China Southern and other big Chinese carriers refuse to pay the EU's carbon emissions tax.

The European Union’s plan to impose a carbon tax on flights in and out of the region has drawn criticism from around the world, but Chinese airlines have now become the first to flat-out refuse to pay the tax.

Part of the European Union’s emission trading scheme (ETS), the tariff went into effect at the start of the year and is tallied based on the entire route of a flight, not just the portion that uses European air space. Uncooperative airlines could face fines of 100 euros per ton of emissions, and eventually be banned from European airports.

“China will not cooperate with the European Union on the ETS, so Chinese airlines will not impose surcharges on customers relating to the emissions tax,” said Cai Haibo, deputy secretary-general of the China Air Transport Association (CATA), according to Reuters.

China is far from alone in its opposition to the new tax. The Air Transport Association, along with three U.S. carriers, filed suit in Europe last year to have the tax blocked, arguing that the International Civil Aviation Organization (ICAO), a UN agency, is the appropriate body to impose such a tax. Legislation has been introduced in Congress that would formalize U.S. opposition. India’s civil aviation ministry has reportedly told airlines not to submit the data that the EU requires under the ETS. And Australia’s Qantas Airlines has threatened a lawsuit.

Although airlines would not actually pay until March of 2013, the ETS began affecting flights January 1, so passengers could begin to see fare increases soon.

Estimates differ on how much the tax will cost airlines, and how much airlines would pass on to passengers. The European Commission puts the cost at two to 12 euros (about $2.50 to $15) per passenger per flight, but aviation analysts have come up with other figures. One told Dubai’s Gulf News that he believed the cost would come to $20 to $30 per trip, just for short hauls within Europe. A spokesperson for Cathay Pacific told Reuters that the ETS would add about $6.44 to a ticket from Hong Kong to Europe. And Tony Tyler, director general of the International Air Transport Association (IATA), estimates the ETS’ cost to airlines in 2012 will reach 1.2 billion euros ($1.53 billion).

Photo: Heurik Manuel Pajer, Wikimedia Commons

Related posts:
EU Pushes Hard for Aviation ETS Rollout
EU Plays High Stakes Aviatoin Chicken With US and China
American Airlines Files for Chapter 11
Customer Satisfaction With Airlines Is Up — Except for Fees
Airline Fee Revenue Soars to $21.5 Billion

With the publication of benchmark values to be used for allocating CO2 emission allowances to more than 900 aircraft operators worldwide, the European Commission has made the aviation sector’s inclusion in the EU’s emissions trading system (EU ETS) official as of Jan. 1, 2012.

Carbon Emissions

From 2013 to 2020, an airline will receive (pdf) 0.6422 allowances per 1,000 tonne-kilometres, while in 2012 it will receive 0.6797 allowances.

About 1.6 billion metric tons of these “free” carbon allowances will be handed out to airlines, which works out to about $27 billion over nine years from 2012 to 2020.

“At current market prices these free allowances represent more than €20 billion over the decade,” said climate action commissioner Connie Hedegaard. “With these potential revenues, airlines could invest in modernizing their fleets, improving fuel efficiency and using non-fossil aviation fuel.”

European Commission director-general for climate Jos Delbeke went one step further and directly suggested that airlines should fund the purchase of new planes by passing the full cost of the carbon tax on to customers, while the airlines can skip paying $27 billion of the tax.

There’s something deeply flawed with an argument where a cut in a new tax yet to be implemented is considered extra revenue. But let’s skip over that for now because the aviation sector isn’t buying it anyway.

“IATA is not opposed to emissions trading,” said IATA Director General and CEO Tony Tyler. “We support the concept as a possible mechanism for the fourth pillar of our environment strategy. But the EU’s unilateral and regional approach to ETS could not be more misguided.”

U.S. carriers have taken the European Commission to court over its inclusion in EU ETS and the U.S. government is considering legislation to prohibit its carriers from participating.

But the EU isn’t just handing out memos and rulings. It coordinated the announcement with the leak of a report prepared by the World Bank and IMF that proposes global carbon taxes on aviation and ship fuels in developed economies.

The World Bank/IMF report suggests a global $25 per ton of CO2 charge on aviation and maritime bunker fuels, which would work out to $250 billion in taxes by 2020.

Also timed to coincide with the aviation ETS announcement was a report by the European Commission’s Joint Research Center, which says that global CO2 emissions jumped 45 percent from 1990 to 2010.

Photo – said&done

Related posts:
EU Plays High Stakes Aviation Chicken With US and China
Cap-and-Trade Would Hamper Airlines’ Green Progress
Pentagon, BA Searching for Fuel’s Gold in Garbage & Algae

In a struggling economy, what would encourage the European Union (EU) to throw away a certain $3.8 billion order and risk destroying a $388 billion industry?

Starting Jan. 1, 2012, any domestic or international flight landing in or departing from an EU airport will come under the hammer of the EU Emissions Trading System (ETS).

This means that carriers whose planes are flying in and out will have to buy the right to pollute the EU skies. To be specific, 85 percent is free, but the airline will have to bid in an auction to buy the rights for the remaining 15 percent of their own emissions.

The system is described in detail here, but the short version is that it will add $1.9 billion in costs to the global airline industry in 2012, which will allow planes to emit 213 million tons of carbon dioxide. The costs will rise to $9.89 billion by 2020.

The matter has been on a slow boil for the past year or so, but things came to a head at the recently concluded Paris Air Show, where Hong Kong Airlines was expected to formally announce a $3.8 billion order for 10 Airbus A380 planes. The order was put on hold by Beijing.

Airbus chief Tom Enders had, in fact, explicitly warned the EU about this in a letter sent on May 24, 2011. Here’s how it has played out since then:

Tom Enders, Airbus chief executive: “Particularly during these times of austerity, it is madness to risk retaliation against a €275 billion industry which supports a massive 4.5 million jobs.”

Wei Zhenzhong, head of the China Air Transport Association: “I believe we have to take legal action.”

FAA Reauthorization Bill text in the U.S. House of Representatives: “Officials [of] the United States Government, and particularly the Secretary of Transportation and the Administrator of the Federal Aviation Administration, should use all political, diplomatic and legal tools at the disposal of the United States to ensure that the European Union’s emissions trading scheme is not applied to aircraft registered by the United States.”

Giovanni Bisignani, IATA director general: “The last thing that we want to see is a trade war.”

Connie Hedegaard, EU climate commissioner, in response to an article in Financial Times: “Glad that FT agrees that Europe needs to stand up to threats. Am sure that European companies get why this principle is worth fighting for.”

Isaac Valero Ladron, spokesman for EU climate action commissioner Connie Hedegaard: “Whatever the Chinese or the Americans are saying, there is no Plan B–we don’t intend to back down.”

The Americans and Chinese don’t intend to back down either. China has already hit the EU with the $3.8 billion Airbus order. The Air Transport Association of America (ATA) is fighting it in the European Courts.

The next hearing is on July 5, 2011 in the European Court of Justice in Luxembourg. Depending on what happens there, the United States and the ATA will decide what to do next. But the court proceedings could take months and the clock is ticking.

One possible solution being pursued by both the United States and China is that they could be given special exemptions, based on a loophole that allows countries to be exempt from ETS if they have their own domestic greenhouse gas reduction plan.

But if the discussions over the exemption don’t pan out, and the courts can’t decide by the end of the year, then air travel to and from Europe is suddenly going to get more expensive starting 2012, and there’s going to be an aviation trade war.

Photo – Karen Eliot

Related posts:
EU Aviation Emissions Trading System Debate Hits United Nations
IATA Sweating Over Copenhagen Blowback On Airline Emissions
TravelTechnology Weekly – Paris Airbus Show, HITEC…

The US, Canada and Mexico have sent an official letter to a UN body asking for a resolution to stop the EU Emissions Trading System (EU ETS) for Aviation, which is scheduled to start in January 2012. 

Emissions Market

Under EU ETS, airlines would have to buy allowances (EUA) to offset their CO2 emissions. When it starts in 2012, 85% of the EUA will be free, but airlines would need to purchase the balance 15% on the market. This percentage would increase gradually and by 2020, airlines would need to purchase the full 100% of their allowance.

According to IATA estimates, airlines would need to buy allowances for around 104 million tonnes of CO2 in 2012, rising to 209 million tonnes by 2020.

Based on a €33 trading price, the IATA estimates that the airline industry would end up paying €3.5 billion in 2012, rising to €6.9 billion by 2020. This would add 12 € cents per gallon of jet fuel, rising to 17 € cents by 2020.

Bottomline is that the global airline industry and governments outside the EU are all united in their opposition to the unilateral nature of the EU ETS. The US Air Transport Association, American Airlines, Continental Airlines and United Airlines have already filed a legal challenge against it in the UK High Court of Justice.

Now they’re supported by the federal governments of the United States, Canada and Mexico, who have sent a joint letter to the UN International Civil Aviation Organization.

The letter says that there is no global agreement on one country imposing an emissions trading system on another one’s airlines, and asks for a resolution disallowing this unless there is an agreement between the two countries. The resolution would be non-binding, but the political reality is that the EU cannot ignore it.

If the resolution is passed, the end result would mean that the EU ETS for aviation would be postponed indefinitely, pending a global emissions scheme for airlines. The EU won’t even be able to force its own airline companies into ETS, because it would give the non-participating airlines outside the EU an unfair advantage. 

But a global cap & trade system for aviation doesn’t look likely to happen anytime in the near future. The end result is a win-win situation for the airline industry.

Related Resources:-
ec.europa.eu/environment/climat/aviation/index_en.htm 
www.iata.org/whatwedo/environment/Pages/emissions-europe.aspx

Photo – Karen Eliot