Report states European Union’s Emissions Trading Scheme receives pushback from 29 nations

By Jeff Berman, Group News Editor, and Patrick Burnson, Executive Editor

A report in the Wall Street Journal this week stated that a group of 29 nations is requesting the European Union (EU) to spike its costly emissions trading scheme (ETS) that would impose new emissions taxes on U.S. and other nations’ air carriers flying into and out of the EU and is seeking retaliation against the EU and raising the risk of a trade war.

At a meeting in Moscow, the report said these nations, including the United States, Russia, China, and India, have agreed to adopt a “basket of measures” that permit each nation to choose the actions it finds most effective to counter the ETS.

Under the ETS, the EU is calling all airlines to pay taxes to the EU as part of a “cap and trade” for carbon allowances in an effort to reduce air emissions created as a result of their flights in EU airspace.

The EU ETS was created in 2005. According to the EU, the ETS places a cap—or limit—on the total amount of certain greenhouse gases that can be emitted by the factories, power plants and other installations in the system. Within this cap, companies receive emission allowances which they can sell to or buy from one another as needed. This is scheduled to take effect for the airline industry on January 1, 2012.

The EU maintains that under the ETS at the end of each year a company must either surrender the allowances needed to cover their actual emissions or pay steep fines.

The WSJ report said that the ETS has met strong resistance and raised fears of a trade war, with opponents saying it is exceeding its legal authority by imposing emissions charges for flights outside the EU.

United States-based opposition to the ETS has been clear for some time.

In July 2011, the United States House and Transportation Infrastructure Committee made its opposition to the ETS clear, explaining it has no intention of participating in this program.

“This appropriately named EU scheme is an arbitrary and unjust violation of international law that disadvantages U.S. air carriers and kills U.S. aviation jobs,” said House Transportation and Infrastructure (T&I) Committee Chairman John L. Mica (R-FL) in a statement at the time. “The message from Congress and the U.S. government is loud and clear: the United States will not participate in this ill-advised and illegal EU program.”

Soon after that, the House introduced legislation, H.R. 2954, the European Union Emissions Trading Scheme Prohibition Act of 2011—that it said directs the Secretary of Transportation to prohibit U.S. aircraft to operators from participating in the EU’S ETS. They added that the bill also instructs U.S. officials to negotiate or take any action necessary to ensure U.S. aviation operators are not penalized by any unilaterally imposed EU emissions trading scheme.

The House passed H.R. 2954 by a voice vote last October.

Under the ETS, the T&I Committee said that there is no requirement that generated revenue would even be put toward researching and developing technology to improve emissions.

And, not surprisingly, U.S. air cargo shippers are not fans of the ETS by any stretch.

“The Airforwarders Association is extremely concerned about both the proposed EU Emissions Trading Scheme in the US legislation drafted in response, said Brandon Fried, executive director of The Airforwarders Association (AfA) “These initiatives could have an adverse impact on air cargo by increasing costs, delaying shipments and sparking potential trade wars.”

In an exclusive interview, Fried said that the AFA was hoping for a more cooperative solution where all countries work in drafting sound harmonized policy instead of the EU’s unilateral attempt to solve the problem.

“If mutually acceptable climate program agreements fail to materialize, and unilateral initiatives such as the EU emissions trading scheme prevail, the resulting retaliatory trade wars between nations could create more damage to the world economy than global warming itself,” said Fried. “The preferred alternative is to endorse an integrated approach to climate and energy policy that commits all nations into a highly efficient, low carbon aviation industry.”

Fried admitted that this is undoubtedly a global challenge— savings on one continent will do little to solve a worldwide crisis if other countries are not included.

“In order for a worldwide solution to be mandated, countries need to reach a mutual agreement,” he said. “The International Civil Aviation Organization (ICAO), is the best forum to address these emissions issues and to assure global aviation industry sustainability.”

Fried said that unilateral and mandatory moves taken without the agreement of all involved parties are unacceptable.

“Such solutions will have an extremely negative impact on the world’s aviation industry,” he added.

National Industrial Transportation League President Bruce Carlton told LM last year that U.S. trading partners are not allowed to discriminate on the basis of flag country flag or registration.

“If everybody, including the EU carriers, were being covered, there might be more of a basis or at least a legal basis for this,” he said. “On its face, this would appear to be a discriminatory tax, which is dealt with in the World Trade Organization structure. Regional schemes do not work. In international trade, these schemes are going to be bound up with all sorts of problems.”

An EU spokesman told the WSJ that countries criticizing the EU should come forward with concrete and constructive alternative proposals and focus their efforts on implementing positive ideas and forward-looking solutions.