China Threatens EU With Retaliation Over Protectionist Carbon Plans
China has threatened retaliation against French planemaker Airbus (EAD.PA) if the European Union goes ahead with plans to include international aviation in its carbon market, three sources said on Friday.
From January 1 next year, the EU will require all airlines flying to Europe to be included in the Emissions Trading Scheme ETS.L, a system that forces polluters to buy permits for each tonne of carbon dioxide they emit above a certain cap.
But China’s aviation authority opposes the measure, saying it will cost Chinese airlines 800 million yuan in the first year and more than triple that by 2020.
“We’re taking this threat very seriously,” said a diplomat from one EU country involved in the dispute.
“We met about two weeks ago with some Chinese officials, and they clearly told us that if nothing is done to ensure their airlines would not be hurt by the ETS system, then there would be some direct consequences for our airline industry and for Airbus,” the diplomat said on condition of anonymity.
China said last week that Europe should adjust the ETS to reflect the differences between rich and poor countries.
U.S. airlines also oppose inclusion in the ETS, but some of Europe’s biggest airlines say the move is preferable to leaving airlines out, which would make them vulnerable to different environmental taxes from national governments.
The U.S. industry group Air Transport Association of America is challenging the move in EU courts.
France, Germany and Britain in particular are trying to find a compromise with China, the diplomat added.
That compromise could involve using provisions in the ETS rules to exempt the airlines of any country that can prove it is taking equivalent steps to cut emissions from aviation.
One industry source said China had voiced its complaints to Airbus directly and threatened to take retaliatory measures.
A third source said it was likely China would punish European airlines before it took action against Airbus.
European Commission spokesman Isaac Valero declined to comment but said the Commission would look at whether China’s plans to cut aviation emissions would be enough to exempt its airlines from the ETS.
“To date, China has not presented those measures to the Commission for analysis,” he said. “The definition of equivalent measures is very broad. We are extremely open to considering this.”
EU officials argue that they took the step of including aviation in the ETS after years of fruitless debate within the United Nations about how to curb emissions from aviation.
During that time, carbon markets were widely recognised as the cheapest way to regulate emissions from aviation, and the International Air Transport Association (IATA) estimated it could be as much as 75 percent cheaper.
Lufthansa (LHAG.DE) Chief Executive Christoph Franz said on Thursday that he had been warned of “retaliatory measures” during a visit to China this month.
He said the extension of the ETS to international flights would cost Lufthansa up to several hundred million euros, and he urged that the scheme be delayed or shelved.
But the European Low Fares Airline Association (ELFAA), which includes easyJet (EZJ.L) and Ryanair (RYA.I) among its members, says the ETS is a fair way to tackle greenhouse gas emissions and is preferable to a host of national green taxes that they might otherwise face.
Europe’s carbon trading scheme will first affect air travel in 2012, and Lufthansa CEO Christoph Franz says that puts European airlines at a disadvantage. Meanwhile the Chinese are planning ‘countermeasures,’ he says.
With the European Union’s emissions trading scheme (ETS) set to affect airlines next year, Lufthansa CEO Christoph Franz has warned the cap-and-trade plan will put Europe’s airlines at a competitive disadvantage.
Nevertheless, the company is busy buying up emissions certificates and preparing for the coming changes in order to “make the price calculable,” he said at a press conference Thursday in Berlin. He expects additional costs of “100 million to several hundred million” euros.
Those additional costs couldn’t completely be passed on to customers because of intense fare competition in the sector, Franz explained. Chinese officials told him during a trip to the country this month they would consider imposing fees on European flights to counter the costs of ETS credits, he added.
According to the Beijing News newspaper, China’s aviation industry is faced with an additional 800 million yuan (87 million euros) in costs each year.
Under a cap-and-trade scheme, companies’ rights to emit greenhouse gasses are limited through a system of certificates. Additional certificates can be bought, and unused ones may be traded or sold.
Air travel is responsible for approximately 2 percent to 3 percent of greenhouse gas emissions, and under Europe’s ETS plan, airlines will get 82 percent of emissions certificates for free. An additional 15 percent will be auctioned, and 3 percent will be reserved for industry newcomers.
Other industries affected
Karin Holm-Müller, an environmental economist at the University of Bonn and a member of the German government’s advisory board on environmental policy, said airlines aren’t the first industry branch to fear cap-and-trade arrangements will dull their competitive edge.
“Considerations have been made to some degree about whether individual industries are too affected in competition [by cap-and-trade system],” she told Deutsche Welle. “One could consider how significantly air travel is affected… but in principle air travel should be included in the cap-and-trade system because it offers an additional opportunity to reduce greenhouse gas emissions.”
According to Michel Adam, environment manager for the Association of European Airlines (AEA) in Brussels, airlines from other continents are only affected when they touch down in Europe under the ETS plan.
“If we look at the European airlines, almost 100 percent of their activities fall under the scope of the ETS. On the other hand if you look at non-EU airlines, the exposure is much more limited,” he told Deutsche Welle, adding that only about 16 percent of Air China’s network and 12 percent of American Airlines’ are exposed to the scheme.
The AEA is also concerned that Europe’s “role as a global hub” will be undermined by the ETS plan.
“If you travel from North America to Asia and your journey includes a stopover at an EU airport, then the whole journey will be covered by the ETS and will have to include its price,” Adam said. “So flying via Dubai or North Africa would be cheaper than flying through the EU.”
Adam said while a global cap-and-trade system could work in the airline industry, the planned regional approach will likely prove to be a real burden.
“Aviation is clearly a global industry, and climate change is a global problem,” he said. “A multilateral, global solution is the only way forward.”