scheme”.

It’s difficult to imagine how, following the Kyoto Protocol failure, a trade war over implementing yet another unwarranted carbon emission cap-and-trade scheme would serve any real benefit. Since first established in 2005, Europe’s carbon cap-and-trade has been rocked by tax-fraud and other scandals with no measurable achievements. Over recent years, carbon prices have continually plummeted amid economic declines.

Support for cap-and-trade has certainly abated in this country, as evidenced when a major European bank, London-based Barclays, closed its U.S. carbon trading business earlier this year. The market was too small to justify a dedicated New York operation. Barclays was a big player in U.S. East and West Coast trading programs and remains active in Europe’s carbon market, the world’s largest.

Even President Obama, who originally championed a national cap-and-trade program, backed away from pushing for one after chances of approval were swept away in a 2010 Republican House cleaning. That development left only a state-run carbon market in the Northeast where prices have crashed by more than 40% since 2008. Another state-level market scheduled to begin in California has been delayed until 2013 due in large part to a legal challenge from environmental justice activists who actually oppose carbon trading.

The big question now is whether or not our government will take real actions to protect the U.S. airline industry and its users from capricious, illegitimate regulations promulgated by the E.U. And for those of you who may have been thinking about a European vacation I’ll add one more thought. Have you considered other wonderful places you could visit right here in America? The options are endless, and your travel will be less taxing.