EU risks trade war with airline tax

22 / 12 / 2011

RISKING an international trade war, Europe Union’s (EU) highest court has approved plans to tax airlines’ carbon emissions.

The highly controversial Emissions Trading Scheme (ETS) – that comes into action on 1 January 2012 – will see aircraft that land or take off from European airports being taxed for their entire flight, not just that part within European airspace.

“After crystal clear ruling today, [the] EU now expects US airlines to respect EU law, as [the] EU respects US law,” EU climate change commissioner Connie Hedegaard wrote in response to the news, referring to the US demands for total cargo screening.

The World Trade Organization will now consider the dispute.

Until then, China, India and the US have all threatened retaliation. China has already vetoed a large order of Airbus aircraft because of the plan.

US secretary of state Hillary Clinton, wrote to the European Commission (EC) listing 43 countries that opposed the plan: “Halt or, at a minimum, delay or suspend application of this directive," she demanded. “Re-engage with the rest of the world. The United States stands ready to engage in such an effort.”

She went on to threaten “appropriate action” should the EC not be willing to start negotiations.

US airlines have reluctantly agreed to obey the plan for the time being “but under protest,” according to the spokesperson for lobbying group Airlines for America, Steve Lott.

Chinese and Indian commentators have declared the move elitist and protectionist, and that it will harm their own developing economies.

The EU says its unilateral move was a result of frustration after 14 years of ineffective attempts byt the United Nations aviation body, the International Civil Aviation Organization (ICAO), to require significant carbon emissions reductions.

“The real issue is political, not legal,” said Ulrich Schulte-Strathaus of the Association of European Airlines (AEA).

“Even [though] the [court] decided the EU ETS conforms with EU law, this will not resolve non-European countries’ vehement hostility,” he said.

“Today’s decision is a disappointment but not a surprise,” added Tony Tyler, IATA’s director general. “It does not bring us any closer to a much-needed global approach to…aviation’s international emissions. Unilateral, extra-territorial and market distorting initiatives – such as the EU ETS – are not the way forward. What is needed is a global approach agreed through…ICAO.

The global air transport industry has committed to improving fuel efficiency by 1.5 per cent every year through to 2020, to cap net emissions after then and thereafter to cut net emissions in half compared with 2005 levels by 2050 .

Needless to say, any additional charges will trickle down the supply chain hitting independent forwarders the hardest.