Market News

 February 06, 2012
China bans airlines from EU emissions reduction scheme

 The Chinese government has banned its airlines from paying an EU charge on carbon emissions, claiming the scheme violates international agreements.

State media agency Xinhua reported that the Civil Aviation Administration of China (CAAC) issued a statement earlier today that also prevents airlines hiking ticket prices to account for the European scheme without government permission. The scheme came into effect from 1 January this year.

The statement says that requiring carriers to buy permits for every tonne of CO2 emitted during flights in and out of EU airports "runs contrary to relevant principles of the United Nations Framework Convention on Climate Change (UNFCCC) and the international civil aviation regulations".

"China objects to the EU's decision to impose the scheme on non-EU airlines, and has expressed its concerns over the scheme through various channels," the statement continues.

It also issues a thinly veiled threat that "China will consider adopting necessary measures to protect interests of Chinese individuals and companies, pending the development of the issue".

The statement, which also indicates China's willingness to find a global solution to reducing airline emissions, represents a direct challenge to the EU's efforts to incorporate all airlines in its emissions trading scheme. This increases the prospect of global trade war over ths issue.

The US Congress is also preparing to formally declare its opposition to the scheme, while Japan and India have both talked up policies of non-compliance.

Opponents of the EU's plans allege they are in violation of international aviation treaties. However, that charge was dismissed in December by the European Court of Justice, which ruled that the bloc does have jurisdiction over flights in and out of the EU.

The EU has repeatedly stated it would prefer a global solution to limit the predicted growth in aviation emissions, but progress at the International Civil Aviation Organisation (ICAO) has been so slow that it maintains it is justified in acting unilaterally.

Brussels has said non-compliant airlines could face fines or have services restricted, and officials will now have to decide whether to level penalties against Chinese airlines that refuse to purchase carbon allowances under the scheme.

Chinese industry insiders expressed confidence fines could be avoided. "I believe all sides will negotiate again and find a solution," said Chai Haibo, vice president of the China Air Transport Association. "I can't imagine that the worst case, such as the EU grounding Chinese flights, could happen."

Markus Ederer, EU ambassador to China, told reporters that the EU also hopes to resolve the situation through talks, but added that the courts could step in if no solution can be found.