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TWN Info Service on Climate Change (Mar12/01)
16 March 2012
Third World Network

EU carbon tax on maritime transport the next controversy?
Published in SUNS #7331 dated 16 March 2012

Beijing, 15 Mar (Chee Yoke Ling and Xu Chengcheng) - In the wake of the implementation of the controversial aviation carbon tax imposed by the European Union on all flights entering and leaving its territory, a new wave of protest from affected countries is likely if the European Union proceeds to work on a carbon tax on maritime transport.

The EU has been working to include aviation and maritime carbon taxes in the European Union Emission Trading System (EU-ETS), and the aviation tax entered into force on 1 January 2012 (EU Directive 2008/10/101/EC). Many countries consider this to be unfair or illegal or both.

On 21 February 2012, the EU Council of economic and finance ministers adopted conclusions that included one on aviation and maritime carbon taxes.

The Council of ministers reiterates that "the carbon pricing of global aviation and maritime transportation would generate the necessary price signal to efficiently achieve more emission reductions from these sectors and that carbon pricing of global aviation and maritime transportation have as well the potential to generate large financial flows."

The Council invites "the (European) Commission to prepare a reflection paper by June (2012) on carbon pricing of global aviation and maritime transportation taking into account the developments in IMO (International Maritime Organisation) and ICAO (International Civil Aviation Organisation) and previous work by AGF (UN Secretary-General's High Level Panel on Climate Change Financing) and by the World Bank and other international organisations for the G20."

It also stressed "the need of taking into account national budgetary rules and the principles and provisions of the UNFCCC (UN Framework Convention on Climate Change) in the use of potential revenue".

Though the EU Council has called for a "reflection paper" at this stage, there were already critical reactions to this move in China, which is one of the vocal opponents to the manner in which such mandatory taxes are determined even though there is a need to address greenhouse gases emissions in these sectors.

Objections centre on the unilateral and mandatory nature of the EU action even while discussions continue in the IMO and ICAO, the two global organisations responsible for such issues.

Critics also raise the issue of common but differentiated responsibilities that underpin the UNFCCC, arguing that since climate change is the result of the accumulated greenhouse gases emissions of developed countries over the past two centuries, it is not equitable to impose the same level of burden on developing and developed countries (in this case the payment of carbon taxes in the aviation and maritime sectors).

Some observers query whether this would be a tempting revenue source in light of the current Eurozone crisis.

(On 22 December 2011, China's Ministry of Foreign Affairs announced through the official Xinhua News Agency that the government opposes the EU's "mandatory and unilateral" legislation on a carbon emissions tax on airlines. At the same time, China's "big four" airlines - Air China, China Eastern Airlines, China Southern Airlines, and Hainan Airlines - reached an agreement with the China Air Transport Association to jointly take legal action against the EU. The Chinese airlines are currently not paying the charges. This was in anticipation of the entry into force of the aviation tax on 1 January 2012.)

In a regular press conference of the Ministry of Foreign Affairs on 1 March, the EU Council's conclusions of 21 February were raised.

The ministry spokesperson Hong Lei's response was posted on the ministry's website: "Along with many countries, China opposes the EU taking unilateral measures on the issues of international aviation and maritime transport emission. Facts have proved that such unilateral measures by the EU are not welcomed, and cannot achieve the expected results."

She stressed that, "The issues of international aviation and maritime transport emission have to be dealt with in the multilateral framework, cannot break away from the basic legal framework of UNFCCC and KP (Kyoto Protocol), and cannot violate the principles of CBDR (common but differentiated responsibilities) and equity."

Hong added that China hopes that the EU will seriously consider the concerns of the international community, and commit itself to solve the issue, rather than further complicating the problem.

In responding to the EU Council's resolution, Su Wei, head of climate change at the China National Development and Reform Commission and the country's lead negotiator in the UNFCCC, said that, "No matter whether it is to levy aviation carbon tax or maritime carbon tax, one has to adhere to relevant international treaties. The most fundamental goal of carbon emission tax is to deal with climate change. But the current climate problem is the result of the 200 years industrial development of the developed countries. If all countries are asked to carry this responsibility, it is a violation of the principle of Common but Differentiated Responsibility in UNFCCC." (Source: China News Service, 24 February).

According to a report of the Securities Daily of 2 March, Zhang Shouguo, Vice Chairman of the China Shipowners Association, said, "The aviation industry has set the example for us. We will firmly boycott, formulate counter measures ..."

Zhang Qizhun, a lawyer who specializes in aviation issues who was quoted in Nanfang Daily of 24 February, said that, "Confrontation is necessary. But China also needs to seriously reflect upon itself, and start to respond in the areas of low-emission aircraft development, emerging fuel research, and carbon emission reduction, etc."

Jin Yueqin, Associate Professor and Deputy Director of the Department of Energy and Economics at Renmin University, told the Chinese Financial News (25 February) that, "The EU, disregarding opposition from many countries, throws out its carbon tax proposal over and over again, deliberately trying to magnify the problem."

"Its fundamental purpose, besides to gain economic benefits, is to fight for the global right to speak in the name of environmental protection, to continue expanding its export capacity in global low-carbon technologies, emerging aviation materials, and green energy technologies, " Jin said.

She cautioned that "the Achilles' heel of this system is that the EU should not use ‘environment protection' to gloss over its true intentions, and it will not find new economic growth point in violation of international regulations and in damaging the interests of other countries."

Jin also said that regardless of how countries deal with the EU carbon tax, carbon emission reduction will still be the ultimate way out.

Similar sentiments were expressed by Long Zhaohui of the Department of Finance and Taxation, Zhongshan University, who was quoted in the widely-read Southern Metropolis of 29 February: "By collecting tax on aviation and maritime transport, the EU first is trying to deal with its internal debt crises and diverting attention. Secondly, the EU is the global leader in aviation emission reduction technologies. The collection of carbon tax is useful to drive the demand of countries for green and low-carbon materials and relevant products, thus the EU can foster new economic growth point by exporting its green technology and equipment."

In a 24 February report of Xinhua News Agency, Professor Zou Jianjun of the China Institute of Civil Aviation Management, said that, "The price of carbon in the EU has been low for a long time. Companies almost have no incentive to participate in the market of (carbon) trading. If the stability and liquidity of the carbon trading market cannot be guaranteed, imposing such international action like aviation carbon tax is indeed very difficult."

In the same report, Mei Xinyu of the Chinese Academy of International Trade and Economic Cooperation, a think tank of the Ministry of Commerce, said that "the EU, relying on its current superior position in the international economic and political system, can still to a large extent impose the implementation of various economic and trade barriers such as the aviation carbon tax. But these measures will eventually hurt the EU itself."

GLOBAL LEVEL DISCONTENT

This controversy has been building up for a while at the global level. A multi-country official momentum against the EU action on its aviation tax increased last year at an international meeting on 29-30 September of ICAO and other non-EU Member States.

This was held in New Delhi to discuss the inclusion of aviation in the EU-ETS. Discussions covered the legal objections to such inclusion, policy objections, the role of ICAO in the way forward and the next steps for countries to consider.

The countries present were: Argentina, Brazil, Canada, China, Chile, Colombia, Cuba, Egypt, Japan, Republic of Korea, Malaysia, Mexico, Nigeria, Paraguay, Peru, Philippines, Qatar, Russian Federation, Saudi Arabia, Singapore, South Africa, Thailand, Turkey, the United Arab Emirates and the United States.

According to the report of the meeting posted on the Indian Government's Press Information Bureau website (http://pib.nic.in/newsite/erelease.aspx?relid=76388), there was wide concern expressed by all countries present, without exception, that the unilaterally imposed EU-ETS measures were inconsistent with the international legal regimes.

There were also references of EU-ETS measures violating the Chicago Convention governing international aviation as also provisions of the World Trade Organisation. It was stated by the various delegates that they were also discriminatory in carriers.

A Joint Delhi Declaration was negotiated and adopted at New Delhi that inter alia highlighted the essential role of aviation in economic progress and also recognized the complementary national, regional and global endeavours developed on the basis of collaboration and mutual agreement to address aviation emissions.

It called upon ICAO to continue to undertake efforts to reduce aviation emissions contribution to climate change.

It affirmed the importance of the role of ICAO in addressing aviation emissions, including pursuant to the request from the Parties to the UNFCCC and recognized that international aviation's growth makes it necessary to address the long-term growth of greenhouse gas emissions that contribute to global climate change.

The declaration opposed the EU's plan to include all flights by non-EU carriers to/from an airport in the territory of an EU Member State in its emissions trading system, and also urged the EU and its Member States to work collaboratively with the rest of the international community to address aviation emissions.

The members present most importantly decided to continue to work together to oppose the imposition of the EU ETS on their operators and invited any other State to associate itself with the declaration. It was also decided that the group would meet again in the near future.

On 21-22 February 2012, a second meeting took place in Moscow with participation from Armenia, Argentina, Republic of Belarus, Brazil, Cameroon, Chile, China, Cuba, Guatemala, India, Japan, Republic of Korea, Mexico, Nigeria, Paraguay, Russian Federation, Saudi Arabia, Seychelles, Singapore, South Africa, Thailand, Uganda and the US.

The outcome was the "Joint declaration of the Moscow meeting on inclusion of international civil aviation in the EU-ETS" endorsed by 29 countries (including some who were not at the Moscow meeting).

The declaration stated that the inclusion of international civil aviation in the EU-ETS leads to serious market distortions and unfair competition.

They stressed that, "the unilateral inclusion of international civil aviation in the EU-ETS has constituted an obstacle to the progress of ICAO's work underway to address international civil aviation emissions."

They underlined "the lack of an adequate response from EU Member States to the ICAO Council's Decision C-DEC 194/2, including the lack of a constructive dialogue to address the concerns of the non-EU States expressed in that decision and elsewhere".

(The ICAO Decision C-DEC 194/2 adopts the Joint Delhi Declaration of 30 September 2011.)

The representatives at the Moscow meeting decided inter alia to adopt the Joint Declaration as a clear manifestation of their unanimous position that the EU and its Member States must cease application of the Directive 2008/101/EC to airlines/aircraft operators registered in third States; and strongly urged the EU Member States to work constructively forthwith in ICAO on a multilateral approach to address international civil aviation emissions.

The meeting also agreed on the following "basket" of actions and measures:

  • Filing an application under Article 84 of the Chicago Convention for resolution of the dispute according to the ICAO Rules for the Settlement of Differences (Doc 7782/2);
  • Using existing or new State legislation, regulations, or other legal mechanism to prohibit airlines/aircraft operators of that State from participating in the EU ETS;
  • Holding meetings with the EU carriers and/or aviation-related enterprises in their respective States and apprise them about the concerns arising out of the EU-ETS and the possibility of reciprocal measures that could be adopted by the State, which may adversely affect those airlines and/or entities;
  • Mandating EU carriers to submit flight details and other data;
  • Assessing whether the EU ETS is consistent with the WTO Agreements and taking appropriate action;
  • Reviewing Bilateral Air Services Agreements, including Open Skies with individual EU Member States, and reconsidering the implementation or negotiation of the "Horizontal Agreement" with the EU;
  • Suspending current and future discussions and/or negotiations to enhance operating rights for EU airlines/aircraft operators;
  • Imposing additional levies/charges on EU carriers/aircraft operators as a form of countermeasure.

(See also "Trade war looms over EU's tax on airlines" published in SUNS #7313 dated 21 February 2012.)

 


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