Chinese Clash with EU Over Carbon Regulations for Airlines

Were the celebrations too early? Earlier this week, I reported on the launch of the new European scheme requiring airlines to pay for the carbon emissions of their flights to and from Europe. As I mentioned, most of the world was pretty angry with the scheme and many countries protested and promised to take an appropriate action against the EU. Yet, it seemed like these just are empty threats and eventually everyone will get used to the new reality. One country is not taking things so lightly.

Cai Haibo, deputy secretary-general of the China Air Transport Association (CATA), which represents the four major Chinese airlines, announced on Wednesday that China would not cooperate with the EU on the scheme. "China will not cooperate with the European Union on the ETS, so Chinese airlines will not impose surcharges on customers relating to the emissions tax,”' he said.

This is not the first time China is making threats with regard to the EU's plan to charge for carbon emissions. Last May, Reuters reported that China has threatened retaliation against French planemaker Airbus if the EU goes ahead with its plan. The Chinese government also warned it might impose punitive tariffs against European airlines. Still, this time it looks a bit different as none of these threats came close to declaring that the Chinese airlines won’t comply with the new scheme.

According to CATA’s estimations, compliance will cost Chinese airlines about $123 million in the first year and more than triple that by 2020. Nevertheless, I suspect that the Chinese fight is about more than just $123 million. It’s about dominance - the country's leaders don’t want to be forced into programs where others set up the rules on how to reduce carbon emissions.

How seriously should the Chinese threats be taken? According to Kelvin Lau, a Hong Kong-based airlines analyst at Daiwa Securities, the Chinese statement could be a tactic but that it might not succeed. "It is still in a negotiation phase, and maybe it's just a political gesture for Chinese airlines to say they won't pay - showing that China strongly opposes the rule," Lau told Reuters. "But it may not work as this is a law with legislative power and the EU would not easily let go."

Another indication that the escalation in the threats is just a tactical move on the Chinese side came from the Chinese Foreign Ministry spokesman Hong Lei. "China opposes the European Union's unilateral legislation. China has expressed to the EU our deep concern and opposition many times on a bilateral level," he said. His language is of course not as militant as the one used by CATA, suggesting that the Chinese might play a game of good cop/bad cop with the EU to get what they want.

What does China want? This is easy - to be exempted from the new scheme. Back in May there were reports that France, Germany and the UK tried to find a compromise with China that would include the use of 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. Back then, European Commission spokesman Isaac Valero 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."

As you can see, EU officials were ready then to discuss some sort of compromise, but I guess they understood that giving the Chinese airlines an exemption would open the door to other countries to seek the same treatment and eventually they’d end up with only the European companies under the new scheme. Right now, especially after the European Court of Justice dismissed last month arguments that the scheme infringes national sovereignty or violates aviation treaties, it looks like the European approach is ‘everyone or no one.’

The EU no-compromise approach was demonstrated in the European response to the Chinese threats. Isaac Valero-Ladron, EU spokesman for climate action, said: "We're not modifying our law and we're not backing down. We're confident that companies will comply. The penalties for non-compliance are much higher (than complying)." The penalties, by the way, are pretty expensive - Chinese airlines could be forced to pay fines of $130 for each ton of CO2 emitted if they refuse to pay the duty.

There is not much time to see who will blink first, as the levy went into effect January 1st. We can only hope it won’t be the EU because if the new scheme doesn't include everyone it will be much less effective. Europeans deserve kudos for the leadership they have demonstrated on climate action – they could have done nothing and waited many more years for a multilateral solution. Yet, they decided to act because they believe we can’t wait any longer. I’m sure the planet is thankful for that. Hopefully other countries will eventually share the same sentiment and thank the EU instead of threatening it.

Image credit: caribb, Flickr Creative Commons

Raz Godelnik is the co-founder of Eco-Libris, a green company working to green up the book industry in the digital age. He is an adjunct faculty at the University of Delaware’s Department of Business Administration, CUNY and the New School, teaching courses in green business and new product development.