EU ETS ‘stop the clock’ proposal passes crucial test in the European Parliament but faces legal challenges from European airlines
(L-R) Abdul Wahab Teffaha (AACO), Willie Walsh (IAG) and Christopher Surgenor (GreenAir) on opening panel at Aviation Carbon 2013
Wed 27 Feb 2013 – The European Commission’s ‘stop the clock’ proposal to temporarily suspend the inclusion of intercontinental flights from the EU ETS has moved an important step forward as MEPs on the all-important Environment Committee of the European Parliament unanimously voted in support of the measure. The proposal was announced last November to allow ICAO states to reach a global agreement on market-based measures. However, the MEPs said the derogation should apply for a maximum of one year and only prolonged if “clear and sufficient” progress was made. Although the move has been largely welcomed by the airline industry, the trade association representing low-fare European airlines, ELFAA, revealed last week at the Aviation Carbon 2013 conference that it was preparing to take legal action if the proposal was formally adopted on the grounds that a partial suspension was discriminatory against the intra-EU carriers that remain in the scheme. Willie Walsh, one of Europe’s leading airline chiefs, said the EU’s Climate Commissioner had lost all credibility over the international dispute.
The Environment Committee MEPs approved a report drafted by rapporteur Peter Liese by 50 votes to 0, with eight abstentions. The committee also voted to open negotiations with EU ministers, who must also approve the proposal, by 51 votes to 2, with five abstentions. The proposal successfully passed through the Transport Committee last week. A full plenary vote will be taken in the Parliament during a session in mid-April after discussions to agree a common text with EU member states working through the EU Council that are expected to take place in the middle of March.
The MEPs said they would expect a global agreement to come with a realistic timetable for its application. In order to build international confidence in the EU ETS, they also called on EU member states to use revenue from auctioning allowances to cut CO2 emissions, adapt to the effects of climate change and fund research and low-emission transport schemes. Parliament had tried to include this stipulation in the original Directive but it was rejected by member states.
Liese stated the vote was a clear signal that the EU wanted an international solution. “There are no more excuses for third countries not to engage in the issue,” he said. “Third countries have given the impression that it is the European Union that stands in the way, but we shall see if they have enough commitment.”
Commenting on the vote, Sam Van den plas, Climate Policy Officer at WWF European Policy Office, said: “The Parliament’s Environment Committee has confirmed the political gesture of the ‘stop the clock’ proposal as a sign of goodwill. The fact that the clock will start again after a year affirms the need for ICAO to find a global solution – but time is running out for the climate. The full European Parliament and member states must now uphold the EU’s determination to achieve a global aviation emissions solution.”
Aoife O’Leary, Policy Officer for aviation at Brussels-based NGO Transport & Environment, said: “ICAO’s sluggish progress on curbing aviation emissions is legendary. The ‘stopping of the clock’ removed any further excuses the organisation may have had. ICAO must prove that it is serious about implementing a global aviation emissions solution, first in its High-Level Group meeting in March, and then at its triennial assembly later this year. Otherwise, the clock will start again in January.”
In a keynote presentation at last week’s Aviation Carbon 2013 conference in London, Willie Walsh, CEO of IAG, the parent company of British Airways and Iberia, welcomed the ceasefire proposal but criticised the Commission’s handling of the international dispute over the EU ETS.
“We were deeply concerned that this was a political issue that was becoming a contest as to who was the strongest. It had little to do with the environment, which was being lost in the debate,” he said. “Stopping the clock will allow ICAO the breathing space to move the agenda forward and we are confident ICAO can make progress.”
He recognised the ‘snap-back’ to the international application of the EU ETS will come into effect if ICAO is not seen to have made sufficient progress but was optimistic that an acceptable outcome will emerge.
“Although it is highly unlikely we will get to a situation where we will have a full global scheme agreed in September I do believe we can create an environment which can firmly put us on the right track and we don’t want to see that goal lost in the politics of the EU issue.
“Governments through ICAO need to focus on a robust framework for delivering carbon-neutral growth from 2020 that has to be cost-effective because part of the solution is that airlines must have the ability to invest in new technology and to make their environmental performance more efficient. If we continue to operate this industry at a loss or with meagre margins, we will not be in a position to invest.
“We must make sure there is no discrimination between airlines, avoid the risk of creating distortions and honour global agreements. We also need to recognise that the world is not all in the same place, that there are parts of the world that are developing at a different rate. It’s not a simple problem facing ICAO but it is one that it can overcome.
“Our industry today is united like never before and is determined to improve its performance and to demonstrate that we can do what’s right, not only what’s in our own interest but also for the sake of the environment. We’re ready, able and have a track record of achievement but we do need governments to provide the framework to enable us to achieve the goals we have set ourselves.”
Walsh said he had been warning for years before the ‘stop the clock’ proposal that applying the EU ETS to intercontinental flights would create competitive distortions and risks of retaliation and non-compliance. He said the EU ETS should have been introduced on an intra-EU basis to show that carbon trading was a cost-effective way to reduce CO2 and a first step towards a global scheme.
He had harsh words for EU Climate Commissioner Connie Hedegaard over the handling of the international dispute and the subsequent climb-down. “She should not have put herself into this position in the first place,” he said, “but having done so she foolishly backed herself into a corner. Her credibility has been destroyed. They [the Commission] were playing politics and that’s where the mistakes have been made.”
Fellow panellist John Hanlon, Secretary General of the European Low Fares Airline Association (ELFAA), whose members include two of Europe’s largest airlines, Ryanair and easyJet, was equally scathing.
He told delegates that with no all-new short-haul aircraft expected for 15 years, an environmentally effective market-based measure was needed pending a technological solution since the industry wanted to continue to grow, and he had embraced the scheme as laid out in the EU directive.
But taking an opposing view to IAG’s Walsh, Hanlon said ELFAA had supported all air traffic – intra- and extra-EU – to be included in the EU ETS from the beginning. He said that as 80% of EU aviation emissions came from long-haul flights, it was vital that the EU ETS encompassed all flights to and from the EU.
However, in the face of international pressure, the Commission had chosen the wrong option in its ‘stop the clock’ proposal, he argued. Either it should have stuck to the position laid out in the Directive and amended it only when a truly equivalent alternative international agreement had been reached, he said, or the EU ETS should have been suspended in its entirety for all flights pending the delivery of a superior global solution from ICAO.
“ELFAA would have supported either of these options, which would have been consistent with the environmental objectives of EU ETS,” he said.
In a kneejerk reaction to an ICAO Council meeting and without either consultation with the industry or an impact assessment, the Commission had announced without warning, firstly to the press, the partial moratorium, he said. “This was followed by a technical briefing to the NGOs to which we were denied access,” he complained.
ELFAA’s view was that applying the derogation to intercontinental flights was discriminatory and would distort competition.
Citing the opinion of the Advocate-General of the European Court of Justice in the US airline case, Hanlon said legal counsel had clearly advised that such discrimination was illegal under EU law and ELFAA was preparing a legal challenge, which would be mounted once the proposal had been formally adopted in the co-decision process.
“It’s not worth preserving the EU ETS in its reduced form. The only solution as we see it is to extend the moratorium to all flights and maintaining pressure on ICAO to achieve something by the end of this year against the threat of the reintroduction of an undiluted EU ETS. What is needed is a constructive and credible way forward and not a politically motivated retreat. I don’t know about ‘stop the clock’ – I think it’s time to ‘stop the rot’.”
Simon McNamara, Director General of the European Regions Airline Association, said that although his members had fully complied with the EU ETS, the first year of operation had shown up how administratively complex the scheme was for the smaller aircraft operators. “I can name several airlines for whom the cost of administration will be higher than the cost of the carbon they are required to purchase,” he said. “The overhead is huge and this needs to be fixed. The uncertainty caused by the extra-territoriality of the scheme has also been a concern.”
McNamara said stopping the clock to allow ICAO to reach a global agreement “was the right thing to do, but what is regrettable is that it has been applied to international flights only and not for intra-EU traffic. You have ended up with a two-tier, patchwork and administratively costly system and you do have to question whether it would do anything for the environment. ‘Stop the clock’ should have been applied to all flights.”
Responding, European Commission representative Philip Good said the proposal had been through careful legal consideration and he had full confidence in the way the legislation had been proposed. He also pointed out that the emissions covered by the reduced scope of the scheme were nearer to 30% of all EU aviation emissions. “To say that it’s insignificant is unreasonable and it’s still a very important contributor in our climate objectives,” he said, adding that in its full scope, the aviation sector was the second biggest carbon emitter in the EU ETS after power generation.
Abdul Wahab Teffaha, Secretary General of the Arab Air Carriers Organization, told the conference that the EU had exceeded its authority by extending the EU ETS outside its jurisdiction. He believed the “external” clock had not only been stopped but was irreparably broken and he could not foresee a possibility that the scheme would be re-applied to intercontinental flights after the one-year moratorium had finished without the consent of third states. “For us, the EU ETS is dead,” he said.
“We do not want to escape our environmental responsibility. However, that responsibility does not come through individual initiatives, taxes that disappear into government coffers or unilateral actions that are imposed on other parties. Airlines are looking for a solid agreement at ICAO that is very clear, not a loose one that says ‘do whatever you want’.”
Bill Hemmings, Aviation Programme Manager at Transport & Environment, told delegates the ‘stop the clock’ decision was regrettable but the EU had been put in a position where it became the only way forward.
In a recent policy brief, Lufthansa complained that intercontinental EU carriers also face competitive distortions and have been “left out in the cold” by the ‘stop the clock’ proposal. The German airline group welcomed the avoidance of potential trade conflicts with the scheme’s international opponents, but says the decision to scale back the application of the EU ETS to European flights alone will leave the continent’s airlines struggling to compete with internationally-based carriers on some routes.
To illustrate a competitive distortion, Lufthansa uses the example of routes from Europe to the Far East that connect through an airline’s hub. Under ‘stop the clock’, European carriers would still have emissions trading costs for the intra-European feeder flights that connect to long-haul flights beyond the EU. On the other hand, Middle Eastern airlines competing on the same route would not incur any EU ETS costs as their feeder flights are to a hub located outside the EU. This situation, says Lufthansa, will force Europe’s airlines to charge higher fares than their international competitors to cover the EU ETS burden.
Although highly critical of the Commission proposal, the airline welcomed the shift away from talk of trade wars and towards negotiation at ICAO. However, it also expressed concern at the potential for international disputes to be re-ignited if the EU deemed ICAO’s progress to be insufficient and re-applied emissions trading to intercontinental flights after the one-year moratorium.
Lufthansa, which also owns Swiss International Air Lines (SWISS), has also been pressing for flights to and from Switzerland to be included in the temporary exemption from the EU ETS and is believed to be considering legal action over the issue. Switzerland too is reported to be unhappy over the unilateral decision by Commission to continue to include EU flights to and from the country. The EU and Switzerland are in negotiations to link their respective emissions trading schemes but these have yet to be finalised.