What began as a well-meaning attempt by the European Parliament to reduce carbon emissions by the aviation industry is on the brink of ending up as a full-scale trade war between Brussels and a furious group of nations headed by America.
And it’s all coming to a head. In April the US Senate will consider a ban on American airlines from complying with the European initiative, known as the emissions trading scheme (ETS), designed to clean up its airspace.
In this, America is following China, the first nation to block its airlines from observing the scheme, and India which did so in late March. “In accordance with the government’s directive, no Indian airline will comply,” announced civil aviation minister Ajit Singh in a slap in the eye for Brussels. “The carbon tax will therefore not be levied.”
Furious at what they see as European lawmakers’ high-handed and arbitrary action, these opposing nations see the scheme as an unwarranted attack on their aviation industries and sovereign rights. They point out that the scheme applies not just to emissions in European airspace but to emissions on the entire flight, there and back.
Also lined up against Brussels is much of Latin America as well as some eastern European nations, while Russia is expected to follow China and India in a boycott.
Patience is wearing thin. At a late-March hearing of the bi-partisan transportation committee in the US Senate, chairman John Mica urged the White House to take action against Europe unless the European Commission modifies its stance. “We have to have a united front and show people we mean business,” he warned. One option under consideration by the Obama administration is retaliation against European airlines flying into North American airspace in the shape of higher landing charges or other penalties.
Hard lines
Both sides have taken hard lines. Europe’s climate commissioner Connie Hedegaard is the banner-waver for the scheme and has been shuttling back and forth between Brussels and Washington to try and strike some kind of compromise. However she insists the EU will only soften its position if the International Civil Aviation Organisation, the United Nations body, strikes a global agreement with its members. There’s no sign of this happening at the moment.
Meantime the deadline for a face-saving resolution of the issue is running out. The scheme will start hitting airlines in the bottom line from next year when they have to buy permits for their carbon emissions. The current year is a transitional one but current costs are rising and future costs will be even higher.
As Lufthansa chief executive Christoph Franz points out, European airlines are already spending millions preparing for the scheme. But by the end of 2020, they will be paying an estimated $12bn collectively; and that at a time when they’re being hit by sky-high fuel prices and low profits.
Anxious Airbus
One of Europe’s biggest export companies, Airbus, has also been caught up in the issue. In protest at ETS, China suspended earlier this year a US$14bn order for the aerospace manufacturer’s passenger aircraft and India is threatening to do the same.
An alarmed Airbus has added its weight to the rest of Europe’s aviation industry – airlines, engine manufacturers, materials and other suppliers – to plead with Brussels to resolve the dispute before it’s too late. In a rare show of solidarity, even Boeing has joined forces with its great rival and approached the European Commission to hand the impasse over to the UN.
“This is not about Boeing and Airbus. It is about what is best for our customers and how the industry as a whole can reduce its carbon footprint,” Jim Albaugh, civil aviation director for the American group, told Reuters. “In my opinion the European ETS mechanism is not the right approach. It should be suspended and we should work at the ICAO.”
For good measure the scheme has also antagonised the thriving business jet industry, which lobbied against it from the outset. Some operators may have to retrofit newer, more fuel-sipping engines to older aircraft to avoid high penalty charges, points out Steve Brown, vice president of operations at America’s National Business Aviation Association. He suggests operators also look at the advisability of fitting winglets, conducting weight-saving analyses of the payload, and limiting passengers’ baggage allowance among other economies.
Fuel saving techniques offer the biggest pay-off, he suggests. Engines should be started up only when the aircraft is facing in the out-bound direction and, if possible, only one engine used for taxiing. In-flight engines should be run at maximum-range cruise power settings, as research by Gulfstream Aerospace shows.
Gold-plating
Because the scheme gives relative autonomy to different nations to apply it in their own way, business-jet operators fear a “gold-plating” exercise whereby some countries add extra conditions. UK’s Environment Agency, for instance, charges European operators f3,000-5000 – and US operators as much as US$9,000 – for routine compliance in the form of “subsistence fees” and related costs while the process is free in some countries such as France, at least for the moment.
The seeming unfairness of the charges has particularly irritated American operators, they told the magazine. As aviation consultancy Universal Weather’s Adam Hartley, supervisor of the global regulatory services team, points out: “These fees apply before the operator has done anything to the environment.”
Under pressure from business-jet operators such as NetJets, Brussels has made some concessions. For instance, paperwork has been greatly reduced for so-called “small emitters” that produce less than 25,000 tonnes of carbon a year (up from the original ceiling of 10,000 tonnes) or less than 243 flights over three consecutive four-month periods. However that concession, which affects 900 operators, followed a three-year battle by the European Business Aviation Association.
Some of the least happy operators remain US-based Fortune 500 firms whose executive jets typically fly straight in and out of Europe for business meetings. “And the majority of those emissions are not in European airspace,” points out Hartley. Furthermore, many (mainly US) operators were assigned quotas based on the routes they flew two or more years ago, but don’t any longer.
Addng to the chorus of disapproval, Fabio Gamba, chief executive of the European Business Aviation Association, the political pressure on the European Commission to ”abandon, defer or reduce” the scope of the scheme has been “growing by the day”.
26 countries against
At the moment Brussels’ main problem is that ICAO’s member nations are broadly opposed to the scheme under which offending airlines are liable to pay h100 per tonne of excessive carbon emissions. Of the organisation’s 36 member nations, 26 are hostile. They argue that the European scheme should be limited to EU airlines only. It’s highly improbable therefore that the scheme will survive in its current form if it lands on ICAO’s plate.
America’s general aviation industry in the form of the big commercial airlines have spearheaded the battle and goaded the White House into action. Late last year Airlines of America, representing the major carriers, lost out in Brussels when the European Commission’s advocate general advised the scheme was “compatible with the provisions and principles of international law invoked.” That was a first step to a binding ruling by the European Court of Justice. Next, Airlines of America took the fight to UK courts but have since bowed out and handed the baton to Washington as international pressure grows.
A truce?
What is the likelihood of peace breaking out? Bosses of most general carriers, even European ones, are fast running out of patience with Brussels. Although he supports greener and cleaner airlines, Lufthansa’s Christoph Franz believes a truce is called for. “It is imperative to avoid a trade war,” he said at an International Aviation Club lunch in Washington in late March. “We are already in the middle of the mess. In order to avoid a trade conflict, for the time being we should sideline the EU ETS and get a commitment to negotiate ETS through ICAO.”
Stephen McNamara, spokesman for Europe’s biggest low-cost operator Ryanair, believes the scheme should be abandoned altogether. Describing it as an “eco-loony tax”, he says airlines account for less than two per cent of all emissions. Anyway, he added, the cost will only be passed on to passengers at a rate of h15-20m in 2012 and, of course, much more next year when it comes fully into force. (Other airline chiefs accept that aviation causes about four per cent of emissions in Europe.)
Meantime Brussels could be backpedalling. The latest message from the European Commission is that, while it’s “confident all airlines will comply with European legislation,” it suggests the ball could yet be thrown into the United Nations court. As spokesman Isaac Valero Ladron said recently, Brussels was “firmly committed to a global agreement and the continuation of work at ICAO.”
In short, if the UN authority was able to strike an agreement, the European Commission would move to amend its laws accordingly. By anyone’s standards, that would amount to a climb-down.
