This August, U.S. airlines face their first big deadline to meet European Union rules on emissions linked to global warming. That's when carriers landing in Europe will have to submit proposals to the EU on how they plan to track such emissions. This is a first step toward tough European "cap-and-trade" laws requiring airlines to either slash greenhouse gases or pay for permits to emit, starting in 2012. U.S. airlines are watching these developments anxiously, in part because they are already struggling with weak travel demand and yo-yo'ing fuel prices.
The Air Transport Assn. (ATA), which represents U.S. carriers, says the plan violates international law, and that the U.S. government is obliged to object. If the EU proceeds on its course, it faces a thicket of lawsuits, predicts Nancy Young, ATA's vice-president for environmental affairs. "We adamantly oppose their scheme," she says—adding that having to purchase credits will stifle funding for the very innovations airlines must develop to cut emissions.
Just how much new carbon costs might increase airfares is unclear. One aviation industry study estimates the annual operating costs of airlines landing planes in Europe will rise by billions of dollars if the EU enacts its plan. But green groups tell a different story. They point to an EU analysis that puts the average price increase for a cross-Atlantic round-trip ticket at just $6 to $56 by 2020, depending on the cost of carbon permits. The effect on prices is "within the range of fluctuations travelers are used to," says Mark Kenber, policy director at the Climate Group in London.
Environmentalists argue that, compared with the auto and electric power sectors, airlines have had it easy when it comes to efficiency targets and carbon policies. Their special status dates back to 1997, when many countries enacted the Kyoto Accord, a global pact to cut greenhouse gas output. Kyoto didn't set specific reduction targets for airlines or marine shippers, though both groups were asked to come up with their own plans. That's because plane flights accounted for just 2% of total industrial emissions at the time, and because of murky jurisdiction issues when planes or ships cross national borders.
U.S. carriers have boosted their fuel efficiency by 31% since 1990 and have promised an equal gain by 2035. Airplane and engine builders, from Boeing (BA) and Airbus to General Electric (GE) and Rolls-Royce (RYCEY), are researching lightweight materials and plant-based jet fuel. Airlines are seeking streamlined flight paths to avoid wasting fuel. Still, because air traffic is growing so fast globally, the sector's emissions are on track to more than double by 2035.
Outside the U.S., key carriers such as Air France-KLM (AFLYY), British Airways (BAIRY), Cathay Pacific (CPCAY), and Virgin Atlantic are supporting just the sort of carbon caps the ATA opposes. They're making the case in the runup to the Copenhagen Accord, a process to replace Kyoto that will move into high gear in December. On May 24 the International Aviation Transportation Assn.—a global trade group—for the first time agreed to reduce emissions.
U.S. carriers, which consume 35% of the world's jet fuel, may not be able to opt out of carbon limits much longer. The Waxman-Markey climate bill moving through Congress includes aviation in its gas reduction goals. "The writing's on the wall," says Jake Schmidt, international climate policy director at the Natural Resources Defense Council.
Aston is Energy & Environment editor for BusinessWeek in New York.