by John C.K. Daly of Oilprice.com
Ever since the global recession began in 2008, suggestions of an imminent trade war erupting between China and its trading partners have been increasingly rising.
Now the first shot in trade disputes has been fired. By China.
On 5 January the China Air Transport Association (CATA), which represents four of the country’s biggest airlines, including Air China, said that its members would refuse to pay a new carbon allowance levy, which came into effect on New Year’s Day under the European Union’s Emissions Trading Scheme, or ETS.
CATA deputy secretary-general Chai Haibo said, “The CATA, on behalf of Chinese airlines, is strongly against the EU’s improper practice of unilaterally forcing international airlines into its ETS. If governments like the U.S., China and Russia launch strong and forceful retaliatory measures, this will form enormous pressure and we hope could make the EU change its mind.”
China’s media has gotten into the act, warning that the EU’s ETS policy “infringes on national sovereignty, violates international aviation treaties and will lead to a trade war.”
What has gotten deputy secretary-general Chai into such a tizzy?
The EU launched the ETS in 2005 as an attempt to reduce carbon emissions of power stations and industrial plants but subsequently decided to include airlines into the system in the absence of a global agreement to cap aviation greenhouse gas emissions (GGEs).
Simply put, the ETS requires airlines flying to or from European Union airspace to obtain certificates for the carbon dioxide GGEs generated by their aircrafts’ jet engines.
Under the ETS mandate, airlines flying into EU airspace will be given free credits for 2012, but beginning in 2013 they will have to buy or trade them to cover the carbon offset duty, but the airlines will get 85 percent of their allowance for free.
How much?
The European Commission has assessed the impact on airfares at $2.55-$15.34 per passenger.
And what if CATA brazens it out? Well, if CATA refuses to pay the surcharge, its airlines in violation of ETS could face fines of up to $128 a ton for their emissions – or they could be banned from EU’s 27 member-nation airports.
What is perhaps most extraordinary about the brewing dispute is that the sums involved are relatively trifling. If the tariffs are implemented, then CATA would pay an estimated $123 million in 2012, (95m euros) this year, rising to as much as $369 million annually by 2020. In 2010 Air China made profits of $1.83billion.
As for the airline’s GGEs? Airlines are responsible for three percent of GGEs.
But the dispute trundles on, seemingly with a life of its own. On 20 December the European Court of Justice dismissed a legal challenge presented by the Air Transport Association of America (now Airlines for America), several U.S. airlines, the International Air Transport Association (IATA) and the National Airlines Council for Canada and instead upheld the ETS legislation, rejecting claims that the ETS impinged on the sovereignty of other nations, concluding that the scheme was consistent with international law.
China’s response to the ruling was swift. Deputy secretary Chai remarked, “We deeply regretted that the United States lost the lawsuit. China will continue to steadfastly pursue a lawsuit.”
And Beijing is acquiring some powerful allies. Besides the U.S, India, Russia, Japan, Brazil and 40 other nations have protested that the ETS represents an inappropriate extraterritorial application of national law. What unites the long-haul carriers is that under the ETS regulations international airlines will have to account for GGEs produced during the entire length of a journey to and from a European destination, not just the GGEs produced within European airspace.
The U.S. congress has moved to make it illegal for airlines to pay the levy and Washington is insisting that the appropriate forum for resolving the issue of airliner GGEs is the UN’s International Civil Aviation Organization, which has been administering international aviation since 1944.
So, Brussels versus Beijing, Washington, Moscow, Tokyo, Brasilia and forty others? Should be interesting to see who blinks first.
JC comment: James Stafford, who runs the website oilprice.com has contacted me about cross posting some of my posts at his site, and also about writing a guest post for Climate Etc. This post is a result of this interaction. Note, I am looking around for good energy blogs. Joe Romm used to be my go-to site, but I haven’t found that site useful since 2009 (Romm seems to have gone off the rails in the wake of climategate). I’ve added oilprice.com to my blogroll. Let me know if there are other energy blogs out there that you recommend.