Aviation Carbon Suit to Stir Trade Tension at Durban Talks, Derwent Says

A lawsuit by U.S. airlines arguing against inclusion in the European Union carbon market probably will stir tension at December climate talks, said Henry Derwent, the International Emissions Trading Association president.

U.S. airlines including United Continental Holdings Inc. (UAL) and the Air Transport Association of America are arguing July 5 in the European Court of Justice in Luxembourg that the bloc’s inclusion of carriers in the market starting next year exceeds its jurisdiction and amounts to an improper tax or charge, according to the trade group.

Chinese airlines’ support of the suit shows developing nations are concerned new climate-related barriers and costs will hurt their exporters, Derwent said in a phone interview from Geneva. Developing-nation concern “will be strengthened by a commission win in the aviation court case,” he said May 13.

EU lawmakers, who have failed so far to lure the U.S. and other rich nations into pricing greenhouse gases, are already imposing emission standards on motor vehicles and appliances and have proposed to ban some United Nations credits starting May 2013, slashing revenue in nations including China and India. The bloc may expand its market further to include shipping should international talks fail to cut pollution from that industry, an official said in March.

“The move to regulate emissions on the basis of trade is perhaps the worst possible outcome because it sets up all of the existing unresolved tensions from the World Trade Organization talks,” said Jerome Whitington, a climate specialist at Dartmouth College in Hanover, New Hampshire.

‘Failures and Postponements’

“The climate should not be a stage for that power struggle,” Whitington said. “It is a recipe for a further series of failures and postponements, and it undermines the U.S. negotiators’ claim that an overarching global deal is unnecessary,” he said May 13 by e-mail.

At stake is the right of a nation or group of nations “to insist that a price is paid,” said Derwent, previously an adviser to former U.K. Prime Minister Tony Blair. Chinese officials are already starting to say they are doing a lot to price carbon, arguing it shouldn’t face new imposts, he said.

Should the EU lose its court case it will look foolish at talks planned for November and December in Durban, South Africa, Derwent said. Rich and emerging nations have so far failed to agree how to extend or replace the 1997 Kyoto Protocol, which has greenhouse gas targets for developed nations for the five years through 2012.

“We are seeing unfolding before our eyes a very important part of the post-Kyoto world,” he said. The court decision “will be a significant moment.”

Flight Exemption

The EU is examining whether China, which opposes the expansion of the EU emissions trading system to airlines, could earn an exemption from the program thanks to its domestic plan.

The EU’s emissions cap-and-trade system, the world’s largest, will from next year cover flights to and from the bloc’s airports. The European legislation offers an option to exclude incoming flights from a non-EU country if the nation implements “equivalent” measures to cut pollution from aviation.

Airlines will be the second-largest sector in the system, after power generators. Under the legislation, 82 percent of the emission allowances making up the airline-industry cap will be allocated for free, and 15 percent will be auctioned. The remaining 3 percent will be put into a special reserve for later distribution to fast-growing airlines and new entrants.

“With substantial annual growth expected for decades to come, aviation will increasingly contribute to climate change unless we act,” Isaac Valero-Ladron, an EU climate spokesman, said May 11. “As most other sectors are already subject to measures, it is only reasonable that also this sector should contribute to fight climate change.”

Airlines Lobbied

Six environmental lobbies including the Environmental Defense Fund and the Natural Resources Defense Council last week asked U.S. airlines to drop the lawsuit.

“If in fact American Airlines is committed to reducing its environmental impact, it makes no sense to spend your customers’ money on lawyers and lobbyists in an effort to thwart a crucial anti-pollution program,” the groups said in a letter to AMR Corp. (AMR), the airline’s owner.

“A $10 or $20 increase on a $800 ticket to the EU won’t destroy the airline industry,” New York-based Jake Schmidt, international climate policy director of NRDC, said in an interview on May 12.

To contact the reporter on this story: Mathew Carr in London at m.carr@bloomberg.net

To contact the editor responsible for this story: Stephen Voss at sev@bloomberg.net

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