EU to Defend Limited Carbon Market for Airline Emissions

The European Union signaled it will defend its right to continue a limited carbon market for airlines until 2020 under a deal being discussed at a meeting of the International Civil Aviation Organization.

The EU’s goal of keeping its partial curbs drew objections from Ajit Singh, India’s aviation minister, who said regional emission rules shouldn’t be imposed unilaterally. Negotiators from more than 190 states are at the United Nations agency’s general assembly in Montreal in talks through Oct. 4 to iron out differences for a global market to cut airline emissions.

Under the draft, governments would commit at ICAO’s triennial meeting to begin designing a market-based mechanism for the airlines industry, which emits 2 percent of all greenhouse gases. Details would be decided in 2016 and the system would start by 2020. In exchange, the 28-nation EU would limit its existing carbon curbs to flights in its own airspace before the global deal.

Europe’s agreement to narrow the scope of its program for airlines “has already been a very big compromise,” EU Transport Commissioner Siim Kallas said in an interview after the meeting’s opening session. “The proposed text to the assembly seems to be supported by a large majority, and we are among those who support it. Departing from that is a big question mark.”

Until 2020 “countries or groups of countries should -- within certain parameters -- be able to deploy national and regional market-based measures,” Kallas told the assembly.

Dialogue Defeat

A solution to reduce airline emissions should be agreed upon multilaterally, India’s Ajit Singh said in an interview today. Countries including Brazil, Russia and China also oppose regional or national emission-reduction markets for carriers prior to a global plan, according to an EU document obtained by Bloomberg News.

“If the EU is allowed to impose curbs unilaterally, then every country and region will start their own emission rules, which will defeat the purpose of a global dialogue,” Singh said. “Let the meeting discuss and decide.”

The aviation talks are parallel to attempts by government negotiators in the UN climate panel to reach a deal by 2015 to cut greenhouse gases globally from 2020. Reducing pollution would help limit global warming that risks causing more heat waves, flooding and intense storms, according to UN scientists.

“Everyone needs to play a part,” UN Secretary-General Ban Ki-moon told the negotiators. “I count on this meeting to explore how the aviation sector can limit carbon emissions and contribute to sustainable development.”

Retaliatory Measures

The creation of a carbon market for airlines made it to the top of the ICAO agenda after the EU included airlines in its emissions trading system beginning in 2012. That triggered protests from countries from the U.S. to Russia and China, who argued the EU measure was extraterritorial and that curbs on airline emissions should be discussed in the UN agency.

President Barack Obama signed a bill last year shielding carriers including Delta Air Lines Inc. from the EU rules. Russia announced it was considering limits on European flights over Siberia as part of possible retaliatory measures.

Airbus SAS said in June that 27 orders from China for A330 wide-body jetliners remain in limbo after the government there froze the contracts as part of a campaign against the EU measure. The Toulouse, France-based company is “looking forward to a global solution led by ICAO,” said Stefan Schaffrath, its spokesman.

EU Deferral

To avoid trade conflicts, the EU deferred curbs on foreign flights by a year. The European Commission, the bloc’s regulatory arm, plans to put forward a proposal to limit the scope of its emissions law for airlines in the first half of October should ICAO back the deal in Montreal, two people with knowledge of the matter said this month.

The Star Alliance group, which includes United Airlines, Deutsche Lufthansa AG and Singapore Airlines Ltd., supports the initiative to find a solution on aviation emissions in ICAO, according to its chief executive officer Mark Schwab. A continuation of the EU market in its own airspace before a global program would make European carriers less competitive, he said.

“That is not a good thing for the European carriers, particularly at a time when the European carriers are having the most difficulty on a global basis within the industry,” Schwab told reporters in Brussels today.

Raymond Benjamin, the secretary general of ICAO, told reporters he was “absolutely confident” that nations will reach an accord by the time the assembly ends.

Annual Limit

Europe’s cap-and-trade program is the cornerstone of its plan to cut carbon dioxide. The annual limit for the aviation industry began at 97 percent of average discharges from 2004 to 2006, falling to 95 percent in 2013. Airlines were given emission permits making up 85 percent of the industry cap for free. EU emission permits for delivery in December rose 0.2 percent to 5.40 euros a metric ton as of 4:59 p.m. at the ICE Futures Europe exchange in London today.

“Everybody shares a view that a trade conflict should be avoided,” Kallas said in the interview. “It seems to me there is a possibility that we will have a resolution. But I am very careful, very cautious to declare that today we are there.”

Before it's here, it's on the Bloomberg Terminal.