European Carbon Regulation for Airlines Takes Off

2012 started with some good news. On Sunday, the European Union began charging all airlines flying into and out of Europe for their carbon emissions. Covering a third of all global flights, this new scheme is one of the widest-reaching measures adopted lately by any country or regional bloc to regulate greenhouse gas emissions. Given all the hurdles and protest it faced, the fact that this scheme actually began is not just an incredible accomplishment for the EU, but also a bit of a miracle.

The new scheme will make all airlines flying to, from or within the EU liable for their CO2 emissions. They will receive tradable carbon allowances, covering a certain amount of CO2 emitted each year, based on historic data. Carriers that exceed their limit will be able to buy allowances from other carriers that have emitted less than allowed. The EU believes this cap and trade scheme is the fairest way to cope with aviation's contribution to global warming and incentivize airlines to reduce their footprint, which represents about 3 percent of global CO2 emissions.

Of course, airlines won’t be the first ones to join the EU Emissions Trading Scheme (ETS). The scheme, which began in January 2005 as the first emissions trading scheme to regulate GHG emissions,  applies to power generators, steelworks and other heavy industry in Europe. The main difference is with the new regulations is that this is the first time companies operating outside the EU will have to comply with the ETS. The EU didn’t have much choice about it, as it didn’t and probably couldn’t regulate just European airlines, because that would give all the other airlines an unfair competitive advantage. Yet, by deciding to regulate everyone, the EU made every airline outside Europe angry. Very angry.

If you want to understand the global inaction when it comes to climate change, you don’t need to go to Durban or Copenhagen. You just need to look at the list of threats the EU received following the announcement of this directive to learn how the main global forces feel about putting a price on carbon emissions: the Chinese government warned it might impose punitive tariffs and the China Air Transport Association went even further and suggested that Beijing should threaten to reduce future purchases Airbus aircraft, Russia threatened to hike overflight charges for European airlines flying to and from Asian destinations, and India threatened to levy a retaliatory tax on European airlines operating to and from India.

Not too surprising, the main resistance came from the US. Last October the House of Representatives passed a resolution prohibiting US airlines from participating in the EU’s ETS, declaring that the EU action “directly infringes on the sovereignty of the United States.” But it’s not just the Republicans that are unhappy with the new directive. Couple of weeks ago, Secretary of Transportation, Ray LaHood and Secretary of State Hillary Clinton wrote to the EU commission reiterating the Obama administration’s objections on “legal and policy grounds,” and said the US would respond with “appropriate action.” They didn’t elaborate though what that action would be.

Last but not least there was a legal battle against the directive, with a group of US airlines that filed a suit to the EU highest court, arguing that “forcing them to participate in the potentially costly emissions-trading system infringed on national sovereignty and conflicted with existing international aviation treaties.” The court rejected this claim about two weeks ago, confirming “the validity of the directive that integrates aviation activities in the system for trading emissions quotas.”

The court’s decision was final, but US carriers are looking now to take their case to other courts. Airlines for America, an industry lobby group and one of the plaintiffs in the case, said according to the New York Times, that its members would comply with the system, but would also review options for pursuing the case in Britain’s High Court, which had referred the original complaint to the European court in 2009.

Why did all the airlines put so much effort to fight this scheme? Simply because they are reluctant to pay the price for their emissions - according to Airlines for America, its members would be required to pay more than $3.1 billion to the European Union between 2012 and 2020. The carriers don’t plan to take the entire burden on themselves-- they'll be passing it along to their customers. According to estimates passengers will pay an average levy of $2-$15 dollars due to the new measure.

No matter how much of the new carbon fees carriers will pass to their customers, the new directive is expected to create an incentive for them to reduce their carbon footprint, encouraging them to develop biofuels, purchase fuel-efficient aircraft and so on. As Gernot Wagner, economist at the EDF and author of ‘But Will the Planet Notice?’ explains, the new system is still far from being perfect, as airlines initially will receive most of the required allowances for free, and the additional cost for a flights will not cover the full cost of the damage for the environment, which he estimates in $20 for a transatlantic flight, but it's still a step in the right direction.

It might take time before both airlines and passengers will feel the impact of the new directive, as the airlines won’t have to hand over the first batches of emissions permits until the spring of 2013 to compensate for flights made in 2012. Still, it’s going to be interesting to see if the impact of the new scheme. If it will prove itself, it will maybe give the rest of the world an indication that the Europeans actually know what they’re doing when promote regulation to fight global warming.

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 also an adjunct professor in the University of Delaware’s Alfred Lerner College of Business and Economics.