The EU ETS: Desperately seeking compromise to avoid trade wars; roles for ICAO and the EU

As tensions remain high over the European Commission's imposition of an environmental tax on air services operating in European airspace, the threat of confrontation grows. Problematically, at a time when the airline industry is confronted by a startling array of cost and competitive challenges, disputes of this kind are often not simply confined to the immediate issue and can easily overflow into other government relations.

Talk of suspending overflight rights and other forms of direct retaliation have seemingly awoken European diplomats to the importance that foreign governments attach to this issue. But the EU may have painted itself into a corner. As IATA CEO Tony Tyler said in India in mid Mar-2012, "No one wants a trade war. But the prospects are growing more likely…..Why? Because non-European states…see the intention to tax non-EU airlines for emissions over non-EU territory as an attack on their sovereignty."

Looking for a compromise is clearly a useful interim strategy. Last month, Mr Tyler's predecessor at IATA, Giovanni Bisignani, offered a simple suggestion which both offers a bit of breathing space and allows a little more time for the global aviation organisation, ICAO, to lay down concrete multilateral goals for industry responses to concerns about climate change.