Wednesday, 26 October 2011

US-EU trade war looming over airline emissions

This week the US House of Representatives passed a bill that would ban US airlines from participating in the EU's emissions cap-and-trade scheme. It is just the opening shot in what is likely to be a nasty trade war between the two blocs over the coming months. The winner will determine whether 72 million tonnes of CO2 are emitted into the Earth's atmosphere over the next eight years.

While international climate talks have stalled the EU has pushed ahead with its own unilateral action on climate change, the keystone of which is the Emissions Trading Scheme (ETS). Under the scheme industries with heavy emissions are capped on the amount of greenhouse gases they can produce, and if they want to emit more they must buy credits from others who are using less than their cap. The scheme is already up and running, but starting in January airlines will be included. The decision to include airlines in the scheme was taken back in 2008.

This will mean all airlines that fly in or out of the EU must purchase carbon permits. The plan has not met with significant resistance from the European airline industry, but it has met ferocious resistance from American, Indian and Chinese airlines. US Airlines have challenged the law at the European Court of Justice, but the court has already indicated it will rule against them. So the airlines have now turned to the US Congress, and they have found a receptive ear.

American airlines are particularly concerned because their fleet tends to have higher emissions than fleets in Europe, and they therefor might need more permits. European airplane maker Airbus has been faster to implement fuel efficiency technology than Boeing.

The bill, which must also clear the Democratically-controlled Senate and be signed by President Obama, would forbid the US airlines from participating in the scheme. This would effectively mean US airlines can no longer fly to Europe, an unimaginable scenario. So the question is now who will blink first. The EU commission has indicated it will not, with Climate Commissioner Connie Hedegaard saying yesterday on Twitter they are "confident that the US will respect EU law, as the EU always respects US law" and that they do not intend to modify the legislation.

It is as yet unclear whether Senate Democrats will support the bill, but its bipartisan support in the House indicates that they might. The Obama Administration has said they oppose the inclusion of non-EU carriers in the scheme and he would likely sign the bill into law.They say it is a violation of international aviation rules, and the unilateral approach is contrary to the spirit of the UN climate negotiations.

But the ETS does have its defenders in the congress. Democrat Henry Waxman of California said on the House floor "If we expect European companies to comply with US law then we have to respect their laws." Until the Republican takeover in 2010 Waxman was the chair of the House Energy and Commerce Committee.

Interestingly, the House Republicans urged the Obama Administration to take their case to the United Nations, which could rule that the EU measure violates international agreements. It's rare for Republicans to urge the US to go to the UN for anything! But they could find a sympathetic ear at the UN. The US is by no means alone in its opposition to non-EU airlines inclusion. China has been threatening retaliation in their own Chinese way, by delaying purchases of plane parts by Airbus.

Clegg defends Europe

Meanwhile, yesterday saw a new development in the Tory backbench EU revolt. Following Monday night's rebellion by Eurosceptic MPs voting to put an 'in or out' EU referendum to the British public, Deputy Prime Minister Nick Clegg launched an impassioned defence of the European project in a speech the following day. He said that as long as the Liberal Democrats are in the government coalition, there will be no referendum and no 'clawback' of powers form Brussels.
"Eurosceptics need to be quite careful for what they wish for, because if they succeed – and they won't succeed, as long as I'm in government – to push this country towards the exit sign, let's be clear: what will be damaged is British families, British businesses, British jobs."
On the Europe issue, even if Cameron thought now was the right time to throw the Eurosceptic back-benchers a bone, it is clear his coalition partner will not allow it.

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