EDF Talks Global Climate

Why Europe’s climate program for airlines is not a tax

By Annie Petsonk, International Counsel, and Adam Peltz, Legal Fellow

As the European Union gets closer to implementing a law to control greenhouse gas emissions from aviation, U.S. airlines are stepping up their efforts to mischaracterize and undermine the program by calling it a “tax” instead of what it really is – a market-based cap on pollution that lets them find the best and cheapest way to reduce emissions.

Adding "winglets" and other structural modifications to planes can improve flight efficiency and help airlines comply with Europe's law to reduce emissions from the rapidly growing aviation sector. (Thanks and photo credit to Flickr user Bow's Photography.)

It’s no surprise. It’s the same tactic some in industry used to mischaracterize climate change legislation in the U.S. during the last Congress, and they’re doing it again to undermine Europe’s efforts.

The aviation sector today emits about as much climate pollution as all of the United Kingdom, and that amount is projected to quadruple by 2050. There will be a cost to reducing those emissions. But just because something has a cost, that does not make it a tax.

  • The EU law puts a quantity limit, or cap, on the total amount of climate pollution of all flights landing at or taking off from EU airports. Every company whose planes land at or take off from airports in Europe has to ensure that at the end of each year, the amount of pollution of its planes is less than the amount of its cap. It’s that simple.
  • The EU could have slapped a tax on air travel in order to drive up the price and therefore reduce demand for air travel as a means of cutting down aviation pollution. But this law doesn’t do that.
  • The EU could have required the airlines to install particular pollution control technologies. But the law doesn’t do that either.

Importantly, the EU law also gives airlines very broad flexibility to decide how to meet their caps.  Airlines have wide latitude to choose among many competing strategies, and the competition among the strategies to deliver the most cost-effective emissions reductions help drive down the costs of all of them.

To meet their caps, airlines can make practical changes in their operations, such as:

  • Using gradual “continuous ascent” and “continuous descent”, which saves a lot of fuel, instead of today’s steep, fuel-guzzling climb-ups and climb-downs.
  • Using climate-friendlier fuels like sustainably produced biofuels.
  • Putting modern, high-efficiency engines on existing planes.
  • Adding “winglets” and other structural modifications to planes to improve flight efficiency.
  • Buying or leasing new, more fuel-efficient planes.
  • Purchasing pollution credits from a wide array of projects in different countries that reduce emissions outside the aviation sector, or purchasing emissions allowances from the EU.

Why do the airlines want the EU law called a tax? Because they don’t like the law, and they want to argue that they shouldn’t be subject to more taxes. It’s inaccurate and wrong for the airlines to label the program as a tax on aviation emissions.

The EU chose a cap, rather than a tax, as the most efficient and cost-effective way to reduce aviation emissions. Don’t let the airlines fool you: the EU Aviation Directive is a cap, not a tax.

Posted in Aviation / 8 Responses

Europe’s law to reduce emissions from aviation takes off

The first week of 2012 was a busy one for developments in the European Union’s law requiring airlines to cut their global warming pollution.

On Jan. 1, Europe’s “Aviation Directive” took effect.  The law holds all flights using EU airports accountable for their pollution and requires the airlines to make modest cuts in their carbon emissions. (Remember that last month, after Secretary of State Hillary Rodham Clinton and Secretary of Transportation Ray LaHood sent a letter to the European Commission saying the U.S. might retaliate against the law, the EU’s highest court upheld the law against a challenge by United-Continental and American Airlines and their trade association.)

Obama administration weighs its options

Last week some officials from the Obama administration alluded to retaliatory measures but declined to give specifics on what the U.S. will do next. These unnamed U.S. officials told Reuters, in a Jan. 6 story:

We are contemplating a wide range of possible steps that we could take … we haven’t decided how to move forward on any specific one.

Maybe these officials’ vagueness is because the administration is currently gathering data from U.S. and European airlines to determine whether EU law discriminates against US airlines. But maybe they are starting to realize that the legal case for retaliation is thinner than the snow that didn’t blanket most of the US at Christmas.

Despite what Chinese airlines say, the EU law is an emissions cap, not a “tax”

Across the world, Chinese airlines announced on Jan. 4 they wouldn’t comply with the EU law, and promptly watched their stocks slide.

plane taking off from airport. Thanks and credit to

Airlines, as of Jan. 1, are now accountable for their pollution from flights to and from Europe. (Thanks and photo credit to Flickr user chanelcoco872.)

Too bad the Chinese airlines’ trade association doesn’t understand the EU law, inaccurately referring to it in a Reuters interview as a “tax,” and missing – to the detriment of its members’ shareholders and customers – what the law really is: an opportunity to fly more efficiently and make money.

I want to make this point perfectly clear: the EU law is a cap on emissions, not a tax.

With a typical carbon tax, the more companies pollute, the more they pay. But under a cap-and-trade system like the EU’s that puts limits on pollution, airlines that cut emissions can comply without paying a nickel. In fact, companies that come up with better, deeper, faster ways of cutting pollution can actually make money. The EU’s top court recognizes that airlines participating in the EU law could “even make a profit” by cutting pollution and selling their surplus emissions allowances.  (See paragraphs 136-145, especially 142, of the Court’s decision.)

China’s foreign ministry was reportedly more nuanced in its comments about the EU law than the airline trade association.  It didn’t threaten non-compliance and it didn’t threaten retaliation.  Instead a foreign ministry spokesperson told reporters:

We hope the EU can take careful precautions with a cautious and practical attitude, and regarding those aspects involving China, appropriately discuss and handle this matter.

Airlines are participating in EU law

Despite the discord, airlines have actually been preparing to comply with the EU law for months; they’ve all filed emissions data and applied for the law’s generous free allowances.

And with the start of 2012, the world’s smartest airlines are quietly lining up to participate, not litigate:

While German-based Lufthansa – the world’s second largest long-haul carrier, according to Reuters – has announced it will address the EU law by passing on the costs to its customers, it hasn’t clarified how much or what the money would be used for. Green groups and consumer groups will be watching to see whether and how much they and others like Emirates and Hong Kong-based Cathay Pacific raise fares.

With his new focus on holding airlines to be more transparent about the fees and charges they add to fares, Secretary LaHood might want to make sure airlines tell customers how they use environmental surcharges – with airlines ideally limiting the fare increase to the modest true cost of complying with the EU law.  That would be a win for the flying public and the environment.

Posted in Aviation / 2 Responses

For Brighter Skies, Europe Should Stay on Course with its Aviation Directive

The highest court in Europe, the European Court of Justice, issued a preliminary opinion on Thursday, Oct. 6 saying the EU’s pioneering law to curb aviation pollution is consistent with international law.  EDF and the five other European and U.S. groups that have intervened in the suit in support of the EU law called the opinion “very encouraging.”

In the commentary below, which I drafted at the invitation of Point Carbon’s Carbon Market Europe, I discuss the significance of the opinion and what the Aviation Directive could mean for industries in Europe and around the world.

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For Brighter Skies, Europe Should Stay on Course

By Annie Petsonk, International Counsel, Environmental Defense Fund (EDF is part of a transatlantic coalition of environmental groups that are intervener-defendants in the litigation).  Published Oct. 7, 2011.

Yesterday’s preliminary opinion by the Advocate General of the European Court of Justice in the “aviation case” offers a refreshing prospect for climate policy and a potential boost for low carbon economic growth. But whether European political leaders can consolidate those gains will depend on two developments, only one of which is within their control.

The background: U.S. airlines have fought carbon regulation for almost twenty years, since the mid 1990s, when climate scientists began quantifying aviation’s impact on global warming, and policy-makers began discussing how to allocate emissions from flights originating in one country and traveling to another.

A preliminary opinion from Europe's highest court could offer a boost for low-carbon economic growth in the aviation industry. (Thanks and photo credit to Flickr user ELTMAN.)

In 1997, during the talks that led to adoption of the Kyoto Protocol, airline lobbyists pressed for and obtained language in Article 2.2 of Kyoto stating that Parties included in Annex I “shall pursue” limits on these aviation emissions “working through the International Civil Aviation Organization” (ICAO).

European governments dutifully pursued these limits working through ICAO. But a decade of ICAO talks produced no such limits. So the EU launched stakeholder consultations on including aviation in the EU Emissions Trading System (ETS). The result was a law capping the emissions of flights landing at and taking off from EU airports. The law, which passed with an extremely broad parliamentary majority and the support of all EU Member States, is non-discriminatory. Its first caps, admittedly modest, start January 1, 2012.

Virtually all airlines are preparing to comply, filing emissions data and applying for the law’s generous free allowances. But United/Continental and American Airlines sued to block the law. They argued that under ICAO’s Chicago Convention on civil aviation, the ETS is an illegal tax. They claimed that Kyoto’s “pursue through ICAO” language precludes the EU law. And they asserted that a nation may only regulate emissions during the transit of its sovereign airspace, perverse results notwithstanding. Yesterday’s in-depth preliminary opinion by the Advocate General of Europe’s highest court rejected these claims.

What happens next turns on two developments. First, will the full Court follow the Advocate General’s careful reasoning? It might not, but past practice indicates a strong possibility that it will. Second, will EU policymakers carry through with the law that the Advocate General’s opinion powerfully supports? U.S. airlines are ramping up the heat. They say the ETS will cost them billions. (Independent analyses conclude that any fare increases are likely to be trivial – in the range of $3-6 per ticket.) They’re seeking a U.S. Congressional enactment making it illegal for them to comply with the EU-ETS, effectively daring the EU to enforce its law and goading tit-for-tat retaliation. And they’ve persuaded their friends in the U.S. Transportation Department to sign a statement in Delhi that ICAO is the only forum for regulation of aviation pollution (but not offering ideas for overcoming old logjams).

On this point the Advocate General’s opinion is clear: The EU is not required to wait indefinitely for ICAO. While multilateral solutions are preferable, multilateral inaction is no bar to regional action. Transport officials from Italy and The Netherlands are already feeling the heat. It will take fortitude for the EU to stand firm, but it is essential.

The Advocate General’s opinion found that the ETS is a market-based measure where allowance prices are determined by supply and demand. Supply and demand fundamentally reflect market perceptions of whether governments will implement law. When governments hold to their regulatory commitments, regulated parties, investors, and entrepreneurs compete to meet and beat pollution targets. The EU’s ability to generate the lion’s share of the $140 billion global carbon market, and Germany’s ability to generate low-carbon jobs even in difficult economic times by maintaining tough emissions limits and strong clean energy policy, demonstrate the power of government adherence to announced commitments.

But what if the message to regulated industries is, squawk loudly and government will wilt? Vacillation on aviation could undermine confidence in the most powerful climate policy instrument the EU has ever deployed, the world’s best hope for building, from the bottom up, an effective global climate framework.

The aviation sector can learn, as other EU sectors have, to survive and thrive with carbon constraints. It’s time for the EU to stay on course for brighter skies.

–This commentary was originally published Friday, Oct. 7, 2011, in Carbon Market Europe (A Thomson Reuters Point Carbon publication)

 

Learn more about EDF’s work on aviation and the EU Aviation Directive at edf.org/aviation.

Posted in Aviation / Leave a comment

Copenhagen Opens: What We Expect

I’ve just landed in Copenhagen, where I’ll join other EDF staffers and thousands of people from around the globe who are working for an international solution to climate change. It’s a very exciting moment, and hopes are high for a successful summit.

But what, exactly, would a “successful summit” be? I can tell you how we at Environmental Defense Fund would define it. Here’s what we’d like to see:

We want a final treaty — in 2010 — that is effective, measurable, inclusive, and adequately financed.

We know two weeks in Copenhagen won’t be enough to achieve all this, but that doesn’t mean Copenhagen won’t be a success — it can still move us closer to a successful treaty next year. One that will reduce global carbon pollution in time to avoid the worst effects of climate change and drive investment in clean energy and jobs around the world.

The real test for Copenhagen is whether we can move forward toward these objectives, setting the stage for a final, legally binding agreement in 2010, after the U.S. enacts domestic climate legislation.

So what are the building blocks we need in Copenhagen to move toward a treaty that is effective, measurable, inclusive and adequately financed?

First we need to reduce emissions far enough and fast enough to keep warming below 2°C. An effective treaty must ensure carbon emissions decline across the globe, and that means we need a plan for all major emitters to implement pollution caps so global carbon emissions start declining during the next decade. Developed countries need to impose caps as soon as possible and major developing countries need to phase in caps in the near future, the sooner the better.

Second we need to know whether we’re winning or losing the fight against climate change. That means we need a verification system everyone can believe in — a standardized and credible system for measuring, reporting, and verifying national emissions using a common and meaningful yardstick. All countries must measure their pollution reductions, report them in a way that allows “apples to apples” comparisons, and submit them for independent substantiation. Countries need to be held accountable for compliance.

Third, we need to establish paths for emerging economies to join the effort. Any climate change treaty must provide ways for emerging economies to enter carbon markets to speed their transition to low-carbon economic growth. Different nations will require different timelines for reducing their emissions under a new treaty. And one of these paths must be the creation of incentives to reduce tropical deforestation and forest degradation.

And fourth, we need significant and sustainable financing and, since the bulk of international climate finance will flow through the private sector, it’s crucial that carbon markets work. If no one knows what they’re buying or selling, markets for emissions reduction credits won’t work, and funding for developing countries will suffer.

That sums up what we’re working for in Copenhagen; now we’ll have to see how we do. Stay tuned. We’ll be updating this blog throughout the talks.

Posted in Copenhagen (COP-15) / 2 Responses

U.N. spotlight shines on efforts to reduce deforestation

Last night, in New York at Climate Week, I attended the UN Secretary General’s High Level Event on Reducing Emissions from Deforestation and Degradation in Developing Countries (REDD). Read More »

Posted in Deforestation / 1 Response

Delegates stand up for tropical forests

I’ve been to many UN climate sessions but I’ve rarely seen anything like this weekend when a whole roomful of delegates stood up, one after another, to speak out about a shared concern. Compared to how UN sessions usually go, it was like watching a popular uprising overrun the palace.
Read More »

Posted in Bonn / 1 Response