EU ETS dominates agenda at November airline meetings, starting with Assoc of Asia Pacific Airlines

The European Union’s controversial Emissions Trading Scheme (EU ETS) was a major point of discussion at last week’s Association of Asia Pacific Airlines (AAPA) annual meeting and will certainly also be a hot topic at upcoming meetings for associations representing airlines in Africa, Latin America and the Middle East. As the EU continues to insist on implementing the new tax from the beginning of Jan-2012, airlines outside Europe and their associations are not surprisingly stepping up their campaign against their inclusion in the scheme.

AAPA, which held their annual assembly of presidents on 03/04-Nov-2011 in Seoul, is the first of four major airline associations meetings this month. ALTA (Latin American and Caribbean Air Transport Association), which represents Latin American and Caribbean carriers, will have their annual meeting in mid-November in Rio de Janeiro. African Airlines Association (AFRAA), representing African carriers, and Arab Air Carriers Organization (AACO), representing Arab carriers from the Middle East and North Africa region, will be meeting in Marrakesh and Abu Dhabi, respectively, in late November.

All flights operated by foreign carriers from Europe will be included in the scheme, including the portion of flights operated outside EU airspace. But Asian carriers will be the most impacted as they have more flights from Europe than African, Latin American or Middle Eastern carriers. Asian carriers are also disproportionately affected because the tax is based not on the time spent flying in European airspace but on total flight time.

Several Asian carriers fear the EU ETS scheme will result in an increasingly uneven playing field with Middle Eastern carriers when it comes to competing on Europe-Asia routes because the Middle Eastern carriers will not have to pay as much due to the fact their hubs are geographically closer to Europe. “That’s why many airlines are pretty annoyed with what the EU is doing,” Thai Airways CEO Piyasvasti Amranand said during the assembly’s CEO panel discussion. He added that airlines agree the issue of global warning must be addressed but “the rules and regulations must be fair”.

AAPA passes resolution formally calling on EU to exclude foreign carriers from ETS

At the conclusion of the assembly, AAPA members passed a resolution which “calls on the EU to scrap plans to include foreign airlines within the EU ETS, rethink its position and re-engage with the international community. AAPA also strongly urges governments to work within the auspices of ICAO towards an effective multilateral agreement on a global, sectoral framework on aviation and the environment, and to refrain from introducing duplicative measures, including the imposition of arbitrary taxes that deliver no real environmental benefit.”

AAPA director general, Andrew Herdman says the association recognises the EU’s right to introduce an environmental tax covering flights within the EU – similar to taxes now in place on domestic flights within Australia and New Zealand. But, similar to the position of several other associations in the industry, AAPA believes the EU is overreaching its authority, stepping well beyond its powers in attempting to collect taxes on flights outside European airspace.

In addressing the AAPA assembly, European Parliament Transport Committee chairman Brian Simpson said he has suggested a compromise to have the tax assessed only during the period operating in European airspace. He said that would buy time – likely two years – for a global solution to be hammered out through ICAO. But Mr Simson said so far his proposal has fallen on deaf ears within the European Commission and as the deadline fast approaches, any kind of solution or compromise seems increasingly unlikely.

Mr Simpson warned the industry is running out of time to reach a compromise and pointed out “the climate change commissioner has no plan B”. He called the current situation “a dangerous game of bluff and double bluff” with all sides hoping the other blinks first.

Spat over EU ETS could lead to detrimental trade war

Mr Herdman warned that if it is not resolved, the dispute could escalate into a full-blown trade war which “airlines certainly don’t want” as it would be detrimental for the entire industry. “We don’t look forward to a trade war in aviation because we will be hit on both sides which clearly isn’t favourable,” Mr Herdman told reporters during a media briefing during the assembly.

Mr Herdman did not agree with Mr Simpson that collecting the tax from foreign carriers only during the time their flights are in EU airspace was a viable interim compromise but he agreed with Mr Simpson that the ICAO is the preferred vehicle for hammering out a long-term solution. Mr Simpson warned that ICAO first must speed up its processes as it is “one of the slowest moving organizations the world has invented”. He added: “ICAO must step up to the mark and deliver that global agreement. We have to speed up processes in ICAO.”

With China and India already joining the US in taking strong stances against the EU ETS, there is a concern among some AAPA members that other Asian governments will not be able to similarly unite against the scheme, putting them at a potential disadvantage. AAPA has 15 member airlines throughout the region but has no members from mainland China or the Indian subcontinent.

Mr Simpson urged AAPA members to lobby their respective governments to mount a campaign against the scheme. While AAPA is providing an effective collective voice for the region Mr Simpson said if Asia’s governments were able to come together on issues such as the EU ETS, the voice from the region would be much stronger. “The problem with Asia is you deal with all the individual governments,” Mr Simpson said, adding China is now leading the way with aviation regulation in Asia “because they can come together as one body…the big weakness in the Asia-Pacific area is there’s still not the political will to come together with one voice, particularly in aviation”.

Mr Herdman said the issue is now “in the hands of politicians and governments”, predicting that “one way or another it will end up in a political discussion”. He does not believe foreign governments will accept EU courts taking up the issue.

While AAPA does not rule out market-based measures such as emission trading schemes, the association will continue advocating a global solution. “Tit for tat is not a way out of this,” Mr Herdman said, referring to the retaliatory political instruments some governments are now threatening to use if the EU goes ahead and includes foreign airlines in the ETS.

Compromise over EU ETS unlikely to be reached this year

Mr Herdman pointed out while costs under the EU ETS are slated to start accruing on 01-Jan-2012, the first payments will not have to be made until months later. That would suggest a compromise is not completely necessary by year-end.

As a result, debate over including foreign carriers in the EU ETS will likely drag on for some time, remaining a hot topic at airline association gatherings beyond the four major gatherings taking place this month. Airlines and airline associations around the world are united against the EU ETS but, unfortunately, regardless of how much time they dedicate to the issue at their annual gatherings this month, the drastic change in stance they are seeking will inevitably require intervention at a much higher level.

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