European Union to put a ‘freeze’ on air transport emissions trading scheme

By Jeff Berman, Group News Editor, and Patrick Burnson, Executive Editor

Earlier this week, media reports indicated that the European Union (EU) will implement a one-year “freeze” on its costly emissions trading scheme (ETS) that would impose new emissions taxes on U.S. and the United States and other nations’ air carriers flying into and out of the EU.

Under the ETS, the EU is calling on all airlines to pay taxes to the EU as part of a “cap and trade” for carbon allowances in an effort to reduce air emissions created as a result of their flights into EU airspace. 

The EU ETS was created in 2005. According to the EU, the ETS places a cap—or limit—on the total amount of certain greenhouse gases that can be emitted by the factories, power plants and other installations in the system. Within this cap, companies receive emission allowances which they can sell to or buy from one another as needed. This is scheduled to take effect for the airline industry on January 1, 2012.

The EU maintains that under the ETS at the end of each year a company must either surrender the allowances needed to cover their actual emissions or pay steep fines.

A Reuters report stated that while the ETS is on hold for now, EU Climate Commissioner Connie Hedegaard said it will resume enforcement if a UN airline body fails to deliver a global deal.

And Dow Jones reported that this development comes on the heels of a productive meeting last week held by the United Nations International Civil Aviation Organization, which focused on reaching a global agreement on how to regulate carbon dioxide emissions internationally.

Prior to this news out of the EU, the United States House of Representatives voted to approve legislation—S. 1956, the European Union Emissions Trading Scheme Prohibition Act of 2011—to make sure the U.S. would not participate in the ETS.

“Fortunately EU leaders who have promoted imposing an unjust tax on international aviation have temporarily backed off the emissions tax proposal,” House Transportation and Infrastructure Committee Chairman John Mica (R-FL) said in a statement. “The proposal must not be allowed to resurface in one year like a phoenix rising again from the ashes.  We must ensure U.S. operators, airlines and consumers are not stuck with a future unfair tax burden. This bill is a firm response by the United States Congress that this nation will not allow U.S. jobs and our aviation industry to be threatened by the EU’s unilaterally imposed and unlawful tax scheme.”

This action was preceded in the summer of 2011, when the House introduced legislation, H.R. 2954, the European Union Emissions Trading Scheme Prohibition Act of 2011—that it said directs the Secretary of Transportation to prohibit U.S. aircraft to operators from participating in the EU’S ETS. They added that the bill also instructs U.S. officials to negotiate or take any action necessary to ensure U.S. aviation operators are not penalized by any unilaterally imposed EU emissions trading scheme.

The International Air Transport Association said it is in favor of the EU’s decision.

“Commissioner Connie Hedegaard’s announcement that she has ‘stopped the clock’ on the imposition of the EU ETS on flights to and from non-EU countries represents a significant step in the right direction and creates an opportunity for the international community,” said Tony Tyler, IATA’s Director General and CEO, in a statement. “The Commission’s pragmatic decision clearly recognizes the progress that has been made towards a global solution for managing aviation’s carbon emissions by the International Civil Aviation Organization (ICAO).”

In January, The Wall Street Journal reported that a group of 29 nations requested that the European Union (EU) spike the ETS, raising the risk of a trade war.

The report said these nations, including the United States, Russia, China, and India, had agreed to adopt a “basket of measures” that permit each nation to choose the actions it finds most effective to counter the ETS. And it said that the ETS has met strong resistance and raised fears of a trade war, with opponents saying it is exceeding its legal authority by imposing emissions charges for flights outside the EU.

As previously reported, U.S. air cargo shippers are not fans of the ETS by any stretch.

“The Airforwarders Association is extremely concerned about both the proposed EU Emissions Trading Scheme in the US legislation drafted in response, said Brandon Fried, executive director of The Airforwarders Association (AfA) “These initiatives could have an adverse impact on air cargo by increasing costs, delaying shipments and sparking potential trade wars.”

Fried said that the AFA was hoping for a more cooperative solution where all countries work in drafting sound harmonized policy instead of the EU’s unilateral attempt to solve the problem.

“If mutually acceptable climate program agreements fail to materialize, and unilateral initiatives such as the EU emissions trading scheme prevail, the resulting retaliatory trade wars between nations could create more damage to the world economy than global warming itself,” said Fried. “The preferred alternative is to endorse an integrated approach to climate and energy policy that commits all nations into a highly efficient, low carbon aviation industry.”

Fried admitted that this is undoubtedly a global challenge— savings on one continent will do little to solve a worldwide crisis if other countries are not included.

“In order for a worldwide solution to be mandated, countries need to reach a mutual agreement,” he said. “The International Civil Aviation Organization (ICAO), is the best forum to address these emissions issues and to assure global aviation industry sustainability.”

Fried said that unilateral and mandatory moves taken without the agreement of all involved parties are unacceptable.

“Such solutions will have an extremely negative impact on the world’s aviation industry,” he added.

National Industrial Transportation League President Bruce Carlton told LM that U.S. trading partners are not allowed to discriminate on the basis of flag country flag or registration.

“If everybody, including the EU carriers, were being covered, there might be more of a basis or at least a legal basis for this,” he said. “On its face, this would appear to be a discriminatory tax, which is dealt with in the World Trade Organization structure. Regional schemes do not work. In international trade, these schemes are going to be bound up with all sorts of problems.”