EU carbon trading scheme for airlines drawing global ire; Trade war looms

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EU ETS
The European Commission insists that European Emissions Trading scheme (ETS) will help make Europe more climate friendly. Photo - Reuters

The European Commission’s New Year resolution of imposing a limit over carbon dioxide emissions on all the airlines flying to or from Europe airports has created furore in the Aviation Industry. The EU Emissions Trading Scheme (ETS) has drawn howls of protest from the airlines industry and is forcing them to make tough decisions.

With a motive to continue its operations in Europe, Etihad, the fastest growing carrier of Abu Dhabi has decided to hike fuel surcharge on all its flights arriving on or departing from Europe airport. The predominant factor behind this reluctant move is to offset the scheme costs under which airlines will be charged for the slew of carbon emitted by airplanes.

Known for offering its customers an extraordinary flying experience, the UAE flag carrier will now pass the additional costs to its customers. For passengers flying into or out of Europe will be charged $3 (AED11) and an amount of $0.03/ kg will be levied for cargo shipments on European flights. The same will take effect from 1 March 2012 to cover new carbon tax.

BEHIND THE SCENES

Though European Commission’s forced imposition sounds terrible to many, however, the reason behind this immediate action seems logical. As stated, the chief aim is to eliminate any possible aftermath of climatic changes on aviation industry. If the idea of alleviating airline’s carbon footprint is successfully implemented, it could erode nearly 35% of struggling industry profits.

Airlines are authorised to emit a proportionate amount of CO2 for free, every year. Strangely, they may have to bag more ‘carbon credits’ from different industries or airlines just in case they cross the line. As per EU ETS, the charges will be calculated on the supplementary costs for extra carbon credits purchased by airlines in 2012. Perhaps, with fluctuation in carbon prices, the cost can be adjusted with time.

Another significant factor troubling foreign governments is the EU Commission’s calculation of carbon cost over the entire flight and not just Europe. To avoid this deadlock, the EU ETS declared that no particular airline will face a bill till the next year, once their respective carbon emissions are calculated.

Like Etihad, another major Gulf carriers are also expected to follow suit and beef up air fares to compensate for the extra costs they have to bear.

EU RIGIDITY

The carbon emission control scheme has attracted opposition from both global plane makers and airlines. However, Europe has not shown any sign of compromise despite causing friction with worldwide aviation groups. Most of the airlines fear a possibility of trade war. Nonetheless, Europe insists it will not scrap this scheme or show any flexibility.

The rigidity is evident with its declaration of implementing this system in spite of conflicts, court cases, disapprovals and other difficulties.

CHINA TAKES A STAND

The eccentricity of the situation is evident as China took a stand against the odds unlike India, US, Singapore, Canadian and Asia Pacific Airlines which, as per industry critics, have so far blown hot and cold.

China banned its airlines from joining the EU’s carbon emissions scheme and ordered the country’s airlines not to raise air fares or levy extra costs to offset carbon emissions charges. Contemplating over the seriousness of the matter, industry observers suggest it will aggravate the situation and perhaps lead to a trade war.

According to the World Luxury Association, tourists from China spent a record US $7.2 billon overseas over the most recent Chinese holiday period; with 46% of total spent in Europe. China’s contribution in maintaining European economic stability is another good reason that the EU has decided to negotiate disputed terms under the Carbon Emission Scheme.

INFRINGEMENT PENALTIES

The airlines not complying with the standards will be fined an amount of US $130 (100 euros) for every tonne of emitted carbon dioxide for which they have not deposited allowances. For persistent offenders, the EU has complete authority to ban the airlines from its airspace.

Few European airlines wonder the chances of being penalised by other foreign governments over the scheme. They fear the risk of reprisals against airlines from Europe in form of newer taxes, restriction on traffic rights and charges.

Aviation experts believe the conflict is rapidly turning into a battle and to avert an escalation of the situation there is a need to find quick and appropriate solutions.

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