The EU may back down on its Emissions Trading Scheme

With pressure mounting from companies and governments both outside the European Union and within it, the EU is reported to be willing to back down on the imposition of its emissions trading scheme (ETS) on the aviation industry. An analyst at French bank Société Générale said in an interview yesterday that the bank believes the EU is prepared to drop the ETS if the International Civil Aviation Organization (ICAO) proposes a global program.

There have been grumblings and threats from foreign carriers and governments since the EU first said it would include aviation in the scheme, but the EU has remained steadfast in its commitment. So why the change of heart now? Two recent events appear to have broken the EU’s resolve:

• The government of China said it would block delivery of ten A380s on firm order with Airbus by Hong Kong Airlines if the EU does not exempt airlines from its ETS. Further, China is reported to have also made a similar threat regarding the thirty-five A330s currently on order by Chinese carriers. This means not just a financial blow to Airbus/EADS, but job losses as well.

• The CEOs of nine of Europe’s most influential aviation companies have signed joint letters to the political leaders of Germany, France, the UK, and Spain, requesting that these leaders force the EU to abandon the ETS. The letters were signed by Tom Enders, CEO of Airbus, as well as the CEOs of carriers Air Berlin, Air France, British Airways, Iberia, Lufthansa, Virgin Atlantic, and of engine makers MTU Aero Engines and Safran. Airbus offers details of the letter on its website (http://www.airbus.com/presscentre/pressreleases/press-release-detail/detail/stop-ets-trade-conflict/), but the essence of it is that the European aviation industry will suffer serious economic consequences if the EU does not back down, but that the industry will do whatever it can to support a global solution through ICAO.

If, as seems likely, ICAO says it will consider launching a global program we expect the EU to exempt aircraft emissions from its ETS. There will undoubtedly be a face-saving explanation, but the reality is that with the European economy still fragile, a trade war with China (with Russia and the US likely to join in) is simply not an option.