The EU finally accepts reality on the Emissions Trading Scheme

At a press conference yesterday, the European Union’s Commissioner for Climate Action, Connie Hedegaard, announced that the EU was removing international aviation from its Emissions Trading Scheme. She painted it as a temporary move to allow time for a global agreement, but in reality, the EU had very little choice. A trade war — with Airbus likely the biggest target — was imminent, and Europe was in no position to fight such a war.

In Commissioner Hedegaard’s words: “The EU will ‘stop the clock’ on the implementation of the international aspects of its ETS aviation by deferring the obligation to surrender emissions allowances from air traffic to and from the EU by one year.” She went to considerable length in pointing out that:

1. The move came only because the International Civil Aviation Authority (ICAO) appeared to be ready to “move towards a Market Based Mechanism (MBM) at a global level,”
2. If ICAO did not deliver a satisfactory global scheme for controlling aviation emissions, “then needless to say we are back to where we are today with the EU ETS. Automatically,” and
3. There would be no change to the inclusion of aviation in the ETS within the EU itself. That is, “the obligations relating to all operators’ activities within EU will remain intact and compliance with the EU law will be enforced in this respect.”

Let’s start with 3). This is neither surprising, nor particularly debatable. The EU has the right to tax businesses that operate within its borders, and as far as we know, none of the countries, companies, or individuals who complained about the ETS ever questioned this. That it has opted to tax airlines for emissions within EU airspace might make some airline executives (or shareholders) unhappy, but it is not something that will have any serious international repercussions.

Now, moving to 1). Commissioner Hedegaard said the reason for the move to exempt airlines operating outside Europe was that at the end of last week, the ICAO Council agreed to set up a high level policy group to work on the issue of carbon emissions from aviation, with the goal of gaining world agreement on a market-based mechanism. This will be no small task. ICAO is not known for swift decisions, and even with the best of intentions getting global agreement on an emissions tax will not be easy. If China, the US, Russia, and India, to name only the countries most outspoken on the matter, objected to a European ETS, it doesn’t seem likely that they will be lining up to vote for a world-wide ETS. They may ultimately come to accept that such a scheme is necessary, but it is hard to believe that it will happen in a year.

Which brings us to 2). If ICAO does not have a globally-agreed-to emissions trading scheme in place within a year, the EU says “we are back to where we are today with the EU ETS. Automatically.” But given that “where we are today with the ETS” is on the brink of an international trade war the that no one else wants and which the EU clearly cannot afford, maybe that is not such a good thing.

So what happens next? Presumably, ICAO will create a committee to ponder the issue, and eventually that committee will recommend a global plan. Whether it will be accepted by all countries in time to meet the EU’s one-year deadline, and what the EU will do if it does not are questions for which we have no answers. In the meantime, Airbus (which was the big target for countries wanting to retaliate against the EU policy) will be breathing a huge sigh of relief, but carriers whose operations are wholly, or mostly, within Europe will now have the playing field tilted against them.

And as a parting thought, we would not be surprised to see other industries mount legal challenges against the ETS, demanding that their international operations be exempted as well. After all, If it was reasonable to exempt international operations of airlines…