European airline industry faces turbulence | Business| Economy and finance news from a German perspective | DW | 27.09.2012
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European airline industry faces turbulence

The European Union has introduced laws to reduce airplane emissions by making the airlines pay for them. But the rest of the world doesn't like the idea at all, as the US Senate has just made very clear.

One might think there ought to be no borders above the clouds, but the rules for emissions trading in the airline industry prove that there certainly are. The issue is highly divisive, with the EU on one side and the USA, Russia, India and China on the other.

The EU wants airlines to buy emission certificates if their planes emit more carbon dioxide flying in and out of Europe than the EU has authorized. The aim is to slow down the increase in pollution caused by air travel. At the start of this year, the EU began to include the airline industry in its emissions trading system and gave it a CO2 limit

A plane is guided in to its gate Photo: Frank May

The EU wants to direct airlines towards lower emissions

The move was welcomed by environmental activists, but elsewhere it caused concern that the airlines would increase ticket prices to compensate. Countries outside the EU reacted with particular annoyance. A long-running dispute with the US over the issue reached a head when the US Senate rejected the idea: the senators insisted that the EU has no right to impose the burden on US airlines, and they passed a law to protect US airlines from having to buy CO2 emissions certificates. That has put pressure on the EU to rethink the plan.

US resists EU taxes

"This decision by the Senate could have dramatic consequences," Klaus-Peter Siegloch, president of the German Association of Airline Operators (BDL), told Deutsche Welle. The US would be the third major airline nation, after China and India, to say that they wouldn't take part in the system. That, said Siegloch, was a fact which wasn't being taken seriously enough in Europe.

A view of Los Angeles airport Photo/Reed Saxon

Why should a plane from Los Angeles contribute to EU coffers?

Siegloch points out that the Americans are particularly sensitive to the idea of paying taxes to a foreign country - they'll be asking, "Where does the EU get the right to tax a flight, let's say, from Los Angeles to Europe - in other words over America and the Atlantic - and then keep the money in Europe?"

Of course, Siegloch is arguing in the interests of the industry he represents. The BDL also wants to get rid of the EU regulations. Siegloch says it puts even more pressure on airlines that are already having a hard time as a result of the financial crisis. And he sees the possibility of an escalation if the Americans refuse to pay the fees.

The Chinese and Indian governments have already threatened to retaliate. That could mean, says Siegloch, that German airlines would have to pay here, and pay again in their destination countries.

Big losses because of the financial crisis

Europe's airlines are going through a tough time, since the rise in the oil price and the eurozone debt crisis has affected them more than they expected. The International Air Transport Association (IATA) estimates that European airlines will lose some 870 million euros ($1.1 billion) this year.

Michael Cramer is a Green Party member of the European Parliament and an expert on transport issues. He sees no reason for the EU to change its policy, and considers the Senate's decision to be merely political. He notes that the European Court of Justice had ruled in December 2011 that the EU emissions trading policy does not go against principles of international law, nor does it break the Open Skies agreement, by which the US and EU agreed on a free market for airlines.

"Europe can make laws, just like the United States can make laws," he told DW. He's convinced that, without this action from Brussels, there would be no movement on climate protection with regard to the airline industry: "That's why it's important for Brussels to keep up the pressure. I'm sure we'll find a result."

The solution has to be international

The EU is aware, though, that the new regulations are a burden for the industry. In a paper he presented on Thursday (27.09.2012), EU transport commissioner Siim Kallas made proposals as to how the industry can be helped. The paper described emissions trading as an "additional economic burden" in Europe, and admitted that European airlines "are fighting for survival in a tough international market."

A worker paints the China Southern Airlines name on to an airplane © Airbus S.A.S 2012

China has already threatened retaliation

But the EU doesn't want to abandon the policy. It prefers to hope that the rest of the world will also commit itself to protecting the climate, and create fair conditions for all. But there's not much evidence of that.

None of the parties seem prepared to give way, but Siegloch hopes that "a worldwide solution will be found for a worldwide problem." It's right to find a market mechanism to help the environment, but "it can't be started in just one part of the world." Everyone is hoping for a solution from the International Civil Aviation Organization, which is meeting at the end of this year. It will perhaps be the last chance before April next year, when the conflict may well become really serious.

'Europe against the rest of the world'

That's when airlines will have to report how much they have emitted, from which point they'll have to start paying. "That's when things will really get exciting," says Siegloch. If an airline doesn't submit emissions certificates, the regulations impose clear penalties - for example, 100 euros for a tonne of uncertificated CO2. That could turn out to be very expensive, and the BDL fears it could lead to an international trade war, since foreign countries would scarcely be prepared to go along with that. As Siegloch says, "It wouldn't just be China, India and the USA. It would really be Europe against the rest of the world."

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