LONDON Feb 21 Once rhetoric surrounding a
brewing "carbon trade war" has cooled, non-EU countries are
likely accept charges against carbon emissions on their flights
arriving in and departing from the European Union.
Opposed countries including the United States, China and
India are meeting in Moscow this week, disgruntled over the
perceived injustices of the EU scheme which applies a charge on
the entire carbon emissions of flights including those parts
outside EU airspace.
At most they will likely warn the EU, and demand that the
U.N. body, the International Civil Aviation Organization (ICAO),
resolves the problem.
The plea to ICAO will be in vain: it would be difficult to
make a binding sanction stick against the EU, which would only
accept an ICAO compromise launching a global scheme to curb
emissions from aviation - something it has failed to do in 15
Aviation was uniquely (alongside shipping) excluded from CO2
targets under the 1997 Kyoto Protocol on condition that
countries instead agreed to "pursue limitation or reduction of
emissions of greenhouse gases ... working through ICAO".
The European Commission justifies its unilateral action from
ICAO's failure to deliver significant action in the meantime.
The European Court of Justice (ECJ) last year upheld that view.
ICAO member states will have a hard time proving that the EU
is breaking any rules under the Chicago Convention on
International Civil Aviation, given that ECJ support.
More substantively, and in time, countries including China
will probably agree bilateral deals, taking their own action to
The economic impact of the EU scheme is not trivial, with a
total cost to airlines of about 10.4 billion euros ($13.80
billion) through 2020, according to industry news and
consultancy firm ThomsonReuters Point Carbon.
But carriers will pass some or all of the extra cost to
passengers, adding about 1.5 euros to the cost of a London-New
York flight, according to the European Commission. Australian
and U.S. airlines have already announced plans to hike fares.
The airlines case is the first where a country or region has
imposed a carbon change on imports: until now that was a
theoretical tool for governments to protect their domestic
industry, and so stop companies relocating to more lax regimes
to avoid emissions targets at home.
France has long supported EU carbon duties on imports of
energy-intensive products such as steel and cement.
The EU has preferred to protect such heavy industry by
giving them free permits, under its emissions trading scheme,
rather than impose import duties.
It's easy to see how steel duties could escalate into a
trade war given the metal's strategic importance and a long
history of conflicts.
In the case of steel duties, countries can apply tit-for-tat
tariffs, but on EU flights that would likely inflict more
self-harm than good, impacting tourism and business.
That problem is reflected in rather weak opposition so far.
While China has banned its airlines from taking part in the
EU scheme, that was unless they received government approval.
China's opposition is somewhat weakened by the gains it has
reaped under the EU emissions trading scheme, which allows
European polluters to meet carbon caps by buying offsets from
developing countries, making emissions cuts there instead.
China is the biggest winner under that scheme, selling 60
percent of all offsets so far, worth more than 5 billion euros
assuming an average price of 10 euros, according to Point
China will this year sell carbon offsets worth 1.5 billion
euros compared with costs from complying with the EU aviation
charges of 70 million euros, according to UBS analyst Per
Meanwhile, the U.S. Senate earlier this month passed a bill
which included a statement opposing the EU law, but stepped back
from a House version which would have blocked carriers from
EU rules give carriers until April 2013 to buy permits
against this year's emissions, leaving plenty of time for
The most likely compromise will be in bilateral deals, as
the EU scheme exempts countries which take "equivalent measures"
to curb CO2.
For example, China has set a target for airlines to cut
their carbon intensity (the amount of a company's CO2 emissions
per dollar of revenue) by 22 percent by 2020 compared with 2005
That compares with the EU's plans to nearly halve emissions
by 2020, compared to the expected level without action.
Those are two very different metrics, but
nevertheless could be the basis for a Beijing exemption.
EU international aviation emissions have doubled since 1990.
($1 = 0.7538 euros)
(Reporting by Gerard Wynn)