Wednesday, 22 February 2012 10:20





Is it a New Form of Trade War?


Recently, European Union decided to include as of January 1 all carriers within the airspace of EU in a carbon trading system targeting heavy polluting industries as part of the EU’s efforts against climate change. This initiative though is novel but it also calls for a lot of other analysis.

Does EU intend to initiate trade war within a temporal frame when its economy needs an adrenalin push for revival? How this can be ever justified by an airline that is registered in another country and using the EU airspace “just for” flying without even using it for in transit stopover? How the emission norm would be quantified? Is it not pushing the envelope of Sovereignty a little too far as far as the international treaty for the airspace is concerned? All this needs to be answered only than can this be implemented.

The writer will make an endeavour to unravel all these tangles form this proposition so that the ultimate judgement of its legal mandate can be made by the readers in an informed environment. Also will be discussed the India airline companies and governments attitude to this move.

We initiate the argument with the premise that is intangible but that builds the perception of the policymakers. There is a thing called the ‘sense of the stakeholders on one side of the arguments’. And if we take this into consideration then the EU is united to implement this taxation and have even won Court case in their favour.

Moreover, there are times when businesses are completely justified in the concerns they raise about moves to regulate greenhouse gas emissions. And there are times when they’re not.

The moves by airlines to block European Union plans to include international aviation in its Emission Trading Scheme would appear to fall firmly into the second camp.

Recently, a suit brought by Continental and other airlines in the European Court of Justice trying to annul the inclusion was dismissed. Therefore, as things stand, flights beginning or ending in the EU will have their emissions accounted for, commencing on January 1.

The cost will be minimal. So long as airlines file the appropriate paperwork, they’ll be given 85 per cent of their carbon allowance for free. The costs will rise if they emit more carbon than their allowance covers. If they do, they’ll have to buy permits at whatever the market rate is – and this year it’s been the lowest since the ETS began, hovering around 7 per tonne.

Airlines will pass any extra costs on to passengers. The EU estimates these will be minimal, adding may be $ 30 to a return flight to or from North America. The presumption is that this will be something of a disincentive to travel, because that’s part of the point of carbon trading – to reduce activities that release carbon dioxide and thus lowering emissions.

Further, the planned Emission Trading Scheme (ETS), airlines using EU airspace will have to pay a fee for carbon emissions that exceed a set limit. They will also need to pay for the part of the journey covered by non-EU airspace. Under the EU scheme, airlines would have to pay for 15 per cent of the polluting rights accorded to them in 2012, the figure then rising to 18 per cent between 2013 to 2020.

On an Equal Footing

The other point is to encourage industries to become more frugal with the fuel they burn – and if they do, they can end up actually making money from selling surplus permits. In terms of competitiveness, the measure doesn’t discriminate among airlines on the basis of their nationality. Continental competes on an equal footing to British Airways and Air France; if it can be more economical on fuel than them, it’ll make money. So to claim, as some airlines have, that this will have a huge effect on their custom or their profitability surely strains credulity.

I just called up Internet fares for an economy return from London to New York. In April, the cheapest flight I can get is for 449 pounds. But if I want, I can pay 1,765 pounds. If I want to go in August, the cheapest fare is 740 pounds. The differences between these fares are far, far greater than any estimate for additional costs relating to the ETS. Yet they’re all fares that commercial airlines are happy to offer. The airlines have received some support from governments outside the EU.

Just recently, the US Secretary of State, Ms Hillary Clinton, and Transportation Secretary, Mr. Ray LaHood, sent a letter to the EU arguing that the unilateral inclusion of international aviation was “inconsistent”  with international law saying the US would respond with “appropriate action.”

Global Measure

The post 11th hour nature of these protestations has been condemned by a number of green campaign groups. “The administration’s decision to send the December 16 letter on the eve of the court’s decision risks tarnishing America’s reputation as a nation that respects the role of independent judiciaries,” they wrote. “We are troubled as well that the administration is now actively thwarting other countries’ efforts to effectively and efficiently reduce greenhouse gas emission and make good on their own international commitments to avoid a dangerous rise in global average temperatures.”

The other aspect of the US position that has drawn cries of “hypocrite” from the environmental community is that it asks the EU to stand down its ETS plan and instead develop a truly global measure to tackle aviation emissions.

Moves to do that have been in play for 14 years and have resulted in nothing to cap the emission rise. Had the US moved its every diplomatic sinew to introduce a global instrument, one senses it would have been in place by now.

Trade War

Airlines are pointing out -  correctly that they are making their operations more efficient. But that’s happening at around 1 per cent per year not enough to prevent overall emissions from the expanding industry from rising.

Some commentators predict that the ETS move will result in a trade war, with the US, China, India and many other countries punishing the EU. Far more likely, I think, that airlines will find they have a lot more to lose by missing out on the lucrative EU aviation market than by charging customers a few more euros.

If governments are serious about tackling climate change, international aviation emissions have to be curbed at some point. The EU is so far the only political entity that has shown any determination to match words with deeds.

With the US President, Mr. Barack Obama, having come to power pledging “global leadership” on climate change, one might think his administration would be impressed.

As far as the UN agency the International Civil Aviation Organization last month urged the EU to exclude foreign carriers from the new rules. In a statement ahead of the ruling (in box) European airlines already expressed fears of a damaging trade war should the EU executive stick to its guns.

Furious US, Canadian and other carriers say their inclusion in the Emissions Trading System (ETS) violates international aviation pacts, but the European Commission said after the ruling that the ETS would enter force as scheduled.

So as the matter unfolds we get to see newer limits or shall we say the ‘horizons’ of the Sovereignty of nations within a globally connected and more inter-dependent world. But still the writer feels that these issues must be sorted out with an enlightened sense of understanding and consensus building.

Unilateral measures coming from any side is unwarranted for.



The Indian government has asked the country’s airlines to refrain from submitting carbon emissions data to the European Union (EU) for a new tax that will become applicable from 1 January for flights to Europe, hardening its stand further against the imposition of the levy. Indian carriers that fly to Europe, including Air India Ltd, Jet Airways (India) Ltd. And Kingfisher Airlines Ltd, may have to pay more than Rs. 300 crore in the first year alone if the new tax is enforced. India has led the opposition to the move with support from more than two dozen countries including the US and China.


“I am directed to say that the ministry has decided that there is no need for Indian carriers to submit any data to European Union under EU-ETS,” the civil aviation ministry said in a letter to all the domestic airlines that fly on international routes recently.


The data is critical for working out how much an airline needs to pay. The EU-ETS will follow an annual cycle: operators will be required to monitor yearly emissions, from 1 January to 31 December, on a per flight basis, said Isaac Valero-Ladron, EU spokesperson for climate action commissioner Connie Hedegaard.


This data must then be aggregated in an annual emissions report and verified by an independent accredited verifier. By 31 March of the following year, the verified report must be submitted to a competent authority.


Air India is likely to pay about Rs. 200 crore if such a tax is allowed under ETS, while Jet Airways, which has a European hub in Brussels for its flights to Nort h America, expects about Rs. 100 crore in annual outgo, according to two respective senior airline officials. This can make the already ‘in-red’, Indian aviation sector a lot more unviable since the Indian carriers are yet to start charging passengers for the ETS.


As per now, it remains unclear what could be the result of India not allowing its airlines to submit data to EU. Indian’s next step will be in consultation with other countries including the US, said a civil aviation ministry official.


North American airlines had challenged the European Union decision to include as of January 1 all carriers in a carbon trading system. US carriers had argued that the decision was discriminatory and amounted to a backdoor tax.


But the European Court of Justice ruled that the EU’s approach was “valid”, and that it “infringes neither the principles of customary international law at issue nor the Open Skies Agreement” covering trans-Atlantic flights.


Despite a clear threat of reprisals issued by US Secretary of State Hillary Clinton, the Luxembourg based judges said that non-EU airlines could “choose” whether to make commercial flights to and from EU airports. As a result, the EU system “infringes neither the principle of territoriality nor the sovereignty of third states, since the scheme is applicable to the operators only when their aircraft are physically in the territory of one of the member states of the EU.”


A high ranking source in the aviation sector told in a recent press meet that “the court’s judgement risks unleashing a trade war between Europe and the United States.”


Chinese and Indian airlines also said earlier this year they could launch similar cases. The world is taking their respective stands against this move. In a letter to EU officials dated December 16, Clinton listed 43 nations from Argentina to Russia to Venezuela also opposed to the EU move.


“Halt or, at a minimum, delay or suspend application of this directive,” she wrote. “Re-engage with the rest of the world.”


Already in October, the US House of Representatives passed a bill directing the US government to forbid US carriers to take part “in any emissions trading scheme unilaterally established by the European Union.” Underscoring the potential for a significant trade row, China reportedly got its retaliation in early in June by blocking an order by Hong Kong Airlines for billions for Euros worth of Airbus aircraft.