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Countries such as the United States are against the imposition of a carbon tax by the European Union. Above, passengers at the newly opened Maynard H Jackson Jr International Terminal in Atlanta, Georgia. Tami Chappell / Reuters
Countries such as the United States are against the imposition of a carbon tax by the European Union. Above, passengers at the newly opened Maynard H Jackson Jr International Terminal in Atlanta, Georgia. Tami Chappell / Reuters

Global dogfight looms on EU tax

Numerous countries are refusing to cooperate with the European Union on its controversial aviation emissions levy. Observers warn the stand-off may spur a worldwide trade war.

All the delegates chatting over coffees at the International Air Transport Association (Iata) summit in Beijing were agreed on one thing - no one wanted a trade war over the European Union's carbon tax.

But "it's building into one of those Mexican stand-offs you get in B-movie westerns" was one of many metaphors bandied about over the intensifying row between the global airline industry and the EU.

"It's starting to feel a little like August 1914," was a grimmer verdict alluding to the start of the First World War.

Last week, it really did feel like the industry was on a slide very similar to the one that swept the European powers into global conflict - and no one wanted that one either.

And all because the EU has decided to show its exasperation over 10 years of failure to agree carbon emissions levels for the airline industry and has unilaterally imposed a carbon tax on all airlines using its airspace.

Last Friday, the latest "deadline" for the laggard airlines to comply passed without both sides making any direct comment, leaving the world to assume they were still locked on their collision course.

The EU's decision to include aviation in its emissions trading scheme (ETS) dates to 1992, when 193 countries plus the EU agreed to the United Nations framework convention on climate change.

At Kyoto, five years later, the industrialised nations decided to reduce their emissions to 5 per cent below 1990 levels by this year through ETS programmes covering all industrial processes. This legally binding commitment was to be a first step toward slowing, then halting human-induced climate change.

Included in the package was a commitment to pursue limitation or reduction of greenhouse gas (GHG) emissions from aviation fuels, working through the UN's International Civil Aviation Organisation (Icao).

But by 2004, Icao had ruled out the option of a global emissions trading scheme for aviation and instead produced "guidance" for member states to include international aviation in their emissions trading schemes through "mutual agreements".

For several years, the EU warned that, without stronger action by Icao, it would unilaterally include the aviation sector in the existing EU ETS and it in 2008 it did.

Last year, Icao agreed it had to think again on measures to "reach a global solution".

"The EU strongly supports this work," the union responded, but added: "What is agreed ... must be a global solution and deliver more emissions reduction than under measures now in place." It also said its own scheme would go ahead.

The EU concern over aircraft emissions is because, from 1990 to 2010, overall CO2 emissions in the EU declined by about 5 per cent while aviation emissions jumped by about 80 per cent and continues to grow.

"Civil aviation emissions account for 11 per cent of emissions covered by the EU ETS," according to a report by the US congressional research services, entitled Aviation and the European Union's Emission Trading Scheme. "Aviation has the second-largest share of any sector, after power generation. Civil aircraft serving the EU emit more GHG than petroleum refineries and steel plants."

The EU ETS, which came into force on January 1, caps aviation emissions this year at 97 per cent of the average 2004 to 2006 emissions, and applies to all civilian aircraft arriving at or departing from airports in the EU, Norway, Iceland and Liechtenstein. If an airline does not comply, it is subject to an "excess emissions penalty", set at €100 (Dh463) for each tonne of CO2 exceeding an airline's allowances.

What is really causing outrage is not just the high-handed manner of its imposition but that it charges airlines for emissions made outside European airspace. A flight from Beijing to London isn't just liable for its emissions between the Polish border and Heathrow - the EU will levy a charge for the entire 8,160km trip.

Last December, a court case brought before the European Court of Justice by the US airlines association, Airlines for America, and the US carriers American and United/Continental over their inclusion in the EU ETS was thrown out.

Then, on February 27, nations met in Moscow and signed a declaration that in effect promised trade war if the EU did not back down. The signatories included Brazil, China, India, Japan, South Korea, Russia, Saudi Arabia and the United States. The declaration bears close scrutiny.

"The unilateral inclusion of international civil aviation in the EU-ETS has constituted an obstacle to the progress of Icao's work underway to address international civil aviation emissions," said the declaration, noting, "The lack of an adequate response from EU member states to the Icao council's [work] and the lack of a constructive dialogue to address the concerns of the non-EU states that the inclusion of international civil aviation in the EU-ETS leads to serious market distortions and unfair competition."

But the EU has remained defiant.

"We knew what we were doing in Europe when passing this legislation," said Isaac Valero-Ladrón, an EU spokesman on climate change.

"Why should they retaliate if they are serious about emissions? We don't see why there should be a fuss over €2 per passenger on a London to New York return fare. It's less than a cup of coffee at the airport."

But many airlines refused to play ball and last month the EU stated: "There has been systematic non-reporting of 2011 emissions from flights to or from EU airports by airlines based in China and India," said Mr Valero-Ladrón.

"While these 10 airlines - two from India and eight from China - account for less than 3 per cent of emissions under the scheme, the relevant airlines have been reminded to report their emissions data. They have been given until mid-June to report back. In case of non-compliances, member states may apply penalties to non-compliant airlines."

China had already forbidden its airlines from supplying data and the Indian government had "encouraged" its carriers to do likewise. China, although it has not directly linked its decision to freeze orders for 10 A380s and 45 A330s from the European plane maker Airbus to the intensifying dispute, it has not denied it either.

"Recognising the EU rule is challenging the sovereignty of states, various governments around the world opposed to the EU ETS are now evaluating what sanctions can be taken against the EU with the likelihood of a trade war ahead," the Association of Asia-Pacific Airlines said, summing up the current impasse.

An obviously exasperated Tony Tyler, the director general and chief executive of Iata, called for the EU just to delay implementation until the next Icao meeting in 2013.

"They've already delayed for the 10 non-compliant airlines until June. Why can't they just delay a few months longer? The unintended consequences of the unilateral and extra-territorial approach go beyond market distortions to states seeing this as an attack on sovereignty."

If the EU is in any doubt what may follow, it need only refer back to the Moscow declarations' "basket of actions and measures". They call on all signatories to bar their airlines from participating in the EU ETS and set out retaliatory measures. These include "imposing additional levies or charges on EU carriers as a form of countermeasure".

A further category is more menacingly entitled: "Any other actions [or] measures."


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