Bloomberg News

U.S. Vote on EU Aviation Plan May Trigger Trade War, Lobby Says

October 25, 2011

Oct. 25 (Bloomberg) -- The U.S. House of Representatives’ backing for a bill to bar American airlines from paying for greenhouse gas discharges under the European Union emissions- trading plan may lead to a trade war, an environment lobby said.

The House yesterday passed the “European Union Emissions Trading Scheme Prohibition Act of 2011” after the industry estimated that participation in the cap-and-trade system would cost U.S. airlines $3.1 billion between 2012 and 2020. The U.S. move comes five weeks before the start of a United Nations summit to debate post-2012 climate-protection rules, highlighting the challenge of ironing out a global agreement to put a price on carbon and prevent global warming.

“This bill could ignite a trade war that would put tens of thousands of U.S. jobs in jeopardy,” Annie Petsonk, international counsel at the New York-based Environmental Defense Fund, said in an e-mailed statement. “By barring U.S.- based airlines from complying with applicable law for flights traveling to EU airports, this bill would compel those airlines either to drop their EU routes or become scofflaws.”

The 27-nation EU decided in 2008 that aviation should become a part of its carbon program as of next year after airline discharges in Europe doubled over two decades. The bloc’s emissions trading system, known as the ETS, is the cornerstone of the region’s plan to cut greenhouse gases that scientists blame for climate change. It imposes pollution limits on more than 11,000 manufacturers and power companies, leading to a cap in 2020 that will be 21 percent below 2005 discharges.

Mounting Opposition

When international carriers join the system next year they will be given emission permits making up 85 percent of the industry cap for free and will have to buy the remaining 15 percent at auctions. One allowance carries the right to emit one metric ton of carbon dioxide. EU permits for delivery in December traded at 10.45 euros ($14.54) on London’s ICE Futures Europe exchange at 9:45 a.m. today.

EU Climate Commissioner Connie Hedegaard said last month that the bloc won’t ditch its plans to impose carbon curbs on flights to and from the region’s airports starting next year in the face of mounting opposition from international carriers.

Carriers including American Airlines and Continental Airlines are challenging the expansion of the ETS in an EU court and China’s airline association said earlier this year the European initiative may prompt trade conflict. An adviser to the EU court said in a non-binding opinion on Oct. 6 that the inclusion of aviation in the region’s cap-and-trade is compatible with international law, signaling the suing airlines should lose the challenge.

Equivalent Measures

The EU is “very keen” to analyze the option under the region’s law of excluding incoming flights from a non-EU countries if the nation implements equivalent measures to cut pollution from the industry, said Isaac Valero-Ladron, climate spokesman for the European Commission, the bloc’s regulatory arm in Brussels.

“While the EU remains open to continue discussions on how we will implement our adopted legislation, we do not intend to change or modify it,” he said by e-mail yesterday.

The commission said last week it’s studying China’s plan to reduce emissions from aviation and is in talks with “numerous” states -- including Japan, Mexico, the U.S. and United Arab Emirates -- about the expansion of the ETS as part of regular diplomatic relations.

“The House passing this bill is like another nation saying: We don’t care if the U.S. has a law enacted by Congress and upheld by the U.S. courts -- we’re going to prohibit our companies from complying,” Environmental Defense Fund’s Petsonk said. “It’s unlikely that our Congress would let that kind of action go without retaliation.”

The bill must be approved by the Senate and signed by President Barack Obama to become law.

--Editors: Alessandro Vitelli, John Buckley.

To contact the reporter on this story: Ewa Krukowska in Brussels at ekrukowska@bloomberg.net.

To contact the editors responsible for this story: Stephen Voss at sev@bloomberg.net;


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