Europe-US Air War?

American airlines are to pay to the EU budget for CO2 emissions. The idea rouses annoyance in the U.S.

On January 1, 2012, the European Union will impose an obligation on air carriers to participate in the EU Emissions Trading Scheme (ETS). Already today, the scheme is in force for all branches of economics, except transportation and agriculture. Starting in the new year, air carriers will also have to pay for CO2 emissions. For the time being, not much, and perhaps some will even make money by reselling their emissions allowances to others.

Nonetheless, this EU idea may trigger a transatlantic air war because the Union wants to impose payment on all air carriers who fly to or from airports within its territory. In addition, American airlines will have to pay for CO2 emissions on the whole route, not just the part which runs in the European air space. This especially irritates Americans.

“There is no one in the U.S. who would support the idea of imposing this tax on American air carriers. Nobody accepts the fact that American airlines should pay money to the EU budget,” Thomas Legge, German Marshall Fund expert, tells Rzeczpospolita. The dislike toward the extra-territorial European tax is so great that the House of Representatives has even voted down a law directly banning American air carriers to adhere to the new European regulations.

“If it comes into force, American companies will face a serious dilemma. Either they will enter the ETS and break the American law, or they will not and hence break the EU law,” says Legge. The expert believes, however, that common sense will triumph and president Barack Obama will not sign the new law, in order not to risk escalation of the conflict.

The law is on the Union’s side

Washington faces a problem because yesterday the European Court of Justice dismissed a complaint lodged by the U.S. carriers’ association and decided that EU laws may also regulate non-European parts of the carriers’ route. This shows that the attempt to legally undermine them, e.g., on the World Trade Organization (WTO) forum, is unlikely to succeed. The option which remains is implementing unilateral retaliatory measures, such as penalty import tariffs on EU products. But after the court verdict, such a move would be risky because it would have no legal basis.

“We do not mention any specific actions, but we also do not exclude any option,” emphasizes Krishna R. Urs, assistant of the American Secretary of Transportation, in a statement sent to Rzeczpospolita. The U.S. thinks that the EU had made a hasty decision because the right place to develop a plan of fighting with CO2 emissions is an international forum, e.g., the International Civil Aviation Organization (ICAO). The only problem is that the attempts to negotiate met with resistance from other countries. That is why the EU decided to act one-sidedly.

“We already have information from all carriers. On January 1, 2012, the system will start,” says Siim Kallas, European Commissioner for Transport.

Fighting for the climate

The EU effort may lead to a paradoxical situation that the U.S. or other countries, such as China or India, which are also blocking the idea to impose CO2 emissions costs on air carriers, will introduce such systems themselves.

“According to the EU legislation, fees will not be imposed on carriers from countries where similar taxes are in force. This means that if the U.S. introduces such a system, carriers will also have to pay, but to the American budget,” says Thomas Legge.

Including airlines in the ETS is the next step in fighting climate change. Starting from the beginning of 2012, emissions allowances will be given, partly for free and partly for a charge, to about 4,000 carriers. Just like in the case of other branches, each ETS participant will receive a free pool.

According to the European Commission, costs for passengers should not be noticeable. Even if the carrier includes all the costs of ETS participation in the ticket price, it should not increase by more than two euros on the route from Europe to the U.S. Peter Liese, German MEP and the draftsman of the new regulations, notices that it is not a high price in comparison with, e.g., the new U.S. federal tax on all international flights amounting to $16.30 per passenger. Brussels also argues that today carriers do not pay for emissions at all because, unlike road fuel, air fuel is not taxed.

Airlines will constitute 10 percent of the emissions in ETS. Since 1990, the value of CO2 emissions in this business has doubled.