Market News

 April 13, 2012
India ups ante in aviation emissions trade war

 The international row over the EU's decision to include aviation emissions in its cap-and-trade scheme escalated further this week, after senior Indian officials warned that the bloc's stance could undermine international climate change negotiations.

The EU has repeatedly rejected calls from other countries, such as India, China, the US and Russia, urging it to shelve the controversial plans. The bloc maintains it will only reverse legislation requiring airlines to hold tradeable carbon allowances to cover their emissions if the UN's International Civil Aviation Organisation (ICAO) makes good on long-standing commitments to deliver a global mechanism for curbing emissions from the aviation industry.

However, governments opposed to the EU's position met earlier this year to discuss retaliatory "countermeasures", including new levies on European airlines, while a number of countries have signaled they could order their airlines to defy the EU's rules.

The row intensified further this week, after India's environment minister, Jayanthi Natarajan, signaled that the stand-off could spill over into the ongoing international climate change negotiations.

News agency Reuters quoted Natarajan as saying the EU's emissions levy represented a "deal-breaker" for the UN climate talks, which will continue in Qatar at the end of this year.

"For the environment ministry, for me, it is a deal-breaker because you simply cannot bring this into climate change discourse and disguise unilateral trade measures under climate change," Natarajan said. "I strongly believe that, as far as climate change discussions are concerned, this is unacceptable."

The comments came as India reportedly ordered its airlines to defy the EU rules, potentially opening them up to massive fines of €100 for each tonne of carbon emissions for which they fail to hold an equivalent EU carbon allowance.

The EU has consistently rejected calls to scrap or delay its plans, and Brussels again insisted this week it would only exempt airlines from the EU emissions trading scheme if a similarly ambitious global mechanism for reducing emissions is brought into force.

Officials have repeatedly argued that airlines' inclusion in the scheme will only add a few euros to the cost of long-haul tickets, while providing carriers with a clear incentive to curb emissions where possible.

India's stance, coupled with similar threats of non-compliance from China and Russia, raises the prospect of a new legal row over whether airlines can defy the EU's rules.

Previous legal action by US airlines failed last year, confirming the EU has the authority to impose carbon levies on flights in and out of the bloc.