US climate bill is a "blunt and inappropriate instrument" that would cost airlines $5bn a year, says ATA
Tue 25 May 2010 – The American Power Act proposed by US senators Kerry and Lieberman represented the “wrong approach for aviation,” said Nancy Young, Vice President Environment of the Air Transport Association of America (ATA). She estimated the cost to airlines and their passengers in 2013, should the bill be passed, would be around $5 billion, based on a predicted carbon price of $25 per tonne. However, she accepted there were some positive aspects in the draft bill, notably an exemption for bio-derived fuels and recognition that aviation greenhouse gas emissions should be addressed internationally. Meanwhile, Young revealed the action brought by the ATA and three US airlines against their inclusion in the EU Emissions Trading Scheme is due to be heard in the UK High Court on May 27.
Under the proposed bill – which faces an uncertain future – transportation fuel providers would be required to buy carbon allowances quarterly, based on total fuel sales over the previous quarter (see here), the cost of which would be passed on to the consumer – in aviation’s case, the air carrier.
“Although airlines will try to pass on this cost to the passenger, this will be difficult to achieve in such a competitive market,” Young told GreenAir Online. “This is effectively a carbon tax that will siphon money out of the aviation industry. In our view, this will take away the dollars needed to continue to improve emissions reductions in our industry, such as investing in new aircraft, alternative fuels and the equipage necessary to take advantage of the hoped-for modernization of our air traffic control system. Making the required capital investment will become harder, if not impossible, for airlines.
She said government figures showed that jet fuel consumption in 2008 by US domestic aviation had fallen 10% in absolute terms since 1990, and by 5.5% since 2000 when including international aviation, despite moving 17% more passengers and cargo.
“Nowhere is this recognized in this legislation. That is why we consider a fuel tax a blunt and inappropriate instrument, and isn’t calibrated for the right targets for this industry. The bill is aimed at ground transportation and doesn’t take account of what we have achieved in our particular sector.”
Hoewever, Young finds two positive “nuggets” in the proposed bill. Qualifying bio-derived jet fuels will be exempted, similar to their position in the EU Emissions Trading Scheme (EU ETS), although the position is unclear as to the status of alternative fuels such as synthetic coal- and gas-to-liquid.
The other is a recognition that aviation greenhouse gas emissions should be addressed through the International Civil Aviation Organization (ICAO) because of “the uniquely international nature of the aviation sector” (see page 319 of proposed bill here). The bill also says that the US should “work with foreign governments towards a global agreement that reconciles foreign carbon emission reduction programmes to minimize duplicative measures and avoids unnecessary complication for the aviation industry, while still achieving measurable, reportable, and verifiable environmental objectives.”
The bill proposes that foreign carriers who have paid for aviation fuel in the US, and therefore have been subject to pass-through carbon costs, may be credited in the form of compensatory allowances “in whole or part” for the international aviation portion under a programme to be established jointly by the Environmental Protection Agency (EPA) and the Federal Aviation Administration (FAA), but only if the carrier “is covered by a foreign or international system designed to reduce greenhouse gas emissions”.
Said Young: “This will avoid double-counting, but there are huge problems with this. Firstly, we do not believe the US, the EU or anyone should unilaterally decide on how to deal with international emissions. This can only be done through an international regime. Secondly, it is very unclear on how the crediting should take place, or even if it should take place. It leaves a lot of discretion to our federal agencies to figure it out. It doesn’t give enough certainty to either US or international airlines.
“Similar to the provisions in the EU ETS, it leaves the issue in the hands of the administrators to decide what foreign schemes are sufficient in terms of equivalence. Again, we think an international framework with a set of rules needs to be developed so that countries can then apply them uniformly.”
Young said applying the carbon tax to international jet fuel would also be a breach of the Chicago Convention, which this prohibits. “Some might say that this is not a tax, it’s just a charge passed on by the oil companies. But that would be too cute. It is a de-facto tax, no question,” she maintained. “We have made it clear – and will continue to make it clear – that this is a violation of treaty.”
She revealed that the action filed against the UK Government by the ATA and three US airlines – American, Continental and United – is due to be heard at the High Court in London this Thursday (May 27). The airlines are contesting their inclusion, as foreign carriers, in the EU ETS.
Both sides have requested the case be referred to the European Court of Justice (ECJ).
“I am highly optimistic the UK court will see it the same way as the parties do and will refer it accordingly,” predicted Young. “The timing is important to us as we are trying to move the case through before the 2012 trading obligation starts. Our UK lawyers are confident that there will be enough time to get it through the ECJ process before 2012.”
In the meantime, US airlines would continue to comply with the EU directive, she said, and all of them had approved emissions monitoring plans in place.