Europe misguided over EU ETS, says IATA chief, as airline industry queues up to give the scheme a kicking

Europe misguided over EU ETS, says IATA chief, as airline industry queues up to give the scheme a kicking | Greener Skies

IATA CEO & DG Tony Tyler at Greener Skies (photo: David McIntyre)

Wed 5 Oct 2011 – “The challenges facing aviation over climate change issues are critical for the industry,” said Cathay Pacific Airways COO Ivan Chu in his welcome address to the Greener Skies conference in Hong Kong last week. The event was sharply defined by attacks from airline industry representatives on Europe’s own flagship policy solution to the problem, the EU Emissions Trading Scheme (EU ETS). Making his first speech on environmental issues since taking over as IATA’s Director General and CEO, ex-Cathay boss Tony Tyler said Europe was misguided in its determination to include international aviation in its scheme and was distracting governments from achieving a global system under ICAO leadership. Ahead of the European Court of Justice legal opinion to be delivered tomorrow (Oct 6), Nancy Young of the US ATA and Mary Veronica Tovšak Pleterski of the European Commission squared up over the rights and wrongs of including non-EU airlines into the regional trading scheme.


With the sector’s fuel bill rising to $200 billion next year – around 32% of operating costs – a 1% saving in fuel, and therefore emissions, for an industry with just a 0.8% margin meant “green business is good business,” said Tyler.


In 2010, airlines will emit about 650 million tonnes of CO2 while carrying 2.8 billion passengers and 46 million tonnes of fuel, he reported. By 2050, the industry expects this to rise to 16 billion passengers and 400 million tonnes of cargo.


“The global economy will require us to accommodate this growth in order to function. And we aspire to do that while cutting our carbon footprint in half to some 320 million tonnes,” added Tyler. “This is an enormous challenge. But I am confident because the industry is united and committed.”


He praised the “great leadership” ICAO had taken on the environment and the agreement at its last Assembly that aviation should improve fuel efficiency by 2% annually was “a major achievement”.


“But you will note that there is a difference between the industry commitment of [an aviation industry] 1.5% fuel efficiency improvement and the ICAO goal of 2%. The 0.5% difference is dependent on governments coming to the table,” he said.


However, governments had shown the greatest enthusiasm for the fourth pillar of the industry’s strategy to manage emissions, namely economic measures, observed Tyler.


“But instead of focusing on positive economic measures, they are taking a punitive taxation approach. A fair and global emissions trading or compensation scheme under the leadership of ICAO is the answer,” he said.


“Let me emphasise that we support the concept of emissions trading as a possible mechanism for the fourth pillar of our strategy. Credit goes to Europe for promoting environmental awareness in aviation. But its approach to ETS could not be more misguided.”


He said a regional scheme could not solve global environmental problems and the European plan had generated international discord and growing opposition among states.


“There is still time for Europe to refocus its efforts on supporting a global framework for economic measures. And with mounting opposition I would certainly hope that someone in the European Commission is working on a Plan B that is centred on where this debate really belongs – ICAO. We at IATA stand ready to engage in and support such a discussion.”


Tyler said he hoped “commonsense would prevail” over the issue but added: “Our pleas are falling on deaf ears.”


Cathay Pacific’s Chu said these were very significant times as the industry was at a crossroad on environmental issues.


“Despite monumental efforts and tangible progress towards making sustainable aviation a reality, the challenge to address our environmental impact is even greater in the face of our continued growth as the demand for our services increases,” he said.


“The environment – once seen as marginal or optional to our business activities – is now firmly established as a mainstream issue.”


Cathay’s Head of Environmental Affairs, Dr Mark Watson, said the airline had been preparing for the introduction of the EU ETS for three years but, at the same time, did not support the inclusion of airlines from third countries into the scheme. “It’s the right idea but the wrong approach,” he said.


Achieving the global sectoral approach proposed by airlines was difficult but not impossible, he believed. “Our history shows we’ve always come through our challenges,” he said. “We don’t need to be coerced by policymakers in Europe or elsewhere to address our climate change impacts.”


Dr Piyasvasti Amranand, President of Thai Airways, said that as a former government energy minister and policymaker himself, the first rule was that policy must be fair and take the views of all stakeholders in the decision process or there would be opposition and failure. “That is the problem now facing the EU ETS,” he told delegates.


He said policymakers tended to bully the “good boys” rather than the “bad boys” and the airline industry had been the only industry to come up with voluntary emissions reduction targets. He said other sectors had been subsidised or were using energy inefficiently, whereas airlines needed to be fuel efficient to survive. “There are a lot more sectors out there that are worse offenders.”


A detailed and sparky discussion on the European scheme followed in a panel session involving Nancy Young, VP Environmental Affairs at the Air Transport Association of America (ATA), Wei Zhen Zhong, Director General of the China Air Transport Association (CATA), and Mary Veronica Tovšak Pleterski, Director of EU and International Carbon Markets at the European Commission.


The latter said in order to avoid catastrophic climate change, Europe had adopted greenhouse gas emissions reduction targets to which all sectors needed to contribute and the EU ETS was the cornerstone of its climate policy, covering 11,000 industrial installations and 50% of all European GHG emissions.


Tovšak Pleterski described Europe’s multifaceted and comprehensive approach to reducing aviation emissions through research, adopting the Single European Sky and promoting sustainable biofuels. The growth of aviation emissions had meant, she went on, that these measures had to be complemented by a market-based mechanism and therefore include aviation in the EU ETS.


When developing the scheme, she said, it had been done so in line with the relevant guidance and policies laid down by ICAO, which had endorsed emissions trading back in 2004 as the most effective and economic measure for dealing with aviation emissions when compared to taxes or charges. She said ICAO had expressed that one of the most promising avenues to pursue was to incorporate international aviation emissions into states’ emissions trading schemes. “This is precisely what the EU decided to do,” she explained.


Responding to claims the EU ETS breached third country sovereignty as emissions were included outside EU territory, she added: “Furthermore, in ICAO’s guidance on emissions trading, airspace was considered an impractical approach as it involved considerable complexity in accurately monitoring emissions from aircraft flying through airspace and would introduce incentives for distorting flight routes.”


She said that all carriers on any given route must be treated equally, regardless of nationality, to ensure legality, avoid competitive distortions and minimise environmental impact.


The most important message for airlines, she said, was that the EU ETS offered flexibility, predictability, longer term certainty and enabled growth while contributing to the reduction of GHG emissions.


“The EU fully recognises that global action is required,” she concluded. “It is open to concerted dialogue and consultation with third countries with a view to finding an agreed way forward consistent with the ICAO Assembly resolution adopted in 2010. The EU is fully committed to working within ICAO with all countries to make progress on addressing aviation emissions at an international level.”


Nancy Young accused the EU of creating a number of myths that were far from reality. The perception of aviation being one of the fastest growing sources of global greenhouse emissions was not in line with the facts, she said. Aviation remained a relatively small contributor, accounting for 2% of man-made CO2, and according to IPCC “most likely” estimates would account for 3% of CO2 and 5% of climate change impact in 2050.


“The proposition that airlines need additional regulation and a price signal through the EU ETS to motivate them is simply not borne out by the reality,” she said. “US airlines, like others around the world, have a strong environmental record, dramatically improving fuel and emissions efficiency by investing billions of dollars in fuel-saving aircraft and engines, as well as other advanced technologies.


“In addition, ATA and its members are part of a worldwide coalition of aviation partners with an aggressive proposal for further carbon emission reductions, under the appropriate international body – ICAO.”


She dismissed EU claims that there would be insignificant costs on airlines and their customers. “The EU ETS is counterproductive in that it siphons away the very funds airlines need to continue investing. The EU says its states will spend the money on the environment – this is another myth. Let’s also talk about the myth of free allowances – all this amounts to is a tax adjustment, there is nothing free or gives a value to the airlines.”


Young also rejected the EU assertion that its scheme was consistent with international law and ICAO policies. “The countries that make up ICAO have made it clear that emissions trading can only be imposed on airlines of another country by mutual consent,” she said.


Although confident of the ATA’s legal case before the European Court of Justice, Young expressed concern that being a private party might count against it in matters of international law and sovereignty brought before the court. The EU had also asserted that it itself was not a party to the Chicago Convention and therefore could not be held to have violated the treaty. “The EU wants the power but denies the responsibility and that’s an untenable position for international aviation,” she maintained.


Young said ultimately it would be down to a government to bring its own legal action to resolve the issue. “This is critical because not only do governments have the tools to call the EU on its myths and actions but to get it back to the table at ICAO to confirm a truly global approach.”


CATA’s Wei Zhen Zhong said the inclusion of international aviation into the EU ETS overstepped the scope of EU jurisdiction and was a serious encroachment on the sovereignty of other countries.


“It also goes against the rules governing air charges and taxation specified in the Chicago Convention,” he added. “At the same time it does not meet the basic principles specified in the United Nations Framework Convention on Climate Change (UNFCCC) and the Kyoto Protocol.” (Further remarks by Mr Wei are reported in a separate article here).


British Airways’ Environmental Policy Manager, Andy Kershaw, said the current scope of the EU ETS was inappropriate. “We in Europe are very concerned about the possible competitive imbalance impacts and the retaliatory risk of the scheme,” he told delegates. “We ask the EU and its member states to have another look at the EU ETS and find a solution that can resolve these problems.


“However, we believe carbon trading is an appropriate mechanism to reduce CO2 emissions and if a resolution can be found on the EU ETS it could be the first step towards a global solution.”


Kershaw said the Aviation Global Deal group, of which BA is a member, had come up with a policy document in 2009 that aimed for a single solution based on carbon trading that would be applied equally to all airlines but it would address the different needs of states by taking auction revenues and directing them into environmental efforts in developing countries.


He said a global pathway of uncoordinated patchwork measures would do little for CO2 mitigation and be highly costly for airlines.


Andrew Herdman, Director General of the Association of Asia Pacific Airlines, observed that the EU had attracted flak not just from airlines but also governments because it had fundamentally overreached its authority and had encroached on the sovereignty of other nations. “If the scheme was applied within the EU only, the EU would have full authority to impose it and there would have been no resistance from airlines.”


He added the EU ETS created distortions in which those airlines with hubs further away from Europe, such as in Asia, were penalised more than others and the scheme also penalised faster growing airlines.


Herdman reminded delegates that Article 2.2 of the Kyoto Protocol states that international aviation emissions, along with shipping, have distinct characteristics and were to be addressed by Annex 1 (developed) countries working through ICAO. Under Kyoto, he said, the developed world had the major responsibility for the carbon that had already been emitted, as carbon emissions had a span of over a hundred years.


However, he argued, Kyoto had turned out to be a complete failure, particularly since the United States – the world’s biggest emitter – had not ratified the treaty. “It was a gesture, not a policy,” he said.


Herdman added that the terms of referral to ICAO had been so flawed that it was impossible to maintain the non-distortive, fair and equal treatment principle laid down in the Chicago Convention that underpinned ICAO.


“You cannot reconcile the fair and equal treatment principle with the UNFCCC principle of Common But Differentiated Responsibilities (CBDR),” he said. “There is a reluctance on the part of the 190 negotiators of the member states to resolve that issue knowing that to do so in the context of aviation, which is a tiny part of the problem, would jeopardise the geopolitical game going on in the UNFCCC.”


Although emissions trading was a cost-effective solution as it put a price on carbon, it relied on an agreed binding emissions cap by all participants. As major countries, including the United States, had not come together to agree on binding emissions reduction targets, the result would inevitably be a patchwork of national and regional measures, such as the EU ETS.


Paul Steele, Executive Director of the Air Transport Action Group (ATAG), said the threats from China of retaliatory action and the meeting of states in Delhi (see story) had meant the EU ETS had become an international ‘hot potato’. “The industry cannot afford to become caught up in a trade war,” he said.


“Tit-for-tat measures will mean that the aviation industry will suffer. Unfortunately, that’s how we see things shaping up right now.”


The afternoon session of the Greener Skies conference covered aviation biofuels and this will be reported in a follow-up article on GreenAir Online.


The conference was organised by Orient Aviation magazine and a number of the presentations, including transcripts of the speeches by Tony Tyler, Ivan Chu and Wei Zhen Zhong, are available for download from the Greener Skies website.



GreenAir Online would like to thank Cathay Pacific Airways for its generous support that allowed this coverage of the event.



Photos from Greener Skies conference (courtesy David McIntyre, Cathay Pacific) 


Ivan Chu, Cathay Pacific


Nancy Young, ATA (left) and Mary Veronica Tovsak Pleterski, European Commission


Wei Zhen Zhong, CATA



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