Trends by Martin Khor
20 February 2012
war looms over EUís tax on airlines
week, 26 countries will meet to organise retaliation against the European
Union for their unilateral measure to tax airlines for their emissions.
This may be the first salvo in dangerous trade wars fought over climate
trade war is looming over the European Unionís move to impose charges
on airlines on the basis of the greenhouse gases they emit during
the planesí entire flights into and out of European airports.
Many countries whose airlines are affected, including China, India,
Malaysia, Nigeria, South Africa, Egypt, Brazil and the United States,
consider this to be unfair or illegal or both.
Since their protests have not yielded results, officials of 26 countries
are meeting in Moscow early this week to discuss retaliatory action
against the EU.
The EUís move, which took effect on 1 January, and the tit-for-tat
actions by the offended countries, is the first full-blown international
battle over whether countries can or should take unilateral trade
measures on the ground of addressing climate change.
Developing countries in particular have been concerned over increasing
signs that the developed countries are preparing to take protectionist
measures to tax or block the entry of their goods and services on
the ground that greenhouse gases above an acceptable level are emitted
in producing the goods or undertaking the service.
Besides the airlines case, several other measures are being planned
by the EU or by the United States that will affect the cost of developing
In fact, trade measures linked to climate change may become the main
new sources of protectionism.
The EUís aviation emissions tax is thus an important test case, and
this could explain the furious and coordinated response by the developing
countries, which form the majority of the protesting 26 nations meeting
in Moscow this week.
The countries are particularly angry that the EU is imposing a charge
or tax on emissions from the entire flight of an airline, and not
just on the portion of the flights that are in European airspace.
EU action takes effect by including the aviation sector (and airlines
of all countries) in the European Emissions Trading Scheme.
Beyond a certain level of free allowances, the airlines have to buy
emission permits depending on the quantity emitted during the flights.†
As the free allowances are reduced in future years, the cost to be
paid will also jump, thus increasingly raising the price of
tickets and the cost of transporting goods, and affecting the profitability
or viability of the airlines.
The China Air Transport Association has estimated that Chinese airlines
would have to pay 800 million yuan for 2012, the first year of the
EU scheme, and that the cost will treble by 2020.
The total cost to all airlines in 2012 is estimated at 505 million
euros, at the carbon price of 5.84 euro per tonne last week, according
to Reuter Thomsom Carbon Point.
Last September, when the carbon price was 12 euro per tonne, Carbon
Point had estimated the cost to be 1.1 billion euro in 2012, rising
to 10.4 billion euro in 2020.
While this may generate a lot of resources for Europe, airlines in
developing countries will in turn have to pay a lot.
There are many reasons why the concerns of the affected countries
are justified, as shown by Indian trade law expert Ms. R.V. Anuradha,
in her paper on Unilateral Measures and Climate Change.
Since each country has sovereignty over the airspace above its territory
(reaffirmed by the Chicago Convention), the EU tax based on flight
portions that are not on European airspace infringes the principle
The UN Climate Conventionís Kyoto Protocol states that Annex I parties
(developed countries) shall pursue actions on emissions arising from
aviation through the International Civil Aviation Organisation (ICAO).
Consistent with the principle of common but differentiated responsibilities,
only Annex I countries are mandated to have legally binding targets.
This UNFCCC principle is violated by the EU requirement affecting
airlines from both developed and developing countries.
ICAO members have been discussing but have yet to reach agreement
on actions to curb aviation emissions.† Last October, 25 countries
issued a paper in ICAO protesting against the EU measure.
While the United States has challenged the EU action in a European
court, China has ordered its airlines not to comply with the EU scheme
unless the government gives them permission. In addition, retaliation
measures such as imposing levies on European airlines and reviewing
the access and landing rights agreements with European countries are
being considered by the 26 countries.
What happens in this aviation case is significant because there are
many other unilateral measures linked to climate change being lined
up by developed countries.
These include the EU plan to impose charges on emissions from maritime
bunker fuel, a US Congress bill that requires charges on energy-intensive
imports from developing countries that do not have similar levels
of emissions controls as the US, and several schemes involving labels
and standards linked to emissions.
If these unilateral measures are implemented, then developing countries
will really feel they are being victimised for a problem Ė climate
change Ė that historically has been largely caused by the developed
Moreover, this will lead to a growing crisis of both the climate change
regime and the multilateral trade regime.