Trade War Looms Without Deal to Cut Aviation Emissions, EU Says

A failure by negotiators to agree upon a global deal next week to cut emissions from airlines risks trade conflicts between the European Union and other regions, EU Climate Commissioner Connie Hedegaard said.

Envoys from more than 190 countries are meeting in Montreal to iron out differences over a measure that would facilitate the design of a market-based tool to reduce pollution from the $708 billion airline industry.

If the talks end Oct. 4 without a pledge from the United Nations’ aviation agency to tackle emissions, the EU is set to restore carbon curbs on foreign flights that were suspended for a year during global talks, according to Hedegaard.

“I cannot say it loud and clear enough: don’t underestimate that if it ends in nothing there’s a real risk that we’ll end up in a trade situation no one would like to be in,” Hedegaard said in interview at Bloomberg’s headquarters in New York today.

Countries from Russia to the U.S. and China are in Montreal to decide whether to back a draft resolution by the UN International Civil Aviation Organization paving the way toward a global carbon market by 2020. Details of the mechanism would be agreed upon by the agency’s next triennial assembly in 2016.

The creation of a greenhouse-gas program 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 non-European nations, which argued the EU measure was extraterritorial and that curbs on airline emissions should be discussed in the UN agency.

Limiting Flights

Before Europe suspended carbon curbs on foreign flights to help reach a global solution, President Barack Obama signed a bill shielding carriers including Delta Air Lines Inc. from the EU rules and 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 are still in limbo after the government there froze the contracts as part of a campaign against the EU emissions-trading system, known as ETS.

“ We have adjusted our system. Now it’s also up to others to deliver,” Hedegaard said. “ We have a chance now, we should use this chance. If it ends in nothing we’re in a very, very bad situation. Not just we in Europe. Everybody.”

Contentious issues at the talks in Montreal include detailed provisions on the global market mechanism, the continuation of the EU emissions trading system for aviation until 2020 and potential exemptions for poor nations.

Market Tool

In exchange for the ICAO pledge to start work on a market-based tool for the airlines industry, which emits 2 percent of all greenhouse gases, the 28-nations EU offered to limit its existing carbon curbs to flights in its own airspace until 2020. Even so nations including Brazil, Russia, India, China, Cuba and Saudi Arabia oppose any European greenhouse-gas limits on the industry prior to a worldwide agreement, according to EU documents on the talks obtained by Bloomberg News.

“This is a package; we stopped the clock to ensure that now in ICAO the world will get its act together on a global deal,” Hedegaard said. “I saw the reports coming last night from yesterday’s discussions and I can see one more country really gets this point. I hope the big economies, including the U.S., will accept the package there.”

Narrowing Scope

Narrowing the scope of the ETS to European airspace would need approval by the group’s governments and the European Parliament. Its members are unlikely to approve it if ICAO weakens the draft deal, Peter Liese, a German deputy to the EU assembly, said Sept. 24. That would mean the temporary exemption for foreign flights expires and the carbon program returns to its original design, where aviation discharges were limited at the entire length of routes to and from the region’s airports.

“The European Parliament must be taken seriously,” Hedegaard said. “This is a very strong view across party lines. Don’t underestimate that. Don’t think that if you come empty-handed from ICAO then we just have a smooth afterward.”

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