Market News

 February 20, 2012
Opponents discuss 'countermeasures' to EU's aviation CO2 plan

 A group of 26 nations opposing EU plans to tackle aviation emissions will reportedly discuss a "basket of countermeasures" at a meeting in Moscow this week, raising the possibility of a global trade war over the controversial scheme.

The so-called "coalition of the unwilling" previously called on Brussels to drop measures that require airlines to carry carbon allowances covering every tonne of CO2 they emit on flights in and out of EU airports during a summit in India last year.

But strengthened by a European Court ruling that the legislation does not conflict with international aviation treaties, the EU has insisted it will not back down and the scheme started as planned on 1 January this year.

In response, China has banned its airlines from taking part in the EU's emissions trading scheme (EU ETS), while the US is considering a bill that could do the same.

This week's two-day conference will now see countries, including the US, China, India, Japan and Russia, discuss how to coordinate their activities opposing aviation's inclusion in the EU's emissions trading scheme (ETS).

According to a draft agenda for the meeting seen by several news agencies, diplomats will discuss an unspecified "basket of countermeasures", undertake work on a letter to EU member states, and address "application aspects of Article 84 of the Chicago Convention", which refers to a formal dispute procedure at the UN-backed International Civil Aviation Organisation (ICAO).

The aviation industry has consistently called for a global solution to cutting emissions, which account for around three per cent of the global total, more than the UK's entire output, even though the sector adds just 0.7 per cent to global GDP.

But little has been achieved beyond non-binding targets for efficiency improvements, prompting the EU to take action unilaterally.

Connie Hedegaard, the EU's climate action commissioner, said last week that Brussels would be happy to sign up to a global solution if that programme was more ambitious than its own scheme, which it estimates will save around 183 million tonnes of CO2 each year by 2020.

"It's clear that the moment we have a global regime entering into force, something that we all agree to, then the EU legislation will not be relevant," she told news agency Bloomberg, before challenging the countries meeting this week to find such a solution.

"So far it very much seems this group of countries can agree on one thing: what should not be done," Hedegaard said. "But it would be much more interesting to see what new move they are willing to take that would make it likely this time to get a global deal through ICAO."

This morning it appeared that the EU's position had gained some unlikely supporters, after opinion pieces published in both the China Daily and Indian newspaper The Hindu warned that neither country should risk a trade war with the EU over the issue.

A group of seven US environmental campaign groups have also written to Special Envoy for Climate Change Todd Stern and Michael Froman, deputy national security advisor for international economics, urging the White House to work with the EU rather than oppose it.

Airlines will initially receive up to 85 per cent of the permits they need for free, which led Barclays Capital to predict costs will be a modest €300m in 2012, with non-EU carriers facing a burden of just €75m. Bills for Chinese and Indian airlines operating in Europe could be just €4.23m and €1.1m respectively in 2012, according to EU figures.

"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.

However, airlines have expressed concerns that with airline passenger growth predicted to slow to five per cent this year from around six per cent last year, any increases in prices will place further pressure on the sector.

Meanwhile, green groups remain hopeful that higher ticket prices may force many business travellers to use low-emission alternatives, such as rail or video-conferencing.