Monday, November 12, 2012

"Green Airline War" Ends (For Now) with a Whimper, Not a Bang

Even though the domestic and international backlash has been significant, today's news that the EU has suspended its airline carbon emissions tax remains pretty surprising:
The EU will suspend for one year a controversial policy of charging foreign airlines for their carbon emissions on flights to and from Europe, citing progress in negotiations towards a global regime to tackle pollution by the aviation industry.

Connie Hedegaard, the EU climate commissioner, announced the suspension on Monday of a policy that had united the US, China, Russia, Brazil, India and several other countries in their opposition to it.

The EU carbon emissions trading scheme had also drawn complaints from European airlines and Airbus, the Toulouse-based aircraft manufacturer, which feared being caught up in a global trade war....
The suspension will apply only to flights to and from the EU – not between the 27 countries that make up the bloc – and must still be approved by member states and the European parliament. 
The EU law was part of its broader policy to curb the greenhouse gas emissions linked to global warming. It requires airlines to buy permits from its carbon market to cover their emissions on all flights to or from the EU.
You may recall that when the EU's emissions scheme was first announced, I opined that the global "trade war" was possible in this sector because the majority of airline services were exempt from WTO rules.  Thus, the EU could apply the policy - and others could retaliate against European airlines - without much fear of WTO litigation (or WTO-sanctioned retaliation).  Some trade experts raised very theoretical WTO claims, but clearly no WTO Member governments were, as is typical, willing to file a WTO complaint on based on mere theories.

Instead, it appears that some ol' fashioned strong-arming by the US, China and others - forbidding their airlines from complying with the EU system or threatening retaliation - has done the trick:
Airbus, owned by EADS, called in March for a suspension of the EU scheme against airlines after claiming that it was being prevented from finalising contracts worth $14bn to supply jets to Chinese carriers....

The Association of European Airlines also welcomed Ms Hedegaard’s statement, adding that some of its member airlines had already experienced problems resulting from non-EU countries’ objections to the bloc’s carbon emissions trading scheme – such as European carriers struggling to secure traffic rights to fly into airports.

“We already had signs we were moving towards a trade war [because of the EU scheme],” said the AEA. “We welcome for that reason [the proposal] to put a moratorium on [the scheme] and wait for the outcome of the [ICAO] debate.”...

Foreign airlines, led by US carriers, complained the scheme amounted to a form of extraterritorial taxation for flights that originated outside the EU and were largely conducted in international airspace.

Airlines for America, the US airlines’ trade body that tried unsuccessfully to stop the EU scheme in the courts, said it was “cautiously optimistic” about the European Commission’s proposal....

The future of US legislation that could ban domestic airlines from complying with the EU carbon emissions scheme is unclear.
The EU, however, refuses to admit that global pressure caused the Commission to suspend the emissions scheme.  Instead, the Europeans point to global talks on airline emissions that are - allegedly - going just great:
European Commission officials insisted that they had not buckled to international pressure in proposing to defer enforcement of the scheme against flights into and out of Europe until the end of 2013. Instead, they attributed the move to positive results last week in talks at a UN aviation body about a potential international agreement after years of frustration. 

The body, called the International Civil Aviation Organisation, agreed to establish a high-level group to develop a global system to tackle airlines’ carbon emissions by the time of its next general assembly in September 2013....

“For the first time in years, a global deal on aviation should be in reach,” said Ms Hedegaard. She called the ICAO high-level group “very good news”.

However, Ms Hedegaard also warned that the EU policy would be reactivated “automatically” if the ICAO talks proved fruitless. “It is very important for our opponents to understand this,” she told journalists in Brussels.

Ms Hedegaard’s proposal marked a softening from previous declarations that she would not amend the EU law affecting airlines and their carbon emissions because of threats of a trade war.
I don't know about you, but Ms. Hedegaard's confident statements about an international agreement on airline emissions certainly raised my eyebrow, as any such agreement would require the support of the very nations who raised a giant stink about the EU program to begin with.  I could perhaps see the second-term Obama administration pushing for such a deal, but is it realistic to assume the same motivation - especially for a deal with the same level of ambition as the EU scheme - from China, Russia, Brazil, India and others?

Color me skeptical.

Instead, it seems to me that the ICAO deal has provided the European Commission with sufficient cover to shelve the poorly-thought-out emissions scheme and let it die on the vine over the next year as the ICAO talks continue behind closed doors.  The Europeans then can express support for anything that comes out of the ICAO next September (regardless of the final deal's scope and effect), and this two step will save face and the EU airlines and aircraft companies.

But, hey, maybe I'm wrong and a big, ambitious global emissions agreement it right around the corner.  I guess we'll find out in 10 months.

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