UN Body Urges Europe to Omit Foreign Airlines From CO2 Curbs

International airlines should be exempt from the European Union’s planned curbs on carbon-dioxide emissions, a United Nations aviation panel said in a declaration that draw together China, Russia, and the U.S.

The non-binding statement was adopted in Montreal by the governing council of the UN International Civil Aviation Organization at the urging of 26 countries, which also included Brazil, Japan and India. The EU responded late yesterday that it won’t back down from including flights to and from the region’s airports in its emission-trading system as of 2012.

“The council reiterated that ICAO was indeed the best global forum for tackling environmental issues linked to aviation, specifically climate change and CO2 emissions,” Stephane Dubois, spokeswoman for the office of ICAO secretary general, said by e-mail. “The European states expressed strong reservations on a number of elements in the declaration.”

Governments outside Europe and international airlines are stepping up efforts to block the first expansion of the EU emissions-trading program beyond the 27-nation bloc’s borders. The rift between Europe and non-EU countries highlights the challenge of forging a global agreement to put a price on carbon just four weeks before a UN summit on post-2012 climate- protection rules. The benchmark December EU carbon permit price sank to the lowest in 2 1/2 years in early trading this morning on London’s ICE Futures Europe exchange.

Trade Conflict

The EU, which wants to lead the battle against climate change, decided in 2008 that international aviation should become a part of its cap-and-trade carbon program after airline discharges in Europe doubled over two decades.

Carriers including American Airlines Inc. and United Continental Inc. are already challenging the law in an EU court, and China’s airline association said earlier this year the European initiative may prompt trade conflict.

The ICAO council backed a declaration signed by a group of non-EU nations in Delhi in September that the inclusion of third-country carriers in the European cap-and-trade is “inconsistent with applicable international law.” The signatories, which also included Mexico, Saudi Arabia, South Africa, the United Arab Emirates, called on the EU to “work collaboratively with the rest of the international community to address aviation emissions.”

No Backing Down

“It is disappointing that ICAO discussions once again focus on what states should not do, instead of what they should do to curb growing aviation emissions,” EU Climate Commissioner Connie Hedegaard said in an e-mailed statement late yesterday. “This decision will affect neither the EU’s commitment to working within ICAO to agree on a global solution, nor our adopted legislation to include aviation in the EU emissions trading system.”

While the EU’s preferred choice is a worldwide solution to cut greenhouse gases from aviation, Europe decided to include the sector in its emissions trading system after more than a decade of international talks on the issue brought no global plan, Hedegaard said yesterday in an interview during a visit to Moscow, before the ICAO declaration was adopted.

The EU emissions trading system, known as the ETS, is the cornerstone of the region’s plan to cut greenhouse gases that scientists blame for global warming. It imposes pollution limits on more than 11,000 manufacturers and power companies, leading to a cap in 2020 that will be 21 percent below 2005 discharges.

Possible Exemptions

The EU law offers a possibility of excluding incoming flights from a particular country if that nation implements equivalent measures to cut pollution from its air transport sector, an option that Hedegaard highlighted.

“You could set a target for your aviation sector, you could make an incentive for them to improve fuel efficiency for aviation, it could be many things,” she said yesterday after a meeting with Alexander Bedritsky, adviser on climate matters to Russian President Dmitry Medvedev. “We do not define what that is. We invite a dialogue.”

The international opposition to the expansion of the ETS could lead to a trade conflict, the Airports Council International said in a resolution adopted yesterday by its general assembly in Marrakesh. The International Air Transport Association, an industry lobby, also spoke against the EU plan.

“It’s important to remember that opposition to this move is coming from states as much as from airline and airports,” Tony Tyler, IATA chief executive officer said at a briefing following the ACI meeting. “It’s governments who see this as a clear infringement of their sovereignty and it’s hard to see how something can be introduced when at least 26 states have come out publicly against it.”

U.S. Versus Europe

The U.S. House of Representatives passed a bill last month prohibiting the country’s airlines from participating in the ETS after the industry estimated that participation in the cap-and- trade system would cost U.S. airlines $3.1 billion between 2012 and 2020. The measure needs backing from the Senate and President Barack Obama to become law, that would set the stage for a battle of U.S. versus European jurisdiction.

Advocate General Juliane Kokott of the EU Court of Justice in Luxembourg, an adviser to the EU court handling the lawsuit by U.S. carriers, said in a non-binding opinion on Oct. 6 that the inclusion of global aviation in the European cap-and-trade is compatible with international law, signaling that the suing airlines should lose the challenge.

When international carriers join the system next year they will be given emission permits making up 85 percent of the industry cap and will have to buy the remaining 15 percent at auction. One allowance carries the right to emit one metric ton of carbon dioxide.

Carbon Price Low

EU permits for delivery in December fell as low as 9.37 euros ($12.84) a metric ton in early trading today on ICE Futures, the lowest intraday price since Feb. 17, 2009. Allowances are down 34 percent this year.

Since the annual limit for the aviation industry will begin at 97 percent of 2004 to 2006 discharges and fall to 95 percent in 2013, free permits will cover some 65 percent of actual CO2 emissions through 2020, according to estimates by Bloomberg New Energy Finance. As airfares rise to exceed the cost of paid-for allowances, the industry may cover the additional costs of participating in ETS by 2014, BNEF said last month.

Any increase in air fares related to the inclusion of airlines in the ETS will be “modest at most,” ranging from $1.40 to $8.60 per ticket each way on long-haul flights at current CO2 prices, according to the European Commission.

To contact the reporter on this story: Ewa Krukowska in Brussels at ekrukowska@bloomberg.net

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

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