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A Challenge to Europe’s Airline Emissions Curbs

By JAMES KANTER

In another challenge to the European Union’s plan to regulate emissions from the world’s airlines, 26 countries including China and the United States are backing a resolution urging that non-European airlines be exempted.

A debate on the resolution is anticipated on Wednesday at a meeting of theInternational Civil Aviation Organization, an arm of the United Nations, in Montreal.

A draft of the resolution viewed this week by The International Herald Tribune argues that European plan “poses major challenges and risks for aircraft operators.” It warns that other countries could introduce retaliatory rival measures, “bringing about a chaotic situation adversely affecting the sustainability of air transport.”

Under a law approved by the European Union three years ago, airlines landing at or taking off from any airport within a member nation starting on Jan. 1, 2012, must obtain a sufficient number of pollution permits under the union’s cap and trade system, the world’s largest.

The union says its law is justified because the I.C.A.O., the United Nations body, has taken too long to come up with a global system for reining in the greenhouse gas emissions that contribute to climate change. But the plan has met with fierce opposition from airlines, many of them based outside of Europe.

The airlines say that the union has no right to charge for emissions on routes that are mostly outside European airspace.

The Europeans won an important preliminary ruling last month, when the advocate general at the European Court of Justice strongly endorsed the European Union’s push.

The court usually follows recommendations of the advocate general. Still, theAir Transport Association of America, which brought the legal challenge in concert with three major airlines, said it was important to wait for the final opinion.

Attention has turned to the United Nations aviation arm. If the resolution goes to a vote and is approved on Wednesday, which appears likely, it could put more pressure on the Europeans to negotiate a system that would be acceptable to the airlines or even change the law.

A vote in favor of the resolution would not be binding.

European Union officials, in preparatory notes that were viewed this week by The International Herald Tribune, have acknowledged that passage of the resolution “would constitute an important political statement.” In the notes, officials said that the “most benign outcome” of the meeting on Wednesday would be to prevent a vote from taking place.

In the worst-case scenario, the dispute could turn into a full-blown trade war between Europe and countries including the United States.

Last month the House of Representatives approved a measure that would make it illegal for American airlines to comply with the European Union law. If the American bill were to become law, airlines would be unable to fly to and from Europe without breaking either a federal law in the United States or a European Union law. For now, that seems highly far-fetched.

Although the system is due to take effect next year, airlines would not have to hand over the first batches of permits until the spring of 2013 to compensate for flights made in 2012. That could leave room for a compromise over the next year.

The European Union could exempt all incoming flights from the rules, although that seems unlikely to allay the concerns of countries like the United States and China because their airlines would still need to pay for the emissions tied to outgoing flights.

The airlines could also seek a compromise with Europe where they would pledge to speed up work on a global airline-emissions system while remaining exempt from paying for their pollution outside of European Union airspace.

Many airlines probably will face little pain to begin with, and some may even profit.

Airlines will receive about 85 percent of their permits at no charge. Most should be able to pass along the costs by charging passengers a few dollars more for their tickets. Estimates of the cost to the industry for the first year of the system range from $825 million to $1.5 billion.

The more serious concern for airlines is that they are looking at the thin end of an enormous wedge. The sums could grow substantially in coming years if governments decide to auction a larger proportion of permits and if demand for the permits rises.

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Carbon Plan Could Pay Off for Airlines

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LONDON — Emirates, an airline based in wealthy Dubai, has been among the outspoken opponents of a system making airlines account for their pollution on all flights using E.U. airports.

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Yet Emirates could make a modest profit of €1.5 million, or $2 million, from a small surplus of permits, each representing a ton of carbon dioxide, that airlines can trade as part of the system.

The E.U. Emissions Trading System already applies to about 11,000 factories and utilities across the European Union. Since the start of the year, airlines have had to obtain enough permits to offset their emissions along the entire length of round-trip journeys.

Despite the ease with which many airlines like Emirates should be able to comply — at least at first — the system has turned into one the most contested environmental initiatives ever undertaken.

More than 20 countries have agreed on a basket of retaliatory measures that will penalize European carriers unless the system is suspended.

The Europeans have stood firm and have said failure to comply would result in steep fines and possible exclusion from their airports.

Connie Hedegaard, the E.U. climate commissioner, has said that Europe tried for more than a decade to achieve a global solution before adopting its own system.

She has also insisted that the cost is manageable — about €3 on the price of a round-trip ticket between Brussels and Washington, or about €4 for a round trip between Brussels and Beijing.

Last month, the International Air Transport Association, an industry body, said that the majority of carriers had grown since the Union had made its calculations of the volume of emissions and that airlines would face costs of $1.2 billion in 2012 to pay for permits, rising to $3.6 billion in 2020.

Analysts like Trevor Sikorski at Barclays Capital have said the bill should be far less — about €300 million, with non-European airlines paying about €75 million of that.

“With more significant price increases only expected after 2020, the remainder of the decade will see compliance costs remain relatively low for the airlines,” he said.

Some airlines may even profit in the near term — though Emirates said it would not be among them.

Emirates still would need to buy “a considerable number” of permits despite its surplus of nearly 200,000, because it has been flying more.

Emirates “will certainly not be making moneys from these emission allowances, as they are insufficient to cover our overall emissions” this year, and “onwards when the financial burden increases,” the company said in a statement.

DHL Air U.K., a unit of the giant German postal company Deutsche Post DHL, also could make a small profit of about €1 million from the system by selling surplus permits corresponding to about 131,000 tons of carbon dioxide.

But Deutsche Post DHL said that any surplus for that subsidiary would be transferred to help offset shortfalls in other aviation units operating in its express delivery business in Europe. Over all, it said, its emissions would match the number of permits it had acquired.

Cases involving an outright surplus are exceptional.

Still, many other carriers, like Japan Airlines or Jet Airways of India, are very close to getting all they need from Britain, which regulates hundreds of airlines, including Emirates and DHL Air U.K., in the system, which is administered by E.U. member states.

The British Department of Energy and Climate Change said it had awarded some airlines a surplus compared with their historic emissions because those carriers emitted less carbon dioxide or carried more passengers than less-efficient airlines flying similar routes.

In fact, airlines also should receive more than 80 percent of the permits they need for free until the end of the decade — part of a strategy by the E.U. to offer generous terms and conditions to encourage the industry to participate.

The creation of a flexible carbon-trading system was important for the airlines, too.

Until Europe formally approved the system four years ago, the airlines had been fighting to stave off a far more rigid carbon tax.

“Including aviation in the existing E.U. E.T.S. should be the least-cost and most environmentally effective way forward,” Brian Pearce, the chief economist for the International Air Transport Association, wrote in an article in 2006.

The following year, a study by the association even suggested that carbon trading could be an advantage for some international airlines. The I.A.T.A. said this week that that study had been carried out before the organization knew airlines would be required to buy allowances over other states’ airspace.

Even as airlines have lined up to condemn the European system, most have applied to receive the free permits, and some, like American Airlines, Delta Air Lines and United Continental Holdings have already raised prices about $6 for trans-Atlantic round trips.

American Airlines said its surcharge had “no specific purpose.” But it could help offset an expected shortfall of nearly 570,000 permits costing about €4.5 million.

Asked whether the $6 charge would help the carrier break even, or whether it could generate extra revenue, American Airlines referred questions to Airlines for America, a trade organization.

Airlines for America said that to its knowledge, there had been no “specific charge or fare increase.”

Seven years ago, when they joined the European system, electrical utilities put a market value on their books for the many free permits they also received, and they added some of that putative cost to their prices, creating a multibillion-euro windfall.

Regulators in Germany accused some utilities of charging customers for more permits than the utilities were entitled to.

But many analysts agree that profits on that scale are very unlikely in the case of airlines.

“We can never be sure there will be no additional profit being made,” said Mr. Sikorski of Barclays Capital.

But a “real focus on costs is essential for any airline,” and that “would suggest that the level of windfall profit-making in the sector will be reasonably low,” he said.

E.U. Rebuffs China’s Challenge to Airline Emission System

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BRUSSELS — The European Commission said Monday that it would continue charging airlines for their greenhouse gas emissions, despite an announcement from China that its carriers would be forbidden to pay without its permission.

The E.U. program, which began Jan. 1, requires airlines to account for all emissions on flights using European airports and represents the Union’s boldest move to protect the environment.

“We’re not backing down in our legislation,” said Isaac Valero-Ladrón, a spokesman for the commission, the executive body of the European Union. “We’ll apply this to companies operating in Europe.”

Europe says its system is less costly than portrayed and would speed up the adoption of greener technologies at a time when air traffic, which represents about 3 percent of global carbon dioxide emissions, is growing much faster than gains in efficiency.

Earlier Monday, the Chinese air regulator effectively prohibited the country’s carriers from paying those charges or other fees, or increasing ticket prices in response to the E.U. system, without permission from the government.

The Chinese government said it was also considering unspecified measures to protect Chinese companies, something Europe can ill afford as it looks to China to help ease its debt crisis. European countries also want access to China’s fast-growing economy, including free-spending Chinese tourists who might not show up.

The intensifying dispute is another sign that European environmental regulations could lead to a trade war if governments start retaliating against carriers or products.

Much is at stake for Europe, which has sought to improve its international stature by spearheading initiatives on climate protection, including folding aviation into the Union’s six-year-old Emissions Trading System, in which polluters can buy and sell a limited quantity of permits, each representing a ton of carbon dioxide.

But making airlines account for flights that begin or end in faraway cities like Beijing has turned the system into one of the most contested environmental initiatives ever undertaken.

Airbus, the European aircraft maker, has already raised concerns that a trade conflict over the law could affect its businesses, and on Monday, Antony Tyler, the director general of the International Air Transport Association, a body representing the global airline industry, warned that some airlines could face a backlash.

“We’re concerned also about retaliatory measures taken by non-E.U. governments against E.U. carriers,” Mr. Tyler said. That was “an increasingly possible outcome,” he said, since the United States, China, India and Russia could discuss such steps at a meeting in Moscow on Feb. 21.

In the United States, the House of Representatives approved a bill last year that would ban U.S. air carriers from participating in the system. A similar bill has been introduced in the Senate.

The first payments by the airlines are due in early 2013, covering emissions from 2012. That still could leave time for the Europeans and foreign governments and airlines to reach a compromise, perhaps through the International Civil Aviation Organization, or I.C.A.O., an arm of the United Nations.

In the past, Europeans have strongly criticized the I.C.A.O. for dragging its heels on establishing standards and targets for greenhouse gases from aviation, a responsibility it was given under the Kyoto climate treaty 15 years ago.

But if the member countries of the I.C.A.O. significantly step up action to create a global system, the Europeans could relax, or even drop their system, and still save face.

Mr. Tyler, the head of the airline association, said Europe’s decision to unilaterally introduce its system had already pushed the I.C.A.O. to take a more urgent approach.

“Europe can take credit for that,” Mr. Tyler said.

For the moment, there is unlikely to be any immediate disruption to flights between Europe and China, or Europe and the United States, or penalties for Chinese and American airlines.

But airlines soon could be in a legal limbo, where their governments prohibit them from participating, but where they also risk breaking European law by refusing to pay.

Last month, the commission warned that airlines that flouted the law would face steep fines and then could face being banned from European airports.

In fact, many airlines probably will face little pain to begin with, and some may even profit.

Airlines will receive about 85 percent of their permits at no charge, to make it affordable for the carriers and their passengers to bear the cost of the system while the industry develops ways of cutting pollution.

Chinese airlines are among those that have applied for their free allocation.

Most airlines are expected to pass along the costs of the permits they buy — as well as the ones they receive free — by charging passengers a bit more for their tickets.

“The savviest airlines are figuring out that it makes sense to participate,” said Annie Petsonk, the international counsel for the Environmental Defense Fund, an environmental organization that favors carbon trading as a means to reduce emissions.

Last month, Delta added a $3 surcharge on fares to Europe in response to the system, and U.S. Airways and American Airlines have taken similar measures.

The added revenue from those charges could enable the airlines to buy the credits they need in advance while the prices of permits are low because of the weak economy, and to sell any surplus at a profit if prices recover, Ms. Petsonk said.

According to E.U. officials, the maximum increase in the price of a ticket between Europe and China should be less than €2, or $2.60, far less than the amount that many passengers routinely pay in the form of airport taxes in many countries.

The bigger worry for airlines is that they are looking at the thin end of an enormous wedge. The sums charged by the Europeans for permits could grow substantially in coming years if governments decide to auction a larger proportion of permits and if demand for the permits rises.

Mr. Tyler, the head of the airline association, conceded that some airlines that had cut capacity in recent years might be able to make money from the system.

But he said that the majority of airlines had grown capacity significantly since the European Union made its calculations about the volume of emissions and that, over all, the airlines would face costs of $1.2 billion in 2012 to pay for permits, rising to $3.6 billion in 2020.

EU’s Carbon Plan For Airlines Begins Jan. 1

Article from AVweb

 

The new year will bring with it a requirement that carriers flying into and out of European Union airports participate in a system meant to regulate greenhouse gas emissions that critics say may result in higher airfares. Cost of compliance with the EU’s plan, which is generally described as a cap-and-trade program for carriers, is expected to range anywhere from $2 billion to $4 billion over roughly the next decade and translate to no more than $16 per seat for a trans-Atlantic flight. Under the rules, the entire flight’s emissions — not just that flown in EU airspace — will be added to a total. If emissions standards are exceeded, carriers must pay a penalty. The Obama administration and at least three major airlines have fought to stop implementation of the program, which critics say could stimulate trade tensions and exert downward pressure on already weak economies.

 

 

A lawsuit brought by United Continental and American was defeated on Dec. 21, paving the way for the EU to apply their emissions standards to all airlines, foreign and domestic. U.S. Transportation Secretary Ray LaHood and Secretary of State Hillary Clinton had added their voices to the argument, backing the airlines. The new standards will apply to all airlines while flying to, from, or within the EU. The EU has targeted commercial aviation as a fast-growing contributor to global warming with the special attribute of delivering pollutants at high altitude. Aside from the U.S., China, India, Russia, and at least 22 other countries have objected to the program. According to the International Air Transport Association, the airline industry expects to earn a $3.5 billion profit next year, with U.S. airlines among those forecast to see the largest margins. Airlines are expected to spend roughly $100 billion on new aircraft next year to modernize fleets and meet a rise of 4 percent in projected demand.