In this paper, Vijay Poonoosamy, chair of IATA’s Industry Affairs Committee, examines some of the issues around the European Union’s controversial Emissions Trading System (EU ETS), most notably the need for a global system that will actually serve to reduce emissions – rather than increase international conflict.
Even if aviation accounts for 2% of man-made CO2 emissions and even though today’s aircraft are 70% more fuel efficient than 40 years ago, we know that we are part of a growing global problem and that we must thus be part of the global solution.
That’s why IATA, ACI, CANSO and the International Coordinating Council of Aerospace Industries Associations jointly and voluntarily adopted three specific targets, namely to:
(i) Improve fuel efficiency by an average of 1.5% per annum between 2010 and 2020
That’s a reduction of 2.2 billion tonnes of CO2 and that’s also 12,000 new aircraft which airlines will need to purchase over that period at a cost of USD1.3 trillion.
(ii) Implement Carbon Neutral Growth from 2020
That’s essentially capping NET emissions from that date.
(iii) Reduce NET emissions by 50% by 2050 compared to 2005 levels
IATA has also adopted a fourth target: Use 10% alternative fuel by 2017
Sustainable and commercially viable alternative fuels for aviation WILL be the ‘game changer’ in reaching global aviation emission goals.
We must therefore prioritise production for the aviation sector of second or new generation biofuels from biomass such as Jatropha, Algae and halophytes, i.e. saltwater tolerant plants including Salicornia, all of which do not compete with food-crops for fresh water or land and can be used as drop-in fuel in current engines and mixed with traditional jet fuel, because they can offer net carbon reductions over their life cycle of up to 80%. Projects to use municipal solid waste as feedstock to produce jet fuel are also being developed.
Tony Tyler, IATA director general and CEO, recently outlined six steps for governments to promote the successful commercialisation of sustainable biofuels: (1) foster research into new feedstock sources and refining processes; (2) de-risk public and private investments in aviation biofuels; (3) provide incentives for airlines to use biofuels from an early stage; (4) encourage stakeholders to commit to robust international sustainability criteria; (5) make the most of local green growth opportunities; and (6) encourage coalitions encompassing all parts of the supply chain.
We must also improve ATM and eliminate infrastructural capacity shortages. Every Continuous Descent Approach saves between 150kg to 600kg of CO2. Each Clean Airspeed Departure saves between 600kg to 5000 kg of CO2.
The Single European Skies and NextGen in the US can save 41 million tons of CO2 and over USD21 billion by 2030.
A European Commission task force has warned that delaying implementation of the Single European Skies by a decade would cost EUR419 billion in lost GDP and the production of an avoidable 150 million tonnes of carbon dioxide.
Aviation's vital role in the global economy
We must also have fiscal and regulatory incentives which have a positive impact on both the environment and the economy.
Why? Because air transport remains a formidable catalyst to socio-economic growth.
It is the core component of the travel and tourism sector which contributes 259 million jobs worldwide and USD6 trillion to global GDP. I, for one, believe that more air transport simply means more benefits for customers and the wider economy.
A recent study by InterVISTAS estimated that each 10% increase in international air services led to a 0.07% increase in the GDP.
I would then argue that each 10% decrease in international air services leads to a 0.07% decrease in the GDP.
The Dutch repealed in 2009 a departure tax which was to collect EUR312 million annually because it cost their economy EUR1.2 billion. Oxford Economics found that Iceland’s volcanic ash which had turned much of European airspace into a no-fly zone for a week cost the world USD5 billion in lost GDP.
It is not surprising that the Mar-2011 European Commission White Paper entitled 'Roadmap to a Single European Transport Area – Towards a competitive and resource efficient transport system' was clear that “curbing mobility is not an option”.
Yet some governments undermine their own economies by using the green banner to simply tax airlines and thereby limit both their contributions to socio-economic growth and their ability to invest in greener technology and energy.
Fiscal policy should incentivise desirable behaviour and punish undesirable behaviour.
How then does taxing airlines induce them to reduce their carbon foot print when they have to use aircraft, engines and fossil fuels for which they have no viable lower carbon alternatives?
Moreover, Oxford Economics found that 80% of aviation’s greenhouse gas emissions are related to passenger flights exceeding 900 miles, for which there is no practical alternative.
It is simply senseless for countries desperately trying to stimulate economic growth to stifle the airlines which are the engines of growth.
In these exceptionally difficult financial times one should not clip the wings of an industry that makes economies take off.
Yet, the UK has collected GBP2.9 billion through its Air Passenger Duty (APD), the world’s largest aviation tax and its Chancellor has just announced a near 10% rise for next April. A rise which, according to a recent British Chambers of Commerce report, could cost the British economy GBP100 billion by 2030, and cost 25,000 jobs in the next five years alone.
The German "ecological air travel levy" is expected to raise EUR1 billion per year. The Austrian copy is estimated to raise EUR90 million per year.
And on top of these so-called green taxes comes the infamous EU ETS, which will cost the airlines EUR3.5 billion in 2012 and increasing every year after that.
The EU ETS is designed to create 'revenue streams for hard-up governments'
As Brian Simpson, chairman of the Transport Committee of the European Parliament, candidly admitted last November: “Within the EU, Governments are keen to press ahead because they desperately need the money – They won’t say that, oh no. They will claim it’s to help the environment, just as they do with APD. But let’s be under no illusions here – Both ETS and APD are being used as revenue streams for hard-up governments and not for environmental protection measures.”
To add insult to injury, the EU refuses to guarantee that these revenues will be directed to environmental or climate change projects, whilst the UK Chancellor has confirmed that there are no plans for the APD to offset the cost of the EU ETS.
To make matters worse, the EU ETS may actually increase airline emissions by encouraging airlines to impose stopovers at hubs outside Europe, lengthening the flight distance and reducing flight efficiency at the cost of the passengers.
With competing national or regional ETS cropping up, airlines and their passengers will be charged more than once for the same CO2 emissions.
The EU ETS may contravene the Chicago Convention
It is also argued persuasively that Article 1 of the Chicago Convention prohibits the EU ETS and that Article 2 of the Kyoto Protocol and the WTO rules do not support it.
The US House of Representatives voted last October the European Union Emissions Trading Scheme Prohibition Act of 2011, which would prohibit US carriers from participating in the EU ETS. The Russian authorities have announced that they would propose similar legislation.
IATA and all the regional airlines associations have criticised the EU ETS. Air Algérie has challenged the EU ETS before the French Conseil d’Etat.
Several US carriers had brought a legal case against the EU in the European Court of Justice but the Court recently upheld the validity of EU ETS.
But as Ulrich Schulte-Strathaus, secretary general of the Association of European Airlines (AEA), wisely said: ”…this will not resolve non-European countries’ vehement hostility towards the way EU ETS was introduced globally. This political face-off will not be solved in European courts, but in Montreal, through ICAO”.
The Indian Joint Declaration and other opposition
The Indian Government hosted a meeting in Sep-2011 and as a result 26 States signed a joint declaration condemning the EU ETS.
On 02-Nov-2011, the ICAO Council adopted a slightly modified version of the Joint Declaration as an ICAO Council Declaration, further isolating the European states and exposing them to an Article 84 Chicago Convention procedure.
Last month, US Secretary of State Hillary Clinton and Secretary of Transportation Ray Lahood wrote to various European lawmakers and Commissioners that Washington will “be compelled to take appropriate action” if the EU ETS law goes into effect on 01-Jan-2012 and urging “the EU and its member states to return to working with, rather than against, the international community in the appropriate multilateral forum – ICAO – to address the important challenge of reducing aviation emissions”.
Mr Hong Lei, a spokesman of the Foreign Ministry of China, stated last week that "China opposes the EU forcing through unilateral legislation".
The ratings agency Fitch warned last December that the conflict could spiral into a global trade dispute.
I am sorry – but the EU Emissions Trading Scheme looks more like a European Unilateral Extraterritorial Taxing Surcharge.
EU ETS is ill-advised and ill-conceived. It’s divisive and distracting. With so many formidable challenges at home this is not the time for the EU to pick up a fight with the rest of the world!
Moreover, unilateral and extraterritorial national or regional schemes, which fuel legal battles and trade wars, do not help the environment.
As Dr Assad Kotaite, then president of the Council of ICAO, explained at the opening of the ICAO Assembly in 2003: “… in a world tempted by unilateral action on a national or regional basis, we must not forget that aviation is by definition international and that it can only grow safely and securely through multilateral action. And ICAO is the only recognised multilateral body whose specific mission is to bring together the States of the world in establishing and maintaining a global, harmonised regulatory framework. In an age of seemingly insurmountable global challenges, ICAO can be a beacon of hope for those who believe in the power of dialogue and cooperation.”
Even the Mar-2011 European Commission White Paper recognised that “Transport is global, so effective action requires strong international cooperation”.
ICAO action to develop a global framework
The 2010 ICAO Assembly agreed on the development of a framework for market-based measures and a global MBM scheme for international aviation, for consideration by the next Assembly in 2013.
The technical study will be completed by the end of this month and ICAO’s work in 2012 will be dedicated to the identification and development of a framework for market-based measures and a global scheme.
All those supporting or opposing the EU ETS must now do what it takes for ICAO to adopt an accelerated, credible, responsible and effective global response to the environment challenge.
We must support aviation’s substantial contribution to global economic growth and deal sensibly with its environmental impact.
In the golden words of former US President Franklin D Roosevelt in his message to the opening Plenary Session of the 1944 Chicago Conference:
"Let us work together so that the air may be used by humanity, to serve humanity."
This paper was prepared by Vijay Poonoosamy, chair of the Industry Affairs Committee of IATA and vice president international and public affairs of Etihad Airways.
The views expressed in the paper are those of the author and do not necessarily reflect CAPA’s opinions.