T S Vishwanath: A lighter carbon trail

The EU must find ways of achieving sustainability without taxing the global aviation industry too much

The war of words between the European Union (EU) and the aviation industry in the US and China over the EU Aviation Emissions regulation is a good pointer to the disputes that may arise over the next few years when policy-makers and industry will spar over the domestic policy space available to countries when viewed through the prism of international obligations.

Discussions on this subject started in June 2011 when the European Parliament and Council agreed to include carbon-dioxide emissions by the aviation sector into the Emissions Trading System (ETS) from January 2012.

The inclusion of aviation into the ETS means that airlines have to pay for carbon permits if they exceed a certain emissions cap. This requirement would apply to all flights entering the 27-member bloc, for both EU and non-EU airlines. The aviation industry in the US and China had questioned this policy and the matter was referred for legal interpretation. A recent judgement the European Court of Justice has held the EU law to be in line with its international obligations.

The US industry has reportedly said it would look at other options to challenge the EU plan, while four Chinese airlines have reportedly decided to go against the EU law and said they would not pay for the carbon permits. The Chinese Air Transport Association (CATA) had estimated the cost of compliance in the first year for Chinese airlines at 84.5 million euro.

The battle between EU officials and the aviation industry has been intense since airlines globally are working on thin margins due to the economic slowdown, especially in the developed world. This is not a time when they would like to add to their cost by complying with new regulations and the EU is an important transit point for most airlines flying across the globe.

But the EU, which has been advocating a carbon tax on polluting industries since 2005, has been pushing its case strongly. The concern for supporters of the EU action is not about the inclusion of aviation into the ETS but about companies and industry groups reacting to the cost of complying with stricter domestic policies that are aimed at improving the environment.

The cost of complying with domestic policy on environment that adds cost has been a matter of unease for industry across the world. For instance, when Canberra had moved forward to introduce a carbon tax for domestic industry in July 2011, a number of businesses in Australia had expressed their reservations reasonably strongly.

The Australian Senate had passed the legislation for imposing carbon tax on Australian industry after years of campaigning for what it hoped will create a new platform for companies to trade carbon credits and cut pollution. According to that legislation, about 500 of Australia’s biggest polluters were ending up paying A$23 per tonne of carbon they would generate from July, 2012. That price will increase by 2.5 per cent each year until 2015, when it will be set by the market under and emission trading or cap and trade scheme, similar to what is existing in the EU since 2005.

Though the debate seems to be about protecting the environment versus cost of compliance for industry, there seems to be an urgent need to move this debate towards a focus on development and sustainability that will help industry and countries across continents.

All stakeholders, industry included, accept the fact that there is a need to protect the environment. But the issue is what should be the way forward to achieve this objective. There is a need to focus on innovation and technologies that help build cost-effective models to sustain the environment while keeping the cost of compliance low for industry.

The best possible way forward could be for industry and governments to build greater synergies in sharing innovative but doable ideas for cutting greenhouse gas emissions, while at the same time keeping the cost of business low.

There are enough examples around the world that show that sustainability can be achieved with some simple but effective methods. The aviation industry represented by the International Air Transport Association (IATA) will do well to put forward some of those thoughts to European officials who should try and look at possible solutions that will serve the interests of all parties.

The author is Principal Adviser with APJ-SLG Law Offices