Thu 8 March 2012 – A bill introduced into the US upper house by Republican Senator John Thune that would prohibit US aircraft operators from participating in the EU ETS has received backing from Senator Claire McCaskill, a Democrat. As the Democrats hold the balance of power in the Senate this bipartisan approach could prove crucial in progress of the proposed legislation. Russia too is preparing similar legislation to prevent its carriers from participating in Europe’s emissions reduction scheme and the Ministry of Transport is working with the Russian parliament (the Duma) on preparing a draft law, expected before mid-year. In a bid to head off a damaging confrontation between the EU and its opponents, an upcoming meeting of the ICAO Council is due to consider a number of proposals on possible market-based measures that could form the basis for a global agreement. Meanwhile, a US study concludes airline profits could increase in the short term as a result of the EU ETS.
The Senate bill was introduced by Thune in December following bipartisan progress of a similar bill in the House of Representatives in October.
“The idea that the European Union has the right to tax American air passengers and carriers flies in the face of our country’s sovereignty,” said Thune. “I reject this proposed European tax and will work with my colleagues in Congress and countless concerned stakeholders to block this tax.”
Senator McCaskill represents the coal-dependent state of Missouri and, according to her website, is “a vocal opponent of the failed Cap & Trade energy policies proposed in Congress ... consumers already struggling financially would pay a steep price for energy policies that punish states that rely heavily on coal.”
In a statement supporting the S.1956 prohibition bill, she said: “It is absurd that the EU has any authority to levy a tax on US airlines in US airspace. I want to keep this economic recovery moving in the right direction, and an unfair tax levied on our companies by other countries isn’t the way to do that.”
Her intervention was commended by the industry trade organisation for leading US carriers, Airlines for America (A4A).
“Senator McCaskill’s leadership in working across the aisle and co-sponsoring this important legislation sends a strong message that Congress objects to the unilateral EU taxation scheme, and A4A and its members urge the administration to take similar measures,” said A4A President and CEO Nicholas Calio. “Subjecting airlines to the EU ETS will be counterproductive to helping the environment, result in the loss of US jobs and hamper the airlines’ ability to invest in new aircraft and continue their extensive efforts to build on their strong environmental record.”
Despite supporting legislation that would bar them from participating in the EU scheme, US airlines – and Russian carriers who could find themselves in a similar position – may soon be faced with a tricky dilemma. EU states – including the UK, which administers most of the US main carriers – have already announced the allocation of free emission allowances. The European Commission has partially activated the new Union Registry to enable aircraft operators to access their accounts, although full activation that would allow them to trade and transfer their allowances is not expected before this coming June at the earliest.
However, in order to access their accounts, the EU requires operators to submit a written declaration that they intend to comply with the provisions of the EU ETS directive.
A Commission official said: “It is important to note that, even with any law in a third country preventing compliance, the aircraft operator will still have an obligation under EU law to comply with their obligations, so sanctions and penalties will continue to apply for non-compliance, such as failure to report verified emissions and/or failure to surrender an equivalent number of allowances or international credits.”
In a speech at an FAA conference in Washington today, US Transportation Secretary Ray LaHood said the EU ETS law was “very, very bad” and “totally wrong”. He added that he would be working closely with Secretary of State Hillary Clinton to address the issue and hinted at enforcement measures.
According to fuel analysts OPIS, India is already in process of retaliatory action over the EU scheme, with several European airlines being informed by Indian officials that the issue of new landing or overflight permissions will be abandoned until the dispute is resolved. OPIS reported late last week that many European majors had yet to be issued with their summer season permits enabling them to land in the country from March 25.
However, if additional overflights or transit by European carriers were banned, it has been suggested that India itself may be in breach of the International Air Services Transit Agreement, of which it has been a signatory since 1945.
Last week, ICAO Secretary General Raymond Benjamin, who has just been re-elected for a further three-year term, said ICAO’s governing council has been considering six possible market-based measures (MBMs) put forward by consultancy MVA, and four of them would be put forward for endorsement at next week’s Council meeting. The meeting would also identify next steps to be taken and a group would be formed, probably including a representative from the aviation industry, to look at the options and report back.
Possible global MBMs include a passenger and freight levy, a carbon levy, a carbon offset scheme, a combination of a carbon levy and an offset scheme, or an open carbon emissions trading scheme.
Benjamin’s plan is to have a preferred option in place for consideration by the Council before the end of the year and taken forward to next 38th Assembly in 2013.
A new US study by The Center for American Progress (CAP) and Climate Advisers attempts to review and compare 37 previous studies on the economic impacts of the inclusion of aviation in the EU ETS. It finds airline profits are likely to increase in the near term because carriers are likely to be overcompensated by aspects of the policy designed to reduce costs.
The report, ‘Is the Sky Falling for Airline Profits in the European Union?’, is the first by the Blue Skies Project, a collaborative research initiative “that works to help make aviation safe, affordable, secure and clean”.
Rebecca Lefton, Policy Analyst at CAP, said the report should alleviate concerns and misconceptions by opponents of the EU scheme, although the authors say the report is analytical and was not an attempt to advocate for a specific policy or set of policies.
The report relies most heavily on 16 studies, including one from IATA published in 2007 entitled ‘Financial Impacts of Extending the EU ETS to Airlines’, and others that same year by Boon et al. and Ernst & Young. More recent studies covered include those carried out by Bloomberg, Vivid Economics and MIT (Molina et al.).
This new report concludes that EU airlines will profit more than non-EU airlines as they have more flights covered by the scheme, even though it is not overtly protectionist. In addition, network carriers – those that use a traditional hub-and-spoke system for scheduling flights – will profit more than EU low-cost airlines as they have more operations covered and their flights are less responsive to changes in price, argue the authors.
“This report is the most comprehensive review of the economic impacts of the EU aviation policy to date,” claims co-author Samuel Grausz. “It reviews economic impacts for all airlines, including important subgroups such as large and small carriers and airlines of different nationalities. We hope that by providing a credible, broad-based review of the economic impacts, we can create a more credible foundation off which to improve future policy discussions between nations, airlines and civil-society organisations on all sides of this issue.
“This report is the first of many planned for the Blue Skies project; we plan to publish additional reports on the economic and legal issues surrounding this policy and welcome any feedback on what should be included in future studies.”
S. 1956: European Union Emissions Trading Scheme Prohibition Act of 2011
Senator Claire McCaskill
Senator John Thune
Centre for American Progress/Climate Advisers report
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