ICAO's decision today on aviation emissions offers the prospect of the world's first carbon cap on an entire global sector.

The United Nations agency for aviation today launched a three-year effort to achieve a global market-based measure to cap the climate pollution of international aviation.

After nights of lavish receptions – a testament to the financial robustness of international aviation – delegates finally got down to the hard work of negotiating a resolution on how ICAO will tackle the climate change issue.

The decision by the 191 countries in the International Civil Aviation Organization (ICAO) to develop a measure to limit the emissions of international civil aviation offers the prospect of the world's first carbon cap on an entire global sector.

Last night, we said the proposal – which was adopted around noon today – amounted to “one step forward, half a step back."  Here’s what we meant.

 One step forward, half a step back

The decision by the 38th General Assembly to develop, by 2016, a global market-based measure capping international aviation’s carbon pollution at 2020 levels is a step forward on the path to averting dangerous climate change. If it were a country, aviation would rank in the world’s top ten largest emitters, and it is one of the fastest growing sources of global warming pollution.

With this decision, ICAO has opened a door to the possibility of a future global cap on these emissions and an array of programs – including a market-based measure sought by both the industry and the environmental community – to ensure that the cap is met.

However, a bedrock principle of international law is that nations have the sovereign right to limit pollution emitted in their borders. So, ICAO’s attempt to narrow the ambit for countries to implement their own market-based measures to cap and cut the burgeoning global warming pollution from international aviation pushed it half a step back.

Differences erupt in waning hours

Deep differences between and among countries erupted in the waning hours at the just-concluded Assembly, including disagreements about how and even whether to complete this task.  At several points the meeting seemed destined to disintegrate.

An acrimonious vote on whether countries could bring aviation emissions under their national emissions trading system nearly caused the meeting to disintegrate.

In the end delegates agreed 1) nations should seek the agreement of other nations before imposing their market-based measures on flights from those other nations; and 2) such national market-based measures should exempt flights to and from nations whose flag carriers hold less than 1% share of the global market, measured in “revenue-ton-kilometers.”

Next steps

Remember – this decision is only a first step, but it is an important one because it provides a path forward for a cap on the aviation sector.

Now it’s time to shift to the hard work of designing the global market-based mechanism and getting 191 countries to agree to it.

Intensive efforts will be needed to make ICAO’s promise a reality. It’s not the time to let up, and ICAO can’t be let off the hook.

The aviation industry can affordably meet and beat its goal of halting carbon emissions growth from 2020 if it uses high-quality, low-cost carbon offsets, according to a new analysis from Environmental Defense Fund (EDF) and Bloomberg New Energy Finance (BNEF).

Airlines’ goal of “carbon-neutral growth from 2020” could be so readily affordable that governments justifiably could hold airlines to a much tighter emissions target. Image source

Our analysis comes on the heels of a consolidated industry call for the governments of the International Civil Aviation Organization (ICAO) to commit, at their next triennial September meeting, to adopt a mandatory global program to limit aviation’s carbon pollution by 2016 at the latest.

While forecasts are inherently uncertain, best estimates indicate that while new technologies, operations and infrastructure can help industry dampen emissions growth, substantial increases in aviation emissions are likely after 2020. Consequently, to meet their proposed mandatory goal of "carbon-neutral growth from 2020," it is very likely that airlines will need some kind of carbon offsetting mechanism.

An offset mechanism that limits credit supply to high-quality carbon units currently available and expected to come on-line in the future, could let airlines meet their emissions target at very modest cost. If governments adopt tough criteria ensuring that offsets represent real reductions in net carbon emissions, and if industry moves swiftly to capture those carbon units, the costs to airlines could be quite low – e.g., less than 0.5% of projected total international airline revenue in 2015, and less than a third of the fees airlines collected last year for checked bags, legroom and snacks.

In the current round of talks, the aviation industry is asking governments to mandate caps on airlines’ emissions at 2020 levels. Our analysis finds that a well-designed, high-integrity carbon offset program would make carbon-neutral growth from 2020 so affordable, that governments justifiably could hold airlines to a much tighter emissions target. That could mean putting back on the table a target the industry had proposed several years ago, namely cutting emissions 50% by 2050.

As my report co-author, Bloomberg New Energy Finance chief economist Guy Turner, said:

These findings show that the international aviation sector can control its CO2 emissions easily and cheaply by using market based mechanisms. The relatively small cost and ability to pass any costs through into ticket prices, should encourage the international aviation sector to accelerate and deepen its emission reduction pledges. More ambitious emission reductions now look much more doable, than mere stabilization from 2020.

Our analysis offers context to the costs of such a global market-based mechanism using offsets with strong environmental integrity, which the aviation industry called on ICAO last month to adopt to keep the industry’s net emissions stable from 2020 on. Such an offset program would allow the airlines to meet their emissions targets by both making emissions cuts within the aviation sector, and drawing on offsets that represent real emission cuts in other sectors.

Blog-exclusive addendum: effect on ticket prices

A well-designed global offset program, using high-quality offsets that represent real reductions in emissions, could add only a few dollars to a typical international fare:

• From Paris (CDG) to Beijing (PEK): $1.90 – $3.00
• From Paris (CDG) to Delhi (DEL): $1.50-$2.30
• From Paris (CDG) to Cape Town (CPT): $2.40-$3.70
• From Paris (CDG) to Buenos Aires (EZE): $2.70-$4.30
• From New York (JFK) to Buenos Aires (EZE): $2.10-$3.20

Read more in our press release and the full BNEF-EDF analysis, Carbon-Neutral Growth for Aviation: At What Price?

Greenhouse gas emissions from airplanes are no small matter: if the aviation industry were a country, it would be the seventh largest emitter of carbon dioxide in the world – and a new report shows us the worst is yet to come.

The report released today out of Manchester Metropolitan University shows international aviation emissions are projected to increase by anywhere from a substantial 50% to a whopping 500%, and that means the aviation industry won’t be able to get anywhere near meeting its own modest commitments to reducing its emissions – unless it adopts a global market-based measure.

The aviation industry has voluntarily committed to achieve no net increase in emissions from 2020 onward and to halve its emissions by 2050 from its 2005 levels through, it says, efficiency improvements including improved air traffic management, on-board technologies and biofuels.

However, the study, from Professor of Atmospheric Science and Director of Centre for Aviation, Transport, and the Environment (CATE) David Lee, Ph.D., shows emissions from the sector are projected to roughly triple, and make it impossible for airlines to meet their own commitments. Even with speculatively optimistic scenarios for such efficiency improvements, Lee found:

 None of the measures, or their combinations, for any growth scenario managed to meet the 2020 carbon-neutral goal, the 2005 stabilization of emissions goal, or the 2005-10% stabilization of emissions goal at 2050.

The maximum reductions over [business-as-usual] technology and operational improvements were clearly achieved by the extension of the existing [market-based measures] out to 2050. (page 22)

This means the aviation industry is now facing a huge gap between emissions it can reduce through efficiency improvements and its goal of carbon neutral growth from 2020.

Just take a look at this telling figure from Lee's report, which shows that even under the most optimistic technological scenarios for improving the efficiency of international aviation, emissions for the years 2006-2050 are expected to increase dramatically:

As Figure A1 from the report shows, even under the most optimistic technological scenarios for improving the efficiency of international aviation, emissions for the years 2006-2050 are expected to increase dramatically. The most aggressive uptake of operational and other technologies as well as biofuels still yields a yawning gap between projected emissions (lower boundary of green shaded area) and the emissions targets on the table, whether those are the targets proposed by governments (horizontal pink lines) or by the industry itself (horizontal grey ladder). Source

So, how can the aviation industry bridge the gap?

Industry spokespeople assert that from 2021, this gap could be filled through a market-based measure. However, the industry also seems to want to delay developing any serious global market-based approach until the gap is looming to be filled.

Lee sees the handwriting on the wall: there is no other way to fill the emissions gap than market-based measures. Our European colleagues at Transport & Environment agree, saying:

The only remaining means to bridge this emissions gap would be to extend market based measures like emissions trading on a global basis.

This measure already has support from EU Climate Commissioner Connie Hedegaard, as well, who said last week in a trip to the United States, that that "we of course want a global, market-based mechanism" for reducing aviation emissions.

The gap will need to be filled, and the time to construct the gap-filling mechanism is now. Lee’s study makes crystal clear the futility of waiting until 2021 to construct the market-based measure, as the airlines have advocated. If airlines simply delay dealing with the issue until 2021, when demand for gap-fillers takes off, they risk substantially higher prices for filling those gaps. And in an industry famous for its thin profit margins, delay – and its attendant higher costs – really isn’t a welcome option.

Airlines that want the flexibility to determine how best to meet the gap – for example, those that want to begin saving emissions now, in order to draw on those reductions for the future – ought to throw their weight behind the development of a global market-based mechanism in the International Civil Aviation Organization (ICAO).

Airlines, countries — including the United States – and environmental groups have all agreed aviation emissions should be addressed in ICAO, so we’ll be looking to the Administration to reach a global agreement, and to reach it quickly.

I want to tell you what happened over the weekend while no one was looking.

The U.S. Senate passed a bill early Saturday that gives the Administration unheard-of authority to ban U.S. companies from complying with another country’s law. (Photo credit: Flickr user WallyG)

At a few minutes before 2 a.m. on Saturday, just after the U.S. Senate wrapped up its wrangling over the latest funding resolution, a rather extraordinary bill was passed by the Senate.

If the bill is enacted, it would appear to be the first time in our nation's history that Congress has given sweeping authority to a cabinet member to prohibit U.S. companies from complying with the duly enacted law of another nation – and on top of that, to bail out firms that do comply or that get hit with penalties if they don't.

There are only a very few instances in America's recent history in which Congress has prohibited U.S. companies from complying with the laws of other nations. The purpose of those laws is to prevent U.S. firms from being used to implement policies of other nations that run counter to U.S. policy; they include the prohibitions on doing business in South Africa during the period of apartheid, and the anti-boycott laws, which prohibit U.S. firms from furthering boycotts of one country by another, and nowadays cover the Arab League boycott of Israel.

So, what action by a foreign nation was so odious that the Senate found it necessary to give a Cabinet secretary authority to prohibit U.S. firms from complying with it – and to bail U.S. firms out of any costs they might incur from it?

The bill that got through the Senate Saturday morning gives the Secretary of Transportation authority to prohibit U.S. airlines from complying with a European law requiring airplanes that land or take off from European airports to account for and limit their flights’ global warming pollution through an emissions trading system.

The bill also requires the Secretary of Transportation to hold the airlines "harmless" – meaning bail them out – of any costs, including both the costs of complying with the European law, estimated to be trivial, and the costs of not complying (the latter could be steep).

Aviation is already the world's seventh largest polluter, and if emissions from the industry are left unregulated, they're expected to quadruple by 2050.

With the passage of the Senate bill, the spotlight now zooms onto the Administration, in particular the Secretary of Transportation, and the talks at the International Civil Aviation Organization (ICAO) to reach a global agreement to limit aviation emissions — and to reach it quickly. 

Below are some questions we have received on this bill, and my responses.

What is it in the European law that runs so counter to U.S. policy that it justifies this drastic action?

The airlines argue that the law violates U.S. sovereignty because the law holds airlines accountable for the entire pollution of the flights – even pollution occurring in the airspace over the sovereign territory of the United States.

But the fact that the European law applies to the entirety of the flight cannot be the reason it is counter to U.S. policy.

In fact, it's expressly the policy of the United States to apply our laws to a whole host of issues through the entirety of flights coming in and out of the U.S. – including portions of flights wholly over foreign sovereign territory.  U.S. laws governing everything from security screening, to banning liquids and gels, to barring gambling apply to flights landing and taking off from U.S. airports, including the portions of the flights occurring in and over foreign lands.

Could the reason the European law is so counter to U.S. policy be that, as the U.S. airlines allege, it's a tax?

The law does require flights landing or taking off from European airports to hold sufficient pollution allowances to cover the amount of pollution coming out of the backs of their engines, and if they don't have enough allowances, they can buy them from European governments.

But it can't be that flight taxes per se are objectionable to the U.S. government. After all, Congress makes every traveler coming in and out of the United States pay a $16.70 international departure and arrival tax.

The aviation industry is world's seventh largest polluter. With the passage of the Senate bill, the spotlight now zooms onto the Administration, in particular the Secretary of Transportation, and the talks at the International Civil Aviation Organization (ICAO) to reach a global agreement to limit aviation emissions– and to reach it quickly.

And as courts have already found, the EU law isn't actually a tax:  if the airlines don't want to, they don't have to send a cent to European government coffers. They can simply fly more efficiently.  And if they don't want to do that, they can buy and sell pollution credits in the global marketplace without ever paying European governments a dime – and maybe even make money in the process.

In the run-up to the passage of the airline pollution bailout bill, a few changes were made that tell the Secretary of Transportation, if he does ban the airlines from complying with the European law, to reconsider his ban if the Europeans amend their law, or if an international agreement is reached to address this pollution, or if the U.S. adopts a regulation (which could take years).

The international agreement provision is the interesting part – it puts pressure on the International Civil Aviation Organization (ICAO) to amp up its action on climate change and agree on a global program at its next triennial Assembly in 2013.

But other parts of the bill – including those that bail the airlines out of any costs of complying – or not complying – with the law, remain.

Minor changes to the bill ensure that those costs won't be paid out of the airlines' taxpayer-funded trust fund, but taxpayers could still be on the hook if the airlines win a court judgment that the Secretary is required to hold them harmless, as the bill requires, so that the monies come from the taxpayer-funded Judgment Fund, a part of the U.S. Treasury used to satisfy court judgments against the United States.

What if the Secretary invokes his authority under a little-known airline competitiveness law that allows him to impose retaliatory penalties against airlines from countries that the Secretary finds are treating U.S. airlines “unreasonably”?

And what if the Secretary uses that authority to hold U.S. airlines harmless from the European law by dunning Lufthansa, British Airways, and other European airlines for the U.S. airlines’ compliance or non-compliance costs?

Those companies would likely protest in court. But if the Secretary's cost-dunning order were upheld, Europe could retaliate under its own airline competitiveness law and impose retaliatory fees on U.S. airlines.

Then you have a full-scale trade war. And since U.S. airlines have both code-share and revenue-share agreements with European carriers, a trade war on this issue amounts to shooting themselves in the wing.

What happens next?

A similar bill has already passed the House of Representatives, but because the bills have some differences, the House will have to take it up again when Congress reconvenes after the November elections.

Could it be that the part of the bill that's antithetical to U.S. policy is really the fact that the  European law addresses climate change?

Maybe that's the case for the U.S. Congress at this sad juncture in our nation's history.

But is it also the case that the Obama Administration is so opposed to climate action that after 15 years of fruitless international efforts to curb aviation's global warming pollution, the Administration would stand in the way of other nations' efforts to address that pollution?

We don’t believe so. And if the bill passes, we and others will certainly be encouraging the Administration to find that it is in our public interest lies in striking a real deal in ICAO, rather than turning U.S. airlines into scofflaws at taxpayer – or the flying public’s – expense.

In the continuing war by U.S. airlines against Europe’s climate pollution law, last week the klieg lights were focused on the companies’ unsuccessful attempt to ram through the U.S. Senate a bill barring the airlines from complying with the EU law. (A 17-country meeting called by U.S. climate envoy Todd Stern to try to bridge differences between China and the United States on addressing aviation pollution also got some attention.)

Airlines are pushing the U.S. to bring an "Article 84" lawsuit that would be counterproductive to the administration's goal of international action on reducing aviation emissions. Above: ICAO world headquarters. (Photo credit: Wikimedia Commons)

But behind the scenes, the airlines launched a different line of attack, badgering the U.S. administration to file an international legal case arguing that Europe’s program is illegal under international law.

The EU law that’s got the aviation industry so riled up is the only program in the world that sets enforceable limits on carbon pollution from aviation. That pollution is set to quadruple from 2005 levels by 2050 if left unregulated.

The industry is demanding that the U.S. government bring the case under Article 84 of the Chicago Convention on Civil Aviation, and adjudicate it in the International Civil Aviation Organization (ICAO), in Montreal, Canada.

But the airlines have already tried the lawsuit tactic before, and they lost. After two years of court argument, a panel of thirteen judges on Europe’s equivalent to the U.S. Supreme Court held that the program was fully consistent with international law.

Other courts are highly likely to defer to the opinion of these highly respected international jurists. It looks like what the airlines want to do is press the administration to use taxpayer money to litigate a case that the airlines’ own attorneys already lost.

That kind of lawsuit would be decidedly counterproductive if the administration’s real goal is – as it has repeatedly stated – to get action in ICAO on limiting greenhouse gas emissions from aviation.

Article 84 is a protracted process – it can grind on for years. While that might be good for lawyers, it would divert the time and energies of the ICAO secretariat and the national delegates to ICAO. The delegates and staff would have to deal with the litigation instead of solving the tough technical problems and bridging the deep political differences needed in order to get a strong agreement in ICAO on cutting aviation pollution.

There’s also a possible legal conundrum in the Article 84 process that could prevent the case from being heard even if it were filed. ICAO’s Rules for the Settlement of Differences, Chap. III, Art. 6. says that cases shall be heard by

five individuals who shall be Representatives on the Council of Member States  not concerned in the disagreement.

What that legalese means in English is that, under the rules of Article 84, five members of the 36-member ICAO Council sit as judge and jury when one country brings a complaint against another – but under those same rules, any country that is a party to the dispute cannot have its representative participate in deciding the case.

Since all the EU countries are parties to the dispute and since all but three of the ICAO Council Member States signed the New Delhi and Moscow declarations opposing the EU law and thus are also “concerned in the disagreement” by virtue of having taken a position on the issues in the case, only three countries – Burkina Faso, Morocco, and Swaziland – would be left to adjudicate the case. That’s short of the five impartial states needed under the rules.

Trying to use Article 84 to deal with the differences between countries in ICAO over how to limit aviation pollution is really beyond the scope of the Article, since it was designed to address disputes between two countries, not broad policy disagreements among large groups of countries.

We think rather than plotting how to slow down an already leaden process, the better path would be for the U.S. to accelerate and broaden the discussions that the State Department and Department of Transportation convened last week, and get down to creative solutions for cutting the pollution that’s heating up the planet.

Related: see a letter EDF and other environmental groups sent today to President Obama urging him and his administration not to file an Article 84.

UPDATE | 9 p.m.

The U.S. State Department has released a transcript of a news conference held today during which a senior administration official says the starting point for this week's talks will be the International Civil Aviation Organization's (ICAO) 2010 resolution. In that resolution, countries set an “aspirational goal” of improving efficiency 2 percent per year through 2020, and then offsetting emissions above 2020 levels starting in 2021 (that’s what their phrase “carbon neutral growth” from 2020 means).

Above: the emissions-reductions proposal of the International Air Transport Association (green), and business-as-usual emissions (red).

We think that’s a reasonable place to start, as long as the talks move forward, not backtrack.  The 2010 ICAO resolution itself recognizes the proposal is not enough. It says:

the aspirational goal of 2 per cent annual fuel efficiency improvement is unlikely to deliver the level of reduction necessary to stabilize and then reduce aviation’s absolute emissions contribution to climate change, and that goals of more ambition will need to be considered to deliver a sustainable path for aviation.

The industry’s proposal – the green line to the right – is weaker than the ICAO resolution, and allows emissions to continue to grow.

The yardstick we’ll be using to measure any progress in the meeting over the next two days is: are countries speaking in terms of reducing aviation’s total emissions, with binding targets?

Or are the talks backtracking to the industry’s lowest common denominator?

BEGIN ORIGINAL POST

U.S. climate envoy Todd Stern will be in the hot seat tomorrow — in more ways than one.

U.S. Special Envoy for Climate Envoy Todd Stern is hosting a meeting in Washington of 17 countries to discuss emissions from international aviation.

Airlines are the world's seventh largest planetary polluter.

Everyone from the aviation industry to governments to environmental groups says that the best way to deal with pollution from airplanes is through the Montreal-based International Civil Aviation Organization, or ICAO. (It’s pronounced "eye-kay-oh" or "ih-cow" … you say tomayto, I say tomahto…)

ICAO was tasked by world governments way back in 1997 to come up with a solution to this problem. Unfortunately, they’ve been dithering about it since your teenager was a toddler.

Meanwhile, in 2003, Europe suffered a climate catastrophe — a massive heat wave that killed more than 40,000 people.

Europe got serious about climate security after the 2003 heat wave. It enacted a law putting most of its industry under emissions caps.

Aviation basically got a ten-year grace period from that cap. But this year, for the first time, all planes landing or taking off from European airports will have to reduce their climate pollution. Those that don’t comply will face tough sanctions.

The law is causing a lot of complaining from the U.S.-based airlines, including United, American, and Delta.

To hear them squawk, you'd think Europe's aviation law meant “The End Is Nigh.”

But let's take a deep breath here.

The EU law only requires airlines to cut their pollution by 5 percent.

Economists commissioned by the U.S. Federal Aviation Administration to assess the impact on U.S. airlines found that the EU law might … I repeat, might … cost as much as $6 on a roundtrip ticket from the U.S. to Europe.

That's the same as the cost of a beer on a Delta or United flight.

Oh, and the economists said "might" because they found that — if the airlines met the EU law by flying more efficiently — they could actually make money from it.

So why is this so controversial?

Because … while Stern's meeting is aimed at coming up with new ideas for how ICAO can move forward, and while the EU's law is actually nudging ICAO in that direction … the U.S. airlines have other ideas.

Aviation is the world's seventh largest polluter , but U.S. airlines are still trying to get out of complying with Europe's anti-pollution law. (Sources:  International Civil Aviation Organization, International Energy Agency, United Nations Environment Programme)

United, American, Delta and their trade association are pressing to have the meeting focus on how to bring legal action against the EU, rather than focus on ways to make progress in ICAO. Specifically, they’re pushing for agreement to bring legal action under Article 84 of ICAO's governing treaty.

Never mind that the airlines don't have much of a wing to fly on for legal action. (They already brought and lost such a case in European courts.)

Never mind that Article 84 cases are cumbersome, time-consuming procedures that drag on for years and almost never reach a conclusion.

The airlines' real game is to tie ICAO up so deeply in the ponderous Article 84 process that it will never have time to work on a serious agreement on climate change.

The airlines are also lobbying hard for Congress to pass legislation barring U.S. airlines from obeying the EU's law.

Legislation like that is almost unprecedented in U.S. history. Last time we saw legislation blocking American companies from obeying the laws of the countries in which they do business was when Congress barred American firms from suborning apartheid in South Africa.

So the airlines are acting as if a $6 ticket surcharge is the equivalent of a massive human rights violation. (Just keep in mind airlines generally charge several times that much for a checked bag.)

That's what makes Stern's meeting this week so hot.

Washington didn't even invite any European countries to the table. Maybe it's because the airlines fear that with Europeans in the room, countries might actually start talking seriously about how to reach an agreement in ICAO that's as effective in cutting pollution as the EU law. (The EU has already said it will waive its law when — or if — ICAO does reach such an agreement.)

We're hoping the talks will illuminate some new paths forward. But against the backdrop of all the wacky weather Washington's had lately, the last thing we need here right now is “more heat than light.”

updated June 6  |  By Adam Peltz, Legal Fellow, and Annie Petsonk, International Counsel

Europe’s Aviation Directive is a pioneering law that holds airlines accountable for the global warming pollution of all flights that land at or take off from European Union (EU) airports. The EU aviation law would, by 2020, cut carbon pollution by an amount equivalent to taking 30 million cars off the road each year.

However, industry players have fought the law’s implementation. They’ve objected to the EU Emissions Trading System (EU ETS) applying to international aviation outside of European airspace.

To argue that a nation's authority to address the emissions of a flight landing in or taking off from its airports extends only to its sovereign airspace ignores the fact that the flight only occurs because travelers wish to fly to or from that country. If the flight never took off to go to that country, then none of the emissions would occur. But all the emissions from the flight occur precisely because the flight is going to that country.

Further, the airspace-based methodology for accounting for aviation emissions was rejected by the UN Framework Convention on Climate Change (UNFCCC) years ago, a decision effectively ratified by the International Civil Aviation Organization (ICAO) Executive Committee when it directed that ICAO’s work be consistent with the UNFCCC.

The airspace approach was rejected because it would lead to perverse results. For one, the emissions of a flight would "belong" to a nation simply because the plane had transited that nation's airspace, even though the flight had never landed in the country. Also, pollution from flights occurring in airspace over the high seas would be "orphan emissions," the responsibility of no country.

But all of that aside, the sovereignty complaint does not ring true. Many countries charge some sort of arrival or departure tax (or both, like in the U.S.) on flights to and from their territories. Those charges apply to the entire flight, not just the portion in the country’s sovereign airspace. In fact, many of these charges – including those of the UK, Germany and India – are proportional to the length of the flight (including flight length outside the territory of the country taking the measure), in much the same way that the EU ETS accounts for emissions proportional to the length of the flight.

Here are some countries that levy charges beyond their sovereign airspace:

These taxes affect the entire length of an international flight, both inside and outside of the country’s sovereign airspace: if you don’t pay the U.S. international arrival tax of $16.70, you simply can’t take off from a foreign airport to come to the U.S.

From a practical standpoint, the estimated per-ticket cost of compliance with the EU ETS of less than $3 for a flight from New York to London is substantially less than the arrival and departure fees shown above, in some cases by an order of magnitude or more. As we’ve discussed, the cost of EU ETS compliance is trivial compared to the cost of an international plane ticket and airlines potentially can profit.

Stakeholders concerned about sovereignty issues should take note: taxes and fees that apply to the portions of flights outside a nation’s sovereign airspace are common practice among governments (and most of those taxes and fees – including taxes imposed by the United States on travelers outside the U.S. – are substantially higher than best estimates for the cost of EU ETS compliance.)

The EU ETS, a modest measure that uses proven policy tools for cutting emissions at least cost, is no more an intrusion into U.S. sovereignty than these taxes are into other nations’ sovereignty.

Chart Sources:

Australian Customs and Border Protection Service

Cabinet of Germany

India Airports Economic Regulatory Authority

UK Revenue & Customs

US Federal Aviation Administration

By Annie Petsonk, International Counsel, and Adam Peltz, Legal Fellow

Next week, more than two dozen countries, including the United States, are meeting in Moscow to discuss their opposition to Europe’s pioneering law to cut global warming pollution from aviation.

U.S. airlines have said the EU's law that curbs aviation emissions will cost them billions, but new calculations show they could actually make money from it. (Thanks and photo credit to Flickr user DosenPhoto.)

On the agenda for the Moscow meeting are a number of topics that have been lobbied for by the U.S. aviation industry, which has said complying with the EU law will be too expensive.

U.S. airlines have been complaining for years that complying with the EU law will cost them billions of dollars, but we’ve also seen a slew of studies that show the airlines could save money – and even profit – by participating in the system.

So we commissioned EDF’s economics team to run some numbers.

When our economists compared 1] airlines’ projected 2012 emissions (based on the 2010 data they submitted to the EU and the industry’s projected 3% annual emissions growth rate), 2] data on the free emissions allowances the EU is giving to the airlines, and 3] current prices (from Feb. 15) for emissions credits in the EU carbon market with 4] the recent $3-per-leg fare increase the airlines added last month, we found that airlines that comply with the law can actually make money.

Based on these data:

• United stands to turn a profit of $0.73 to $2.36 per ticket, or in the range of $88,000 to $287,000 a year on its flights from Washington, D.C. (Dulles) to Brussels.
• American Airlines stands to reap anywhere from $1.15 to $2.50 per passenger, or $700,000 to $1.2 million a year on its flights from New York (JFK) to London Heathrow.
• Delta Air Lines, which was the first carrier to impose a surcharge, could profit between $1.02 and $2.53 per ticket from Minneapolis, or $449,000 to $1.1 million annually on its Minneapolis to Amsterdam flight.

U.S. carriers aren't the only ones finding profit in the emissions cap; airlines around the world could be poised to profit, too:

• Etihad Airways' $3/ticket surcharge could net between $1.10 and $2.52 per passenger per flight* from Abu Dhabi to London.
• AirAsia X's surcharge of $6.50 could produce a profit of $2.05 to $5.25 per passenger per flight* from Kuala Lumpur (Malaysia) to Paris.
• Aeroflot Russian Airlines, if it matched United’s $3 fare increase, could make between $2.26 and $2.69 per ticket* on a typical flight from Moscow to Berlin.

(*These airlines’ ticket sales numbers are not publicly available so we are unable to calculate their potential annual profits.)

It’s critical to remember the purpose of the EU's law is to cut pollution. The aviation sector is growing so rapidly that, if emissions from aviation were left unregulated, they would quadruple from 2005 levels by 2050; the EU law will cut 183 metric tons of carbon dioxide annually by 2020, equivalent to taking 30 million cars off the road every year.

The data show that airlines’ claims of suffering a disproportionate burden and punitive costs to meet the cap are wrong. Savvy companies will see the law not as the burden that it isn’t, but as the opportunity that it is, and we would hope the airlines direct any profits to technology that can help them further reduce their emissions and fly cleaner and greener.

By Annie Petsonk, International Counsel, and Adam Peltz, Legal Fellow

As the European Union gets closer to implementing a law to control greenhouse gas emissions from aviation, U.S. airlines are stepping up their efforts to mischaracterize and undermine the program by calling it a “tax” instead of what it really is – a market-based cap on pollution that lets them find the best and cheapest way to reduce emissions.

Adding "winglets" and other structural modifications to planes can improve flight efficiency and help airlines comply with Europe's law to reduce emissions from the rapidly growing aviation sector. (Thanks and photo credit to Flickr user Bow's Photography.)

It’s no surprise. It’s the same tactic some in industry used to mischaracterize climate change legislation in the U.S. during the last Congress, and they’re doing it again to undermine Europe's efforts.

The aviation sector today emits about as much climate pollution as all of the United Kingdom, and that amount is projected to quadruple by 2050. There will be a cost to reducing those emissions. But just because something has a cost, that does not make it a tax.

Why do the airlines want the EU law called a tax? Because they don't like the law, and they want to argue that they shouldn't be subject to more taxes. It's inaccurate and wrong for the airlines to label the program as a tax on aviation emissions.

The EU chose a cap, rather than a tax, as the most efficient and cost-effective way to reduce aviation emissions. Don’t let the airlines fool you: the EU Aviation Directive is a cap, not a tax.

The first week of 2012 was a busy one for developments in the European Union's law requiring airlines to cut their global warming pollution.

On Jan. 1, Europe’s “Aviation Directive” took effect.  The law holds all flights using EU airports accountable for their pollution and requires the airlines to make modest cuts in their carbon emissions. (Remember that last month, after Secretary of State Hillary Rodham Clinton and Secretary of Transportation Ray LaHood sent a letter to the European Commission saying the U.S. might retaliate against the law, the EU's highest court upheld the law against a challenge by United-Continental and American Airlines and their trade association.)

Obama administration weighs its options

Last week some officials from the Obama administration alluded to retaliatory measures but declined to give specifics on what the U.S. will do next. These unnamed U.S. officials told Reuters, in a Jan. 6 story:

We are contemplating a wide range of possible steps that we could take … we haven’t decided how to move forward on any specific one.

Maybe these officials’ vagueness is because the administration is currently gathering data from U.S. and European airlines to determine whether EU law discriminates against US airlines. But maybe they are starting to realize that the legal case for retaliation is thinner than the snow that didn't blanket most of the US at Christmas.

Despite what Chinese airlines say, the EU law is an emissions cap, not a “tax”

Across the world, Chinese airlines announced on Jan. 4 they wouldn’t comply with the EU law, and promptly watched their stocks slide.

Airlines, as of Jan. 1, are now accountable for their pollution from flights to and from Europe. (Thanks and photo credit to Flickr user chanelcoco872.)

Too bad the Chinese airlines' trade association doesn’t understand the EU law, inaccurately referring to it in a Reuters interview as a “tax,” and missing – to the detriment of its members' shareholders and customers – what the law really is: an opportunity to fly more efficiently and make money.

I want to make this point perfectly clear: the EU law is a cap on emissions, not a tax.

With a typical carbon tax, the more companies pollute, the more they pay. But under a cap-and-trade system like the EU’s that puts limits on pollution, airlines that cut emissions can comply without paying a nickel. In fact, companies that come up with better, deeper, faster ways of cutting pollution can actually make money. The EU’s top court recognizes that airlines participating in the EU law could “even make a profit” by cutting pollution and selling their surplus emissions allowances.  (See paragraphs 136-145, especially 142, of the Court’s decision.)

China's foreign ministry was reportedly more nuanced in its comments about the EU law than the airline trade association.  It didn't threaten non-compliance and it didn't threaten retaliation.  Instead a foreign ministry spokesperson told reporters:

We hope the EU can take careful precautions with a cautious and practical attitude, and regarding those aspects involving China, appropriately discuss and handle this matter.

Airlines are participating in EU law

Despite the discord, airlines have actually been preparing to comply with the EU law for months; they’ve all filed emissions data and applied for the law’s generous free allowances.

And with the start of 2012, the world’s smartest airlines are quietly lining up to participate, not litigate:

• Singapore Airlines, the world's second-most valuable airline, has said it will offset the impact of the EU system by improving fuel efficiency and reducing its carbon emissions, according to Reuters.
• Among US airlines, Delta, the No. 2 U.S. carrier, led the pack with a first-week-in-January fare increase of $3 per flight to Europe – one-twentieth the cost to customers of taking a second bag on their trip, BBC's Richard Black pointed out. United-Continental, U.S. Airways and American Airlines have since reportedly followed suit, matching the $3 increase.
• Ryanair, Europe’s largest budget airline, is introducing a charge of 25 euro cents – about  $0.32 – per seat starting next week, Reuters reported.

While German-based Lufthansa – the world’s second largest long-haul carrier, according to Reuters – has announced it will address the EU law by passing on the costs to its customers, it hasn’t clarified how much or what the money would be used for. Green groups and consumer groups will be watching to see whether and how much they and others like Emirates and Hong Kong-based Cathay Pacific raise fares.

With his new focus on holding airlines to be more transparent about the fees and charges they add to fares, Secretary LaHood might want to make sure airlines tell customers how they use environmental surcharges – with airlines ideally limiting the fare increase to the modest true cost of complying with the EU law.  That would be a win for the flying public and the environment.

Going Global on Climate Change

The recently introduced Climate Security Act changes the dynamics of America’s role in worldwide global warming negotiations. Our National Climate Campaign Director Steve Cochran filled us in on the breaking news on the bill, which is in Congressional hearings right now. The bill, introduced by Senators Lieberman (ID-CT) and Warner (R-VA), is designed to reduce greenhouse gas emissions nationwide by 18% by 2020, using the cap-and-trade market mechanisms we have been advocating.

Fred Krupp led the discussion on how these latest developments in Washington fit into Environmental Defense plans for the upcoming Bali meeting on the next international global warming agreement (post-2012 when the Kyoto Protocol expires.) International Counsel Annie Petsonk and International Program Co-Director Steve Schwartzman shared those strategies and responded to questions from the audience.

Featuring

• Fred Krupp, President
• Steve Cochran, Director of Strategic Communications
• Annie Petsonk, International Counsel
• Steve Schwartzman, Co-Director, International Program

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• Our international climate work

The author of today's article, Annie Petsonk, is International Counsel at Environmental Defense.

When European countries ratified the Kyoto Protocol, they pledged to reduce their greenhouse gas emissions. To prepare, they designed the European Union Emissions Trading Scheme (EU-ETS), now the world's largest greenhouse gas cap-and-trade system.

Since the launch of the EU-ETS in January 2005, allowance prices have been volatile and are currently hovering around zero.

Click on graph to enlarge.

Many people point to these figures and proclaim the EU-ETS a failure. Here's why they're wrong.

The most important misconception is that the current EU-ETS is the roll-out of the Kyoto Protocol. The Kyoto Protocol hasn't even begun yet! It runs from 2008-2012. The current EU-ETS is a pre-Kyoto pilot phase – "phase 1". Its purpose is to "learn by doing" as a way to prepare for meeting Kyoto goals starting in 2008 – "phase 2".

This preliminary phase also provides historical data on which to base allocations when the Kyoto Protocol goes into effect. This is crucial. The two biggest problems with the phase 1 EU-ETS are both a direct result of its being a pilot phase with no history to draw from:

• The initial allocations of emission allowances were too generous. Since companies had not previously been required to track and disclose emissions, there were no hard numbers on which to base allocations. So companies were asked how much they'd need to emit, and naturally they said, "A lot!" When emissions data became available and companies saw that cutting emissions was easier than they anticipated, the price of allowances plummeted.
• Companies were prohibited from banking pilot phase allowances into the 2008-2012 (Kyoto Protocol) phase. Banking allowances – cutting emissions below what's required and saving unused allowances for future use – is a powerful incentive for innovation. But it could not be used in this pilot phase because there was no historical data. With no history, there was no way to know what constituted a "cut" that could be banked. The requirement that companies sell unused allowances immediately contributed to the price drop.

Despite these start-up pains, it's working. The EU-ETS is reducing emissions and stimulating innovation [PDF].

If it was easy to meet the cap, why have companies made these changes? It seems that mere anticipation of mandatory emission limits can spur innovation. That anticipation is reflected in carbon forwards, which have stayed around $20 to $30 per ton even as this year's prices flat-lined. With prices like that on the horizon, companies have an incentive to invest and innovate now.

The EU-ETS is a success because its basic design is sound:

• A hard cap on total emissions – no illusory intensity targets [PDF].
• No escape hatches, price caps, or safety valves to negate effectiveness.
• Broad coverage – participating companies account for 50 percent of EU emissions.
• A cap-and-trade design similar to the successful U.S. Acid Rain Program (for details, see From Obstacle to Opportunity [PDF]).

At climate negotiations a decade ago, it was the Americans who pushed for market approaches. Now America is resisting while Europe races ahead. Without a comparable U.S. market to spur innovation, our technology will surely lag, and America will have to import the new green technologies of the future.

Today's guest blogger, Annie Petsonk, is International Counsel at Environmental Defense.

The Group of Eight (G8) is an international forum of eight industrialized countries representing the lion's share of the world's economy. High on this year's agenda is global warming, with European countries calling for a mandatory 50 percent cut in global greenhouse gas emissions by 2050.

Recognizing that America must take the lead, the U.S. Climate Action Partnership (USCAP) has gone even further. This group of 27 leading U.S. companies and environmental groups has urged Congress to enact legislation [PDF] mandating that the U.S. cut emissions by 60 to 80 percent by 2050.

Today the G8 Summit reached an agreement.

The U.S. administration would not agree to a numerical target. It only agreed to "consider seriously the decisions made by the European Union, Canada and Japan" about halving global emissions. However, at the same time, the G8 Summit document [PDF] says:

We are therefore committed to taking strong and early action to tackle climate change in order to stabilize greenhouse gas concentrations at a level that would prevent dangerous anthropogenic interference with the climate system.

The only way to prevent dangerous climate change is to achieve global emission cuts on the scale that the European Union has proposed. Now more than ever, it's up to Congress to act. As the world's biggest emitter of greenhouse gases, the U.S. must take the lead with mandatory caps on global warming pollution.