Is EU Offering Real “Flexibility” on Fees for Airlines on Carbon Emissions? (12/1)     Print Email

The neuralgic international dispute on emission fees for airlines has finally jumped to the top of the “transatlantic” in-boxes in Washington and Brussels. The issue has been venomously deadlocked for months, as described in a recent article in European Affairs (which sparked feedback, public and private, from both industry and regulatory circles). But the long-simmering dispute is now approaching a January 1 deadline – trigger date for the EU to start its program on airliners for their carbon emissions over their entire flights anywhere in the world if they use an EU airport.

The debate has been roiling the industry, environmental bureaucracies and Congress, but not getting attention from the top decision-makers. That seems to have changed with the disclosure that President Barack Obama raised the issue explicitly with top EU officials at the U.S.-EU summit at the White House on November 28.

The exchange apparently did not afford a breakthrough, at least judged by a post-summit joint news conference by William Kennard, the U.S. ambassador to the EU, and the EU ambassador to Washington, Joäo Vale de Almeida.

Kennard said that Obama expressed concern about the EU having “chosen not to proceed on the multilateral path.” But his counterpart, Vale de Almeida, stressed that, quite to the contrary, the EU had pursued a multilateral path for 15 years through the International Civil Aviation Organization – unsuccessfully – and only then decided to extend its Emission Trading System (ETS) to cover air transport.

Despite the absence of any public policy-shift, EU officials have also sought to play up some more accommodating aspects of the European stance on emissions as ”flexible.” Vale de Almeida explained the plan’s scope for airlines from the U.S. and other non-EU countries to be exempted from paying the EU emission charge if those governments adopted “equivalent measures” to curb emissions in the air transport sector.

A similar potential opening for  “flexibility” was described by Karl Falkenberg, the Director-General of Environment at the European Commission, when he spoke at a recent European Institute meeting and pointed out that any emissions fees collected under such “equivalent” systems would be kept by the relevant non-EU governments. This point has been omitted in attacks portraying the EU plan in tendentious phrases such as a “European grab to squeeze money for itself out of already-cash-strapped airlines.”

In fact, “equivalent measures” are not new: they figured from the outset in the EU’s 2008 Aviation Emissions Directive. But the new public emphasis on this provision for possible accommodation seemed to reflect the EU’s desire to strike a more conciliatory tone at this critical juncture. That may have little impact in changing the prevailing view in Washington that economic concerns trump environmental ones.

There is time for some agreement to be found since no actual charges are scheduled to be collected for another year, starting in January 2013. But the current state of play suggests that the EU will remain isolated against a global opposition front that includes most major non-European nations, including the U.S., China and the other emerging economies.

Media reports say that the EU's schedule for carbon-dioxide curbs could cost airlines $1 billion a year once the plan goes fully into effect over the 2012-2020 period. That figure is based on a carbon price of roughly 15 euros a ton (double the actual current market price for “carbon,” i.e. for carbon credits). The industry puts the overall price tag for the EU plan much higher, and many carriers contend that competitive pressures mean that they won't be able to pass the cost along to passengers and instead will be forced to swallow the bill, hurting already thin profits.

This sectoral spat over the transport dimension of emissions curbs highlights a broader emerging challenge for the EU about ETS, its overall cap-and-trade plan.  Its adoption in 2003 has been a cornerstone of EU global leadership in the campaign for binding ceilings on emissions in all countries.  But the EU expected other countries to follow suit, notably the U.S. and hopefully then China. That expectation collapsed when the Obama administration failed to get Congressional approval for a U.S. system. So the EU has found itself in an increasingly isolated situation where European countries are alone in being subject to a system that does not apply to their international competitors.

Technically, too, the ETA poses problems for the EU. European Commission officials themselves reportedly feel that they are stretched to their administrative capacity (a euphemism for “overwhelmed,” according to one insider) in trying to adjudicate cases for industries and even individual companies under the master plan for setting baselines, licenses and emissions permits.

With the market price of carbon “credits” now sinking to record low levels (under eight euros a ton), the price of polluting often seems too low to incentivize businesses to invest in low-emissions technologies. The trend could raise questions about the ETS’ long-term viability and effectiveness in the longer run – not at the current UN conference in Durban, analysts say, but perhaps in the follow-up conference next year in Rio. At that point in time, the Kyoto Protocol, a cornerstone of anti-greenhouse gas efforts, will have expired.

Brian Beary is Washington correspondent for Europolitics