Trading aviation emissions - Part 2

The leader of the Nationals, Warren Truss, has called the EU's inclusion of aviation in its emission trading scheme (ETS) an 'iniquitous tax', siding with a number of countries that oppose the move. In its FlagPost Trading aviation emissions from February, the Parliamentary Library outlined the main elements of the EU's decision and some of the international relations issues that have arisen. Since then, a series of new developments have taken place and the debate is far from resolved. This FlagPost is an update on the situation globally.

Preparing for take-off
Despite vocal international resistance, the EU is forging ahead with its proposed schedule. On 3 February, the European Commission (EC) released Commission Regulation (EU) No 100/2012. This amends existing EU regulations to list all aircraft operators with potential liability under the EU ETS. Qantas is one of 48 entries for Australia. Working its way through this list, the UK has begun calculating and distributing free permits to cover 85 per cent of each operator's liability. Qantas, for example, will receive 7.7 million free EU Aviation Allowances over eight years.

Both Qantas and Virgin Australia seem to have accepted the new EU charge, announcing that their international ticket prices will be increased by at least $3 to cover costs. However, these airlines (and others) may actually benefit financially from the EU ETS, according to a report by Blue Skies project, an aviation industry think tank. This is especially true given that airlines are allowed to use cheap international offset credits from the Kyoto Protocol's Clean Development Mechanism to offset up to 15 per cent of their 2012 emissions. Despite these benefits, several countries continue to oppose the scheme.

Cloudy skies, especially over Moscow
China and India are boycotting the scheme, and are part of a group of more than 20 countries discussing ways to retaliate. On 21 and 22 February, these countries met in Moscow to canvass possible counter-measures. The outcome of this meeting was the Joint declaration of the Moscow meeting on inclusion of international civil aviation in the EU-ETS, which details in Attachment A a basket of actions/measures. Subsequently, both Boeing and Airbus have also spoken out against the EU after a threat from China to cancel a number of orders for Airbus A380 and A330 aircrafts.

In the US, American Airlines, United Continental and US airline industry association Airlines for America have dropped their case against the EU but have called on the Obama administration to take diplomatic action. The US House Committee responsible for transportation has added its voice to the call. Interestingly, a group of highly regarded US economists have put forward a different view, suggesting the President should stop opposing the EU on this issue and help lead the world to a compromise. In March, EU Climate Action Commissioner Connie Hedegaard visited the US to discuss the subject. She reiterated that the EU would prefer an internationally agreed solution implemented through the International Civil Aviation Organisation (ICAO).

From the outset, the EU has been clear that legislation could be amended 'if and when an agreement on market-based measures is found in ICAO'. Such measures would need to be ready for implementation by April 2013 (when the first payments are due) for airlines to avoid liability under the EU ETS.

There is now concern that discord over the aviation issue could affect global negotiations under the United Nations Framework Convention on Climate Change (UNFCCC). India’s environment minister, Jayanthi Natarajan, has said that the measure is a 'deal breaker' for India in UNFCCC discussions. The US has warned that there may be other countries echoing India's feelings. And frustration is also growing within the EU bloc with France urging the European Commission President Jose Manuel Barroso to find a solution.

In a surprise move, China announced that it would use an airline passenger tax to fund a number of initiatives including a reduction in greenhouse gas emissions from flights. The EU's Aviation Directive exempts from liability any non-EU countries that have adopted ‘measures, which have an environmental effect at least equivalent to that of this Directive’. In line with this, the EU is currently examining China's plan to see if it qualifies as equivalent. If the ruling is favourable to China, it may inspire other countries to follow suit.


Flagpost is a blog on current issues of interest to members of the Australian Parliament

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