Incoming and outgoing IATA DGs Tony Tyler and Giovanni Bisignani
Wed 8 June 2011 – Threats from China of retaliatory action over the inclusion of their airlines into the EU Emissions Trading Scheme (EU ETS) has resulted in European airlines joining their overseas competitors in demanding changes to the cap-and-trade system. Speaking at the IATA annual general meeting that took place this week in Singapore, International Airlines Group CEO Willie Walsh said it was clear that there were countries that would retaliate, whether in the form of imposing additional taxes on European airlines or restricting access to markets. He called for a ‘Plan B’ in which the scheme was restricted to intra-European traffic until a global system could be realised. The chiefs of European aircraft manufacturer Airbus and Virgin Atlantic have written a joint letter to EU Climate Action Commissioner Connie Hedegaard expressing concern over the issue. However, Hedegaard says Europe must remain firm on the threats.
During the setting up of the Aviation EU ETS, European airlines argued that to avoid competitive distortions all carriers flying into or out of Europe should be included in the scheme. Major airlines like British Airways and Virgin Atlantic have up till now supported the general principles of the European flagship system to reduce carbon emissions. Now faced with threats from China of action against the European aviation industry, there has been a change of thinking.
Given the opposition from China and other major nations to the EU’s plans, Walsh said Brussels should now seek a compromise and apply the EU ETS to regional and domestic flights only. “There needs to be a Plan B. It is unacceptable that airlines face the prospect of retaliation because of the actions of the EU.”
According to a letter seen by the Financial Times, the letter from Airbus CEO Tom Enders and Virgin Atlantic CEO Steve Ridgway, in his capacity as Chairman of the Association of European Airlines, warns Europe faces a trade war with China and other powerful countries over the EU ETS. They tell Hedegaard that it would be “madness to risk retaliation”. China has indicated that one of the measures it could take would be to halt buying Airbus aircraft (see article).
In an interview with Reuters, Hedegaard responded: “When some parties start to threaten specific European companies, I think Europe should be very firm.
“Now is not the time to get nervous over legislation that has already been agreed. This was agreed by all 27 EU member states, by the European Parliament and by the European Commission.”
She told Reuters that it was vital to act on aviation emissions after years of rhetoric from the industry, but little action. “We can’t accept a global sector that says ‘let’s wait for another five or 10 years because we still can’t reach an agreement’,” she added. Having taken the decision to act, she said, Europe must now apply its laws evenly across all airlines using European airspace, regardless of their origin.
She also noted that the cost of emissions permits translated to around 8 euros per passenger on an international flight, a smaller amount than some airport taxes, such as New York at around $16.
Hedegaard reiterated the EU’s willingness to exempt airlines from other countries, including China, that adopt equivalent measures to reduce aviation emissions. China has recently given its airlines non-mandatory “guidance” to reduce their carbon intensity by 22% by 2020 relative to 2005 (see article). Discussions have taken place between Commission and Chinese officials over the issue but it would appear the move by the Chinese aviation authorities does not go far enough to satisfy the EU’s ‘equivalent’ requirements.
The China Air Transport Association (CATA) is also expected to join its US equivalent, the Air Transport Association of America (ATA), in taking legal action in Europe over the inclusion of member airlines in the EU ETS. The US case is due to get underway at the European Court of Justice in Luxembourg in a month’s time.
Speaking at the IATA AGM, CATA Vice President Chai Haibo called the inclusion “unreasonable and illegal” and his group “totally opposed it”. CATA estimates the EU ETS would cost Chinese airlines around 800 million yuan ($123m) in the first year, and over three times that by 2020.
Also speaking during the event, ATA President Nicholas Calio agreed, saying: “It is illegal under international law because it is extraterritorial application of EU policy on US carriers. The only way anyone can impose this jurisdiction over the seas is with the approval of the International Civil Aviation Organisation and they don’t have that.
“It is also counterproductive, because many of our carriers will be unable to invest in taking old ‘bad carbon’ aeroplanes out of service and replacing them with new good ones.”
Appearing on the CEO Forum panel during the IATA AGM open sessions, the President of Emirates airline Tim Clark said compliance with EU ETS reporting requirements had cost the carrier $250,000 so far. He warned the scheme would spawn a patchwork of similar systems and carbon taxes around the world at a time when the industry was already “crippled” by taxation. “We are now the highest taxed entity than any other on the planet,” he said. “The answer is a global system but the problem is that it’s a long and slow process. The EU has said ‘enough’s enough and we want action now’. We are just going to have to step up over the next six months and comply.”
Clark also said the carbon emissions targets the industry had set itself would be very difficult to achieve. “It’s an incredibly big ask,” he said.
Antonio Vázquez, Chairman of International Airlines Group, the holding company for British Airways and Iberia, said the timing of the introduction of the EU ETS “couldn’t have been worse” given the poor economic conditions in the Eurozone. He criticised the fact that revenues from the scheme would be taken from the industry when they could better be used to reduce future carbon emissions.
Australia’s Transport Minister, Anthony Albanese, said although his country supported carbon markets as the least-cost way of driving down emissions, Europe’s scheme for aviation would create significant distortions, and instead of being seen as a carbon reduction measure, the EU ETS and taxes such as the UK’s Air Passenger Duty undermined the support for action as they were being used as a revenue-raising mechanism.
“I don’t disagree with the motivations of the Europeans, but I think they’ve got it wrong,” he said.
In a typically combative final ‘state of the industry’ address, outgoing IATA Director General Giovanni Bisignani said: “This year we have a special place of dishonour for the European Union and its parliament,” he told delegates. “They are ignoring international law with plans to include international aviation in the EU ETS. Uncoordinated and punitive regional measures distort markets and undermine global efforts to reduce emissions.
“The EU ETS is a $1.5 billion cash grab that will do nothing to reduce emissions. Enough to Europe’s short-sighted actions! It’s time to be serious about climate change and honest in developing global solutions.”
Bisignani now makes way for Tony Tyler, former Chief Executive of Cathay Pacific Airways, although he will remain behind the IATA scenes as Director General Emeritus. While a less confrontational figure than Bisignani, Tyler is expected to keep up the attack on the EU ETS in the remaining six months before the scheme is due to swing into action. Next year's IATA AGM is due to be held in China.
Financial Times article: Airbus chief warns on emissions policy
Reuters article: EU must be “firm” in aviation CO2 dispute with China
The Guardian article: Willie Walsh: “keep emissions trading scheme to European airlines only”
Bloomberg article: Chinese airline group “totally opposes” EU’s emissions plan
Daily Telegraph (UK) article and video: US airlines to seek legal action over green levy
YouTube video: IATA’s Giovanni Bisignani’s attack on EU ETS
IATA AGM 2011 – Videos of presentations, interviews and CEO Forum session
Update Wed 8 June 2011:
Commenting at a press conference in Brussels today on China’s threat and airline pressure over the EU ETS, the European Commission President, José Manuel Barroso, said:
“The inclusion of aviation into the EU ETS is not a proposal, it is now in European law. It was approved unanimously by EU member states and the directive was adopted with a very strong backing by the European Parliament. So we are not thinking at all about changing our legislation. The directive has already entered into force and following the preparatory phase, it will be fully implemented from 1 January 2012.
“Now, we are always ready to discuss in good spirit and openness with all our partners their concerns but we certainly don’t have the intention to revise a very important directive that has a goal to lower emissions to protect our planet. We just have one planet – not one for the east, one for the west, one for the north or one for the south. It’s our global responsibility to protect it.
“So the goal of the directive is to reduce emissions, not to create any kind of burden on any specific economic sector. So it’s very important to understand why the directive is there. In fact, what should happen is that all the world should unite in [implementing] some kind of directive like this one. We need global action to protect the future of our planet.”
Video of comments on the Commission’s website (starts approx 14mins 30secs)
Update Fri 10 June 2011:
The Association of Asia Pacific Airlines (AAPA) entered the fray today in attacking the Europe over the EU ETS and pointing out the threat of retaliatory trade measures by “some foreign governments”.
“The last thing we need is a trade war,” commented AAPA Director General Andrew Herdman. “Tit-for-tat measures would only add to the burden on the airline industry and the travelling public, without achieving any environmental benefit.”
A statement from AAPA said the EU had responded to foreign criticism “of their self-appointed role as the world’s tax collector-in-chief” by offering to consider partial exemptions from the EU ETS if other governments introduce ‘equivalent measures’.
“There has been no indication as to how such equivalence might be determined, or indeed the processes involved. In any case, there is a danger that the potential proliferation of a variety of national measures would only add further complexity, without being environmentally effective,” noted Herdman.
“The EU has over-reached and underestimated the political price it will have to pay if it insists on pressing ahead with this scheme in its current form. It needs to fundamentally rethink its whole approach. Simply put, the EU should modify its plans for the EU ETS by limiting its application to only cover flights within Europe. This might at least mollify international opinion and hopefully avoid the inevitable damage which would result from continued legal challenges and retaliatory trade measures.”
AAPA represents 17 airlines in the region, although not those from China, which has its own trade association CATA.
Earlier in the week, speaking at the IATA AGM, IATA’s Aviation and Environment Director, Paul Steele, said the EU ETS would cost airlines collectively in excess of one billion dollars in the first year alone. He said the application of the scheme to airlines outside Europe was a “real issue” as it affected the sovereignty of non-EU countries.
“Emissions trading can be a very useful tool – and, indeed, it’s part of the aviation industry’s strategy – but it has to be done as part of a package that includes technology and operational improvements. Where the Europeans have got it wrong is in terms of trying to impose a scheme that would work very well within Europe but have tried to impose it outside the EU and that’s why it’s running into a lot of opposition right now.”
Following our comments attributed to Willie Walsh and Antonio Vázquez of International Airlines Group (IAG) during the IATA AGM, an IAG spokesperson told GreenAir Online: “We have always supported carbon trading as the most effective tool to address aviation’s impact on climate change and are well place to participate in the EU ETS in January 2012.
“We have had reservations from the beginning about applying the EU ETS to flights from countries outside the EU. We believe that constructive dialogue with other countries towards a global solution is the best course of action. A workable EU scheme could provide a model for the rest of the world to follow.
“The EU needs to investigate its options in the event of successful legal action by non-EU countries and be prepared for any retaliatory action.”
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