Bloomberg News

U.S. Airlines See Bill on EU Emissions as Forcing Global Accord

September 25, 2012

U.S. Airlines See Bill on EU Emissions as Forcing Global Accord

A British Airways plane prepares to land as an American Airlines plane waits on the runway at Heathrow airport in London. Photographer: Chris Ratcliffe/Bloomberg

Legislation to prevent U.S. airlines from paying penalties under a European Union program to limit emissions may give the Obama administration a stronger hand in international talks on the issue, an airline group says.

“Our goal is to give the administration as many tools as possible to limit the impact” of the policy on U.S. carriers, Sean Kennedy, senior vice president for global government affairs at Airlines for America, said in a phone interview.

The industry group, whose members include Delta Air Lines Inc. (DAL:US), United Continental Holdings Inc. (UAL:US) and AMR Corp. (AAMRQ:US), supports the bill, which the Senate passed Sept. 22. The 27-member EU’s Emission Trading System would impose financial penalties on airlines for breaching certain air-pollution limits unless they obtain credits. U.S. carriers consider the measure a tax and say it violates international law.

A trade war could ignite if there is no resolution to the dispute, said Annie Petsonk, a lawyer for the Environmental Defense Fund in Washington, said in an interview.

“The trade war would start out as a war of retaliatory fees against retaliatory fees,” Petsonk said.

While the bill makes its way through through Congress, negotiators are working through the United Nation’s 191-member International Civil Aviation Organization, or ICAO, to reach an agreement on emissions reductions, the path favored by U.S. airlines.

UN Negotiations

Negotiations at the UN’s International Civil Aviation Organization would give a greater voice to other opponents of the EU’s emissions-trading program, including China and Russia.

“Diplomatic efforts are not working,” Kennedy said. “What the White House needs to do is file a lawsuit before ICAO on behalf of the airline industry, its employees and travelers who depend on it every day.”

The U.S. legislation “clearly puts a lot of pressure on U.S. negotiators and the UN to come up with a global solution,” Jake Schmidt, international climate-policy director for the Natural Resources Defense Council, said in an interview.

The EU program caps greenhouse-gas emissions for carriers, including non-European based airlines, that fly to and from the continent. Airlines can purchase allowances that would let them exceed the pollution limits. Non-compliance would result in penalties.

China has said it won’t buy emissions allowances, according to a Sept. 17 report by the non-partisan Congressional Research Service.

The EU program regulates only carbon-dioxide emissions, though airplane exhaust also includes nitrogen oxide and soot, according to the research service.

Fuel Efficiency

From 1990 to 2009, emissions from aviation fuels sold in the EU increased by 80 percent, while lower air fares, cargo shipments and economic growth continue to increase the demand for air travel, the congressional agency’s report said.

U.S. airlines improved their fuel efficiency by 120 percent from 1978 to 2011, the equivalent of removing 22 million autos from the road, according to Airlines for America. The reductions were achieved by using fuel-saving engine technology and using more direct routes to burn less fuel.

The EU has set a goal of cutting Europe’s greenhouse gas emissions by 80 percent to 95 percent compared with 1990 levels. Direct emissions from aviation account for an estimated 3 percent of the EU’s greenhouse gas emissions, most coming from international flights, according to the European Commission.

Industry Tax

The aviation cap will cut airline emissions by 3 percent in 2012 and 5 percent from 2013 to 2020, the equivalent of taking 30 million cars off the road a year, according to the commission.

Airlines for America, based in Washington, has said the program amounts to a $3.1 billion tax on the U.S. industry and its customers through 2020. Other groups have said the costs are negligible when spread among travelers.

“On most flights between the EU and the United States, the additional per-passenger cost will likely be less than $5 in the near term, given the high proportion of free allowances” according to the Congressional Research Service.

The House has passed separate legislation to exempt airlines from participating in the program, and both chambers of Congress must agree on a single bill. If that doesn’t happen during the lame-duck session after the Nov. 6 elections, the bills die.

An amendment to the Senate legislation offered by Senator Ben Cardin, a Maryland Democrat, prohibits taxpayer money from being used for penalties U.S. airlines may incur under the EU program.

Under existing U.S. law, the secretary of transportation could impose fees on European carriers if the agency determines the EU policy to be unfair, according to the Environmental Defense Fund’s Petsonk.

“If the U.S. imposed retaliatory penalties, Europe could say, ‘You’re discriminating against our airlines’” and assess its own penalties, she said. “That where you would see the trade war erupt.”

The bill is S. 1956.

To contact the reporter on this story: Brian Wingfield in Washington at bwingfield3@bloomberg.net

To contact the editor responsible for this story: Jon Morgan at jmorgan97@bloomberg.net


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