European Affairs

Positions have hardened on all sides, but the EU is sticking to its implementation deadline – January 1.  A disaster-in-waiting has arrived, and it offers a textbook study of mismanagement in transatlantic relations. The new rules were announced by the EU in 2008, but the rest of the world apparently assumed that they would go away. The dossier never rose to the top of leaders’ in-trays, especially in Washington. Left to lobbies and second-tier bureaucrats, the dispute has acquired venomous overtones – and could unleash trade wars at a bad moment for everybody concerned, including Europe.

What should have been an avoidable mid-air collision now seems set to occur. The Europeans think that their new law charging airlines for their carbon emission is a logical step in efforts – which the EU sees itself leading -- to combat global climate change.

But the three-year interval between the EU’s action, in adopting ceilings on airline emissions, and the drop-dead date for implementation, imposing fees, has been left fallow by all sides. Now that the plan is set to go into effect, Washington has come out swinging against it. And it has become a rallying point for China, Russia, Brazil, India, South Africa and other major nations to threaten retaliation against Europe over the new regulation.

It is a truly global dispute, but one that might have been better managed through more effective transatlantic cooperation. There is enough blame to go around for both sides. The U.S. has woken up belatedly to the challenge, and U.S. critics – in the airline industry and in Congress and the Obama administration – are accusing the EU of “unilateralism” in trying to impose its own views on the rest of the world. This disingenuous American stance ignores the warning time that might have offered scope for negotiation. But the EU can e faulted for failing to recognize the shift in views in Washington in which “economy now trumps environment” to a politically venomous degree.

As a result, the EU now risks finding itself direly isolated about an initiative that only three years ago seemed in step with the times to many European officials. They defend the need to put a price on airplanes’ carbon emissions as a logical part of any serious effort to combat global warming. But opponents in Washington seem to be succeeding in boosting the U.S. objections by harnessing opposition from Asia and other parts of the developing world that resent what they see as a Western agenda to penalize them for the kind of industrial development that the West enjoyed and now wants to see curbed for others. With U.S. encouragement, the BASIC group (Brazil, India, China, South Africa) – as part of their stance that Western countries must “absorb” the carbon pollution and its costs in the atmosphere – are protesting against protesting against the new costs for air travel announced by the EU. In some case, there are threats of retaliation by these capitals if Europe sticks to its schedule.

EU leaders have shown no signs of giving ground on their long-announced plan, but American opponents are hoping that there can be a further round of talks within the International Civil Aviation Organization. Failing that, U.S. lawmakers say, not for attribution, that they want to see the dispute dragged into international legal battles and court confrontations that will at least delay its implementation.

The projected costs for airlines will vary from company to company, with European carriers likely to pay the most. Their bill is estimated at about $4.5 billion a year. U.S. airlines would pay an extra $762 million in 2012, rising to more than $2 billion by 2020, according to one independent study.

As these charges get passed on to passengers, airline ticket prices are likely to rise, depending on the length of the flight, by amounts from $7 to $57, according to the European Commission.

The EU move is technically an extension to airlines of the existing Emissions Trading System that already involves much of the European industry in rules requiring licenses for carbon releases that exceed a company’s quota, with a requirement to buy more polluting tolerance from “greener” companies or find other “offsets” in the form of approved ecological investments.

This “cap-and-trade” approach has not been accepted by other international powers, including such non-participants in the Kyoto climate-change protocol as China and the U.S. The Obama administration initially espoused a similar “emissions exchange” plan as part of its environmental agenda, but for all intents and purposes it has now abandoned such ambitions. These days many members of Congress literally say they “hate” the European ETS.

This is not the only about-face in Washington that many Europeans find disingenuous, to be put it mildly. While American officials accuse the EU of “unilateralism” and call for fresh talks in the ICAO, they know that for more than a decade the EU pursued a multilateral path, urging the (ICAO), the UN agency that regulates global aviation, to adopt measures requiring airlines to cut their emissions. Only after it became crystal clear that the other ICAO member countries, including the U.S., were determined to avoid any consensus on action did the EU enact a Directive in 2008 that extended its existing cap-and-trade scheme to cover air transport.

U.S. hostility to the plan often focuses on its provision to count emissions throughout the duration of the flight and not just while it is in EU airspace. In other words, a San Francisco-London flight will have 100 percent of its emissions counted despite only being in EU airspace for less than nine percent of the journey. For long-distance flights coming from Asia, it is even harder to square the fact that all flights cause global pollution with some doctrine of geographical fairness. Europe finds itself at ground zero in all this debate.

In the absence of some still-unproposed compromise, some analysts are forecasting that airlines will try to evade the emissions meter by scheduling stopovers in destinations near the EU – for example somewhere in North Africa – in order that only emissions in the final leg of the flight should be counted

This dimension of the dispute is being formulated in the U.S. as a “sovereignty” issue that has been seized upon in Congress where the anti-ETS sentiment is especially vociferous. On October 24, the House of Representatives adopted a bill barring U.S. airlines from taking part in the ETS (effectively demanding that they violate EU law). The bill was passed by a voice vote with the support of Republicans and Democrats. One of the few dissenters was California Democrat Henry Waxman, who was instrumental in securing passage in the House of a U.S. cap-and-trade bill in 2009. In urging his colleagues to oppose the new anti-ETS bill, Waxman said that “we cannot repeal the laws of nature [on climate change] or pretend that Europe does not exist.” His is a lonely voice these days: the White House has been conspicuously silent, apparently because President Obama is fearful of giving his opponents any opening to portray him as “a job-killing environmentalist” ahead of his re-election bid in a year’s time.

The draft bill in the House was sponsored by Florida Republican John Mica, Chairman of the Transportation Committee and a prominent organizer of the anti-ETS campaign. Mica called a hearing on the issue in July at which the sole witnesses were U.S. administration officials and airline industry officials – all of whom predictably slammed the EU. No environmental group or EU official testified at the hearing. Afterward, one non-governmental environmentalist did approach journalists to offer some rebuttals, but only on condition of not being quoted – an unusual stipulation that seemed to reflect a degree of intimidation felt by advocates of U.S. cooperation with the EU to fight climate change.

To date, there is no accompanying Senate bill, so the Mica bill may not become law. EU officials are hoping that Senators will be more mindful of the negative international diplomatic fallout of a full-scale collision. (The Obama administration has been unclear about whether or not the President would sign or veto such a bill if it passed both Houses of Congress and came to his desk.)

In an 11th-hour bid to revisit the issue, the EU’s Climate Commissioner, Connie Hedegaard, will visit Washington for two days starting November 16 to attend the Major Economies Forum (MEF). (The MEF is an informal body that brings together government representatives from the 17 largest economies in the world to discuss how best to curb their greenhouse gas emissions.) At this late date, however, prospects for compromise seem bleak.

As positions have hardened in Washington, the EU has been ineffective, observers say, in countering or contradicting U.S. airline-industry claims. For example, airlines have told U.S. lawmakers that the ETS is in effect a money-grabbing exercise for EU governments and that revenues will not be used to address climate change. In fact, the Commission, after much cajoling, got the member states to agree that revenues should indeed be used to tackle climate change, although the precise details will be left up to each government.

Neither does the EU seem to have been sufficiently active in discussing how a third country’s airlines can be exempted from the ETS if their governments enact “equivalent measures” to address aviation emissions.

Defenders of the EU plan say that the EU should press what is perhaps the strongest argument of all: that binding targets actually work. The EU is on course to meet two of its three “headline goals” on climate mitigation (emissions reduction and renewable energy production) and not its third (energy efficiency). Of the three, the first two, likely to succeed, are binding targets while the third is not.

Worldwide, the U.S. has helped developments that isolated the EU within ICAO – perhaps with some help from shortcomings in the EU’s own diplomacy. Nine months ago, it was not obvious that all the big emerging economies would directly oppose the EU move. But that is exactly what happened when Brazil, Russia, India and China and 21 other nations joined the U.S. in signing a “Delhi declaration” in September opposing the EU scheme.

Moreover, in the run-up to the UN climate summit in Durban from November 28 to December 9, India is claiming that the EU’s plan to include aviation in the ETS violates the UN climate convention. The mood music for Durban is decidedly negative from an EU viewpoint as nations show less and less willingness to take on binding commitments on climate mitigation. The timetable for a new UN climate treaty has slipped back to 2015 at the earliest, with Russia and Japan trying to push it back even further to 2018.

Back at ICAO, the EU has also found itself outmaneuvered where a statement on November 2 put a majority of ICAO’s governing body, the Council, on record as opposing the EU plan. The Commission is trying to find comfort in the fact that the EU countries on the Council stayed united in opposing the ICAO majority. (Some voices in Washington are raising the specter of a move by ICAO’s Council to censure the EU for violating the 1944 Chicago Convention, the cornerstone treaty for international aviation.)

The EU insists that it has the right, under the Chicago Convention, to include aviation in the ETS. The EU recently gained ground on the issue in a challenge brought by the U.S. airline industry to the EU Court of Justice in Luxembourg. In an opinion released on October 6, the court’s Advocate General Juliane Kokott said that the EU action is legal. In the non-binding opinion, Kokott said that ICAO did not have exclusive competence to regulate emissions in aviation.  Furthermore, she said, the ETS was not a tax and thus did not violate the Chicago Convention. Excluding non-EU airlines from it, she concluded, would give them an unfair competitive advantage over EU airlines.

The full court is due to issue its final ruling in the case in the weeks ahead. But even if the EU prevails in Luxembourg, the legal squabbling may not be over. Some American lawyers involved in the issue predict that should the anti-EU lobby not achieve its goal within ICAO, it will take the case to the judicial arm of the UN, the International Court of Justice in The Hague.

Regardless what happens in the various legal venues, the possibility of a trade war cannot be ruled out.

Brian Beary is the Washington correspondent for Europolitics


Comment on this article from IATA official

I much enjoyed reading the excellent article by Brian Beary (Transatlantic Storm Triggered by EU Plan For Airline Emissions). Having been closely involved in the discussions he describes, I do feel compelled however to correct some of Mr. Beary’s observations.

Firstly, it would be unfair to give the impression that non-EU governments arrived late at the scene to make their objections to the EU ETS known to the EU. As early as 2007, i.e. even before the new rules were announced, the governments of Australia, Canada, China, Japan, South Korea and the U.S. addressed a joint letter to the European Union (with copy to key MEPs) urging it to “exclude operations of non-European aircraft” from the EU ETS and to reconsider its “unilateral proposal”. In other words, the EU knew full well about the opposition to the rules it was developing.

Secondly, it is a popular myth, cynically propagated by Brussels to justify its own actions, that “others” in ICAO have been blocking EU efforts to find a global solution to address aviation emissions. The reality is that ICAO put proposals on the table in 2004 for a global ETS for aviation, which industry in fact supported. I was in the room when these proposals were then blocked by a hand-full of EU States (!), stating it would be “too complicated and time-consuming”. They had every reason to scupper this avenue, as they were already studying their own unilateral scheme for aviation at that point.

Lastly, it is simply not true, as the Commission would have us believe, that EU ETS revenues will be used for environmental purposes. The EU Directive only recommends that Member States (“should”) re-invest these revenues, not that they have to (“shall”). In fact, the UK and others have already clearly stated they have no intention whatsoever of hypothecating revenues for environmental purposes.

Andreas Hardeman
Assistant Director, Environment Policy and Outreach
International Air Transport Association
Geneva, Switzerland