The EU is taking a tough line on aviation emissions. Let's not call it ‘trade war' or ‘unilateralism'.

There's nothing like the prospect of a whole bunch of regulations to persuade countries to ditch their differences. This week, the representatives of 26 nations — from India, Russia, China and the US to Cuba, Egypt, Qatar and South Africa — will meet in Moscow to decide what they're going to do about the European Union's insistence on including airlines that fly in or out of the European Union in its Emission Trading Scheme.

Despite the very vocal opposition, legal challenges, and warnings of non-compliance, retaliatory action and a global trade war, the European Commission shows little sign of budging. Judging by its track record on challenges to it in the past, this is a position it is unlikely to change.

Emission trading scheme

The EU introduced an emission trading scheme back in 2005, to help it meet its Kyoto Protocol commitments (to cut emissions by 20 per cent by 2020 from 1990 levels) by monitoring the emissions of certain industries, and incentivising firms to reduce their emissions. It began with sectors such as energy production, and heavy manufacturers, and proved a success: EU greenhouse gas emissions fell 5.3 per cent between 1990 and 2003.

However, with aviation emissions rising 73 per cent (according to a Deutsche Bank report) over that period, the industry became the obvious target, and with little prospect of action on the international stage — including via the UN's International Civil Aviation Organisation — the EU decided to act unilaterally.

In January 2009, it passed legislation to include airlines in the ETS from January 2012, covering flights to and from 30 European destinations, including the 27 members of the European Union, Iceland, Liechtenstein and Norway. It requires airlines to report their emissions data to receive their allowances: 82 per cent are allocated as free permits, while a further 15 per cent can be acquired via a paid auction. The remaining 3 per cent is held in reserve.

The airline industry cried foul — arguing that it was unilateral action that went against the Chicago Convention of 1944, which gave nations full control of their airspace. The EU proposal appeared to contradict that sovereignty commitment by requiring airlines to monitor and account for all the emissions en route, even outside the EU's boundaries.

The International Air Transport Association also warned that it could cost the industry ¤2.8 billion a year by 2020 which, given the economic crisis and high fuel costs, was a cost too far.

What's the fuss about?

Yet, as the clamouring of airlines has grown louder and louder, so has the questioning of their stance. Setting aside the fact that the objections are based on a convention that came into place nearly 70 years ago, when there was little recognition of climate change, a growing body of evidence appears to show that the costs will be far less onerous than the industry suggests.

In fact, a recent academic study, published in the Journal of Air Transport Management and part funded by the US Federal Aviation Administration office of Environment and Energy predicts that US airlines could stand to gain up to $2.6 billion, as a result of the system, with low carbon prices and the possibility of airlines passing through the full cost of the permits.

Meanwhile, Barclays Capital predicts that in the current year, total global costs for the industry would be around ¤300 million, just ¤75 million of which would fall on non-European carriers. “With these costs likely to result in passenger fares going up by little more than ¤2 to ¤3 per transatlantic flight, it is really hard to see what all the fuss is about,” wrote Barclays Capital's Trevor Sikorski in a note published this week.

Earlier this year, British budget airline Ryanair announced it would be raising its ticket prices by ¤0.25 a person to cover the costs of the emission trading scheme.

With airlines having to purchase just 15 per cent of permits, it will be far less onerous than the burden on other industries — power firms in Europe will soon have to purchase all their allowances, as will heavy manufacturers by 2020. And while many of the industries under the ETS have to reduce emissions below 1990s levels, for airlines the benchmark is 2005, and airlines will be able to buy permits from other industries.

Share of emissions pie

Campaigners also question the industry's argument that the fact that it contributes just 2 per cent to global emissions, and is taking concerted action to increase efficiency should be taken into consideration. “Two per cent is more than the UK's contribution,” says Mr Tim Johnson, director of the Aviation Environment Federation, UK.

There is also substantial evidence to suggest that this proportion will continue to rise as efficiency and clean energy gains by the industry fail to make up for the huge increase in travel expected. A 2009 study in journal The Atmospheric Environment estimates that aviation emissions contributing to climate change could constitute 4.7 per cent of such emissions by 2050.

“Given that it contributes just 0.7 per cent to global GDP that's a sizable figure,” says Mr Keith Allot, head of climate change at WWF-UK.

The European Commission has defended the inclusion, arguing that it has been forced to this point because of lack of any action at an international level, despite the task set for the UN's ICAO at Kyoto to look into possible measures, after both shipping and aviation were exempt from strict national emission targets.

It has also said it would revisit the inclusion, should there be progress on the global front. “We have been fighting for this for more than 20 years…we are looking forward to a global solution if a global agreement could be reached that is as ambitious,” says Mr Isaac Valero Ladron, spokesperson for European Commissioner for Climate Action, Ms Connie Hedegaard.

Towards solutions

The EC has also insisted that should countries — such as India — chose to introduce equivalent measures, through binding legislation to tackle aviation emissions, at home, then flights on particular routes into the European Union (for both European and non-European airlines flying that route) could potentially be exempted.

The measures would have to be up to individual countries to propose alternatives that fitted their situation, rather than the EC attempting a-one-size-fits-all set of options that might not work in different legislative systems, he added.

The Commission has also had its hand strengthened by a European Court of Justice ruling in December, rejecting the contentions of the Air Transport Association of America, American Airlines and United Continental that the scheme broke international law or open skies agreements.

The possibility that the EC's refusal to budge could finally spur the global community into action on aviation emissions is perhaps the biggest argument for it, and there are growing signs that may be the case. The head of the ICAO recently said that options were currently being drawn up, with a solution potentially being put to the assembly for consideration by late 2013.

The airline and shipping industries have long had an easier ride than many sectors when it comes to tackling climate change. The EU proposal may not be a perfect solution, but is an important step. Hiding behind the arguments of unilateralism and a trade war ignore the realities and is something India shouldn't be a part of.

(This article was published on February 19, 2012)
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