March 13 (Bloomberg) -- The European Union will probably back down on including aviation in its carbon market once the United Nations’ International Civil Aviation Organization proposes a global program, said Societe Generale SA.
“The EU is close to the point of backing down,” Emmanuel Fages, an analyst with the bank in Paris, said today by phone. “It’s becoming one of the big risks in this market” and may already be driving carbon prices lower, he said.
Airbus SAS and Europe’s biggest airlines yesterday called on the bloc to find a compromise on aviation carbon curbs, warning that the limits on foreign carriers may lead to increased retaliation. The regulator known as ICAO said in November it was canvassing the world’s 50 biggest nations on a global emissions program to be proposed this year.
Nations outside Europe “are irritated by the principle because they see it as an infringement of their sovereignty,” Fages said. “It’s not a big deal financially and they know it.” Removing airlines from the EU program might curb demand in the EU market by about 700 million metric tons through 2020 and cut prices by about 2 euros ($2.62) a ton from current levels, he said.
This year’s cap for power stations, factories and airlines in the market is about 2.4 billion tons, according to estimates from Bloomberg New Energy Finance in London. EU allowances for December rose 1 cent to 7.86 euros a ton today on the ICE Futures Europe exchange in London at 5:34 p.m., taking their loss this month to 8.2 percent.
The EU can replace its carbon curbs on aviation with a global measure to cut pollution from the industry as long as the broader program is as ambitious as the EU plan, the bloc’s climate chief said Feb. 17.
The 27-nation EU won’t abandon the expansion of its emissions trading system into international aviation in the face of opposition from nations outside the region, Climate Commissioner Connie Hedegaard said at the time. The first expansion of the EU emissions cap-and-trade program abroad has drawn fire from countries including the U.S., Russia and Japan, which said the measure was inconsistent with international law.
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