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 February 14, 2012
Pressure mounts on EU over aviation emissions trading

 Europe is becoming increasingly isolated in the face of growing worldwide opposition to its legislation compelling airlines to pay for carbon emitted during flights in and out of EU airports.

China has already banned its carriers from complying with the legislation, which came into force at the beginning of the year, while the US Congress is expected to express its formal opposition for the plan soon, despite the fact a legal bid by US airlines to prove the EU was contravening international aviation treaties was thrown out in December.

India and Russia have also expressed their concern about aviation joining the power sector in the EU's emissions trading scheme (EU ETS), as has the UN-backed International Civil Aviation Organisation (ICAO), sparking industry fears of a trade war.

"I am very worried about the consequences," Tom Enders, chief executive of Airbus, told an industry conference in Singapore over the weekend. "What started out as a solution for the environment has become a source of potential trade conflict and that should be a worry for all of us."

Talks at ICAO have seen the industry commit to improving fuel efficiency by 1.5 per cent annually to 2020, capping net emissions from 2020 with carbon-neutral growth, and cutting its carbon footprint in half by 2050 compared to 2005 levels.

Brussels recognises airlines preference for a global solution to cutting the three per cent of global emissions accounted for by aviation. But it argues that the voluntary measures agreed so far at ICAO are insufficient to limit the predicted expansion in aviation emissions over the coming decade.

However, Tony Tyler, director general and chief executive of International Air Transport Association (IATA), today urged Europe to work with the rest of the world rather than go it alone.

"Positive economic measures such as emissions trading are a necessary, if temporary, bridge to reach aviation's climate change targets," he said in an address to the Aviation Leadership Summit in Singapore. "To be effective and avoid market distortions, these measures must be globally coordinated.

"Europe deserves credit for pushing this issue up the international agenda and it is at the forefront on emissions trading. But its unilateral approach must change. Aviation can ill afford to be caught in an escalating political or trade conflict over the EU ETS. The ICAO is the only way forward."

Under the EU scheme, airlines will receive 85 per cent of the emissions allowances they need in the first year for free, but with global airline passenger growth predicted to slow to five per cent this year from around six per cent last year, many are concerned that the additional costs associated with the scheme will lead to a hike in ticket prices.

Ryanair, Lufthansa and a number of US airlines including Delta have already announced ticket price hikes expressly to cover emissions trading.

Analysts Thomson Reuters Point Carbon predict compliance will cost airlines a total of €505m in the first year, an estimation that has fallen with the price of carbon permits known as EU Allowances (EUAs).

"If the aviation sector were to use its full offset quota, the forecast cost for the industry as a whole would fall further to €360m," added Andreas Arvanitakis, aviation analyst at Point Carbon.

Last week EU climate commissioner Connie Hedegaard went further, forecasting bills for the Chinese and Indian airlines operating in Europe would be just €4.23m and €1.1m respectively in 2012.

Speculation is mounting that a compromise may form part of any agreement with China to use its foreign exchange reserves to bail out the Eurozone.

But transport commissioner Siim Kallas insisted that while the EU was willing to work towards a solution, it would not revoke the scheme or exclude non-EU airlines.

"If you think Europe will be forced to suspend, this is not the case. We must have a real global solution," he told news agency Reuters. "Europe will implement its system with difficulties, with conflicts, with court cases, whatever, the system will be introduced."

The prospect of higher airline ticket prices will further increase pressure on business travellers to identify alternatives to air travel such as rail and video conferencing, which can help reduce costs and carbon emissions.