Airline emissions ETS scheme hits turbulence

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by E.L. Sharp

The European Commission’s plans to include carbon dioxide produced by flights in and out of Europe within the European Union’s Emissions Trading Scheme (ETS) ran into difficulties last week after an international backlash prompted a legal challenge.

Phase II of the EU’s Emissions Trading Scheme (ETS) comes into force in January 2012, forcing airlines to pay the price for their pollution and adding a significant cost to the industry.  Under the proposed ETS reforms, airlines will be forced to pay a charge against all emissions that exceed the allowances granted to them by the EU.  The measures cover all carriers operating to and from the EU, as well as domestic flights within the area.  Most contentiously, it covers emissions produced outwith EU airspace.

Several U.S. airlines have retaliated by taking the matter to the European Court of Justice claiming that the European Commission have overstepped the mark.  The airlines argue that the EU does not have the authority to regulate flights to and from Europe when not in EU airspace.  Their case is supported by the U.S. Government who have demanded that U.S. airlines be exempt from the scheme.  At a recent meeting in Oslo, a US official commented “The demand we made is that the EU ETS (Emissions Trading Scheme) should not apply to U.S. carriers. We did not talk about how that might be done”.  

Further pressure has been applied by the inclusion of Russia and China into the fray who have joined the US in publicly criticising the ETS reforms.  Chinese discontent has placed into jeopardy multi-billion euro Airbus contracts with Hong Kong Airlines and the China Air Transport Association has threatened counter-measure imposed against EU airlines operating flights into and out of China.

The European Commission, however, are standing firm in their commitment to carbon reduction and insist that the scheme will be implemented as planned, with fines being levied for non-compliance.  Any demands for exemptions by countries are rebutted on the grounds that this would offer those airlines and unfair competitive advantage.  European officials have advised that there is flexibility in the proposals in that if another country can demonstrate “equivalent measures” on CO2 reduction for their airlines, those airlines will be able to claim reduced charges.  It is understood that whilst China has announced that they are looking at cutting emissions by 20 per cent, the US Government has currently tabled no plans to introduce equivalent measures.  

At present aviation is responsible for 2-3 % of the world’s greenhouse gas emissions, a share that is expected to increase as the industry grows.  The European Commission’s attempts to hold the industry to account for their hand in climate change are both forward thinking and ambitious.  Whilst the US and Chinese governments’ reactions were predictable for two countries so famed for high pollution and a seeming disinterest in tackling climate change, it remains to be seen whether this socially responsible reform will hold out against the political pressure and legal challenges.