The emissions-trading battle continues

Late last year, complaints against the EU for deciding to implement its carbon-trading scheme to airlines flying in and out of Europe starting in 2012 were passionate.  Airline officials worldwide representing small-, large- and medium-sized carriers said the tax, as they started calling it, amounted to a money grab by the European Union.

These same people called it an illegal infringement upon states’ sovereignty. Any blanket emissions scheme had to go through the proper channels at the International Civil Aviation Organization, they contended. But the EU persisted. In October 2011, a spokesman for the EU addressed the concerns of the international community by basically saying the scheme’s implementation was non-negotiable.

“This is not a proposal,” he told Air Cargo World at the time. “This is adopted legislation. We do not intend to back down or modify our legislation.” And it was legislation with a price tag; early estimates by The International Air Cargo Association said complying with the law — in which carriers who exceed the EU’s carbon limits must buy credits — could cost the industry $3.5 billion by 2020.

Government reaction was swift. Nearly every body around the world reacted in the same way, banding together to not allow their carriers to participate in the ETS, pushing for a change through ICAO, and meeting with each other to discuss solutions. The Chinese and Indian governments even went so far as to imply that Airbus would not be receiving any business if the ETS went forward.

Threats such as these, says Richard Anderson, CEO of Delta Air Lines, might finally convince the EU to pursue another option.

“I think that the EU ETS is probably going to get solved by the fact that China and India aren’t going to buy any Airbus airplanes,” Anderson said recently. “This industry has the best track record, I think, of any industry in the world on reducing emissions. The problem with the ETS is that it’s trying to do out-border regulation,” he continued. “The way the system is set up, it is seeking to regulate emissions over other countries, so it’s extraterritorial.”

Anderson says that the industry’s standards on engine noise evolved the way regulations on emissions should. In that case, the industry worked with each other to develop a solution to a problem, implemented standards that alleviated the concern, and moved forward with new

protocols and a less-noisy way of doing business. The ETS, he says, should evolve in the same way, but patience might be lacking.

“I think the reason why the ETS has surfaced in the EU is really to try to continue to prod people to work on this,” he says. But he points to pledges made by Airlines for America and the

International Air Transport Association that call for carbon-neutral growth by 2020 as steps in the right direction.

The EU, he says, isn’t fully aware of all that the industry has done. The U.S. government has paved its own path forward. It had taken almost a year from its introduction in December 2011, but Senate Bill S. 1956 — “European Union Emissions Trading Scheme Prohibition Act of 2011” — passed the Senate in September. Sponsored by John Thune, a Republican from South Dakota, the senate bill is backed by numerous U.S.-centric aviation groups, including Airlines for America and carriers like United Airlines.

“Congress has sent a strong message to the EU that they cannot unilaterally impose an illegitimate tax on the United States,” Thune said in a statement when the bill passed. “The Senate’s action today will help ensure that U.S. air carriers and passengers will not be paying down European debt through this illegal tax and can instead be investing in creating jobs and stimulating our own economy. I hope the House [of Representatives] will quickly take action on my bipartisan legislation so the president can sign this bill to prevent the EU’s unlawful attack on American sovereignty.”

The Senate bill differs from a House bill passed last year, and these differences need to be ironed out when Congress reconvenes after the U.S. presidential election. Amendments to the Senate bill included verbiage to exempt taxpayers from shouldering any monetary consequences the airlines are meted for not paying into the EU’s scheme.  Senator Jeff Merkley, a Democrat from Oregon, added a section that makes the law void if the EU changes its plan or if the ICAO presents a new way forward for the entire industry. If this same bill passes both houses of Congress, it will go to President Obama’s desk.

While some believe the bill would forbid airlines from participating in the scheme and, thus, would prevent them from flying to Europe, William Flynn, president and CEO of Atlas Air Worldwide, sees through to its intent. The law is really about pushing forth dialogue with the EU and centering the discussion on ICAO.

“They’re not going to say you can’t fly to Europe,” he says. “The bill is not a bill that says you can’t pay that.”

Opposition also came in the form of a meeting among 17 nations in Washington, D.C., this summer. The attendees converged in order to figure out how to combat the ETS by creating a way forward on emissions using ICAO’s leadership. Another vocal opponent of the EU ETS is U.S. Secretary of Transportation Ray LaHood.

“What I’d like to get the European Union to do is to eliminate this lousy tax they’ve put on all the airlines,” he said during the Air Cargo Forum in Atlanta. “The truth is nobody has a better record on the environment than President Obama… And yet we’re being penalized by the European Union because they want to cut down on carbons and greenhouse gasses and so forth by putting a tax on airlines, which is really unfair.”

The EU ETS has been applied to aviation since the beginning of the year, but airlines have flown into Europe without having to pay for emissions credits because the EU doled out allowances in order to get the program off the ground. Starting January 1, these allowances will decrease, meaning that airlines will have to start paying for every bit of carbon they emit that exceeds their allowances. Of course, the EU isn’t as hardline as it once was on the ETS, and reports have been circling that, in the presence of an ICAO alternative, the EU might back off. These promises have come after months of meetings with high-level officials.

Emirates Airline’s Ram Menen sees the U.S. approach as the right way to address the issue, which, he predicts, will cost €30 million to €40 million a year. Even though Emirates’ exposure to Europe is small relative to some airlines, the EU ETS still has wide-ranging effects for the carrier.

Menen has little issue with the environmental goal of the EU ETS. Making aviation greener is an overarching target for many carriers, Emirates included. He adds that Emirates works with IATA and ICAO to shorten flying times by opening up new routes, something that lessens the carrier’s carbon footprint. A comprehensive and inclusive plan would be a good step forward, he says, but the ETS, as it stands, is not the answer.

“We’re not opposed to a common and global kind of charge. But then we would expect that whatever taxes are collected would go into improving the aviation infrastructure. Right now, that’s not happening,” he says. “They go into government [initiatives], and it’s a tax with no returns to aviation.”

At Delta Air Lines, Tony Charaf says the carrier is striving to change its culture to a green-driven company from the inside out. “When it comes to sustainability, we embrace it,” he says. “It is the corporate culture. This is who we are; this is what we do, and we do it everywhere.”

As for next year, when carriers may have to start buying emissions credits in order to fly into Europe, Charaf says the argument goes deeper than money. If the ETS stands, he doesn’t expect Delta will impose a huge fuel surcharge on its customers in order to make up the extra expenditure. “It’s not the monetary issue that’s really going to be the challenge,” he says.

Kenji Hashimoto, the new cargo head at American Airlines, also says his carrier is doing all it can to impose a culture of sustainability. He sees that the EU imposed the scheme to get the ball rolling more quickly on emissions, but that it wasn’t necessary. “It didn’t take the EU ETS to get people focused on emissions and fuel burn and noise pollution and all those kinds of things. Those things were already going on long before the EU ETS was even being papered up,” Hashimoto says.

Atlas’ Flynn says he, like representatives from other airlines around the world, has begun putting into place processes that would allow for payment of the tax. He’s hopeful that ICAO will be able to boil out a solution during their next few meetings and present an alternative before year’s end, but for now, airline representatives are begrudgingly proceeding as normal.

“Yes, people will have to start paying. We’ve already accrued to pay,” he says. “I think as we come into 2013, the ETS is certainly going to get a lot of focus, and hopefully we converge with the right answer.”

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