A global trade war over the European Union’s controversial aviation carbon tax is drawing closer with Brussels refusing to budge as Washington and its allies ratchet up the retaliatory rhetoric.
The United States raised the stakes in late July when the Senate Commerce Committee approved a bill authorizing Transportation Secretary Ray LaHood to bar U.S. airlines from complying with the EU’s extension of its cap-and-trade, or Emissions Trading Scheme, to the aviation sector.
The United States also hosted a meeting of 17 nations in Washington in early August, including economic superpowers China, India, Russia and Japan, which have joined forces to oppose a measure LaHood denounced as “a lousy policy, a lousy law.”
Industry lobbyist Airlines for America and the U.S. Chamber of Commerce joined the fray with a letter urging Secretary of State Hillary Clinton and LaHood to file an action against the EU with the International Civil Aviation Organization, the United Nations’ aviation body.
But Brussels is in no mood to appease its critics. It insists its unilateral carbon tax plan, which was drawn up in 2007 and took effect on Jan. 1, is the result of the failure of the 191-member ICAO to take any action over the past decade to curb rapidly growing greenhouse gas emissions from the aviation industry.
Nor is Brussels demonstrating any willingness to tweak the program to defuse the hostility — most obviously by removing the requirement that airlines flying to and from its airports must pay for the carbon emissions during the entire flight, not just the portion in EU airspace.
In fact, the EU is growing more aggressively confident it will prevail. The failure of the U.S.-hosted meeting to fashion a joint declaration after two days of talks was “noteworthy,” the EU’s climate action Commissioner Connie Hedegaard tweeted.
The Senate Commerce Committee didn’t cause EU policymakers to lose much sleep either. The committee’s bill contains compromise language requiring the secretary of transportation to hold public hearings before implementing any ban on U.S. carriers complying with the EU plan. Washington also would have to hold international negotiations “to pursue a worldwide approach” to curb carbon dioxide emissions.
“The senators miss the point. Anyone can call for action at ICAO. It’s been a hobby for many years,” said Bill Hemmings, program manager of Brussels-based lobbying group Transport and Environment.
Added Annie Petsonk, international counsel at the New York-based Environmental Defense Fund: “We’ve been in hot pursuit of this (an ICAO framework) for 15 years, so what makes the Senate think this is any different?”
The EU said it’s ready to take part in an ICAO solution if it’s nondiscriminatory, mandatory in every country and more environmentally stringent than its own program. It’s also well aware these conditions won’t be met anytime soon.
While lawmakers, diplomats, green lobbyists and airline lawyers and lobbyists trade barbs and rehash old arguments, the carriers themselves are involved in a struggle for profitability, and in some cases survival, that makes the EU carbon tax look like a minor irritant.
Some of the industry’s biggest carriers are facing early deadlines on key decisions. AMR, parent of American Airlines, will likely decide whether to merge with another carrier in “a matter of weeks,” CEO Tom Horton said. American has been reorganizing under Chapter 11 bankruptcy protection since last November.
Air France is treading a labor relations minefield as it prepares to lay off more than 5,000 employees in a bid to slash $2.5 billion a year of costs and return to profitability.
International Airlines Group, the merged British Airways and Iberia carrier, plans to unveil a radical restructuring by the end of September to tackle the “deep and structural” problems of its Spanish unit.
The slide in fuel prices from recent highs, coupled with a 7.4 percent increase in international air passenger traffic in June following a 5.6 percent rise in May and a 1.1 percent growth in freight that suggests the global cargo market has finally bottomed out also have bolstered the industry.
The industry itself appears relatively sanguine about the EU’s carbon tax, in part because it won’t be a major cost burden on individual carriers. Because it also applies to all airlines, no carrier will be at a competitive disadvantage.
Only 10 carriers — eight Chinese and two Indian — failed to comply with the ETS requirements. Delta Air Lines, the second-largest U.S. carrier, introduced an ETS-linked surcharge of $3 a ticket for flights to Europe in January. By contrast, Delta charges $60 for a second checked bag.
That’s not to say the industry doesn’t complain about the EU measure and its likely impact on airlines. “Introducing a divisive regional ETS risks a trade war that nobody can afford,” International Air Transport Association CEO Tony Tyler warned.
But there’s still time to cut a face-saving compromise because airlines won’t be billed until April 2013, after the EU calculates each carrier’s annual carbon output for this year. Most of the certificates for carbon dioxide emissions for 2012 will be granted for free, though carriers must buy or trade credits to cover the remainder, and the cost will increase annually after next year.
This gives Brussels and its opponents an opportunity to fashion an agreement to present to the next ICAO assembly in September 2013. The industry appears confident the politicians can cut a deal. “We expect that the objectionable elements of the (EU) scheme will be withdrawn,” Tyler said.
Contact Bruce Barnard at email@example.com.