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U.S. sides with China against airlines emissions tax

Pressure against EU plan grows

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The European Union's plan to impose a tax on international airlines for their carbon emissions has run into fierce head winds, with the Obama administration joining China, India and other powers in a growing global drive to force the EU to back down.

Top European aviation companies this week issued a public plea for EU leaders to reverse course on the "emissions trading scheme," while Airbus, the giant European consortium that competes with American aerospace giant Boeing Co., said Thursday that the standoff has put into doubt another major jet sale.

European officials have resisted the pressure, but the uproar shows no signs of subsiding, and some private analysts say the bloc has picked a global, multifront trade fight that it cannot win.

"It's a tricky one: Fight a trade war with the entire world, or back down," said Richard Aboulafia, vice president of analysis at Virginia-based Teal Group. "I'm thinking they're going to back down."

China is one of the biggest opponents of the plan, which would tax airlines for their carbon outputs for flights to or from Europe. The controversial part of the tax, which has drawn complaints that the fee is illegal under international trade law, is that it is assessed based on the entirety of the flight distance, not just the part spent over European airspace.

Hitting back at Europe where it counts, China has canceled plans to purchase 55 jets worth $14 billion from Airbus.

On Thursday, it suspended a purchase of 10 Airbus A330s, a move made just days after Airbus complained to European politicians about China having put off buying 10 A380 superjumbos and 35 A330s.

China and Russia have said their airlines will not comply with the emissions charge, which could keep their carriers from traveling to Europe altogether. Congress has considered a similar measure.

At a meeting last month in Moscow, almost 30 countries adopted a resolution threatening Europe with eight forms of retaliation they would consider if the charge is not scrapped. Among those measures are bringing legal cases before international trade forums, not granting European carriers landing rights and routes, and new levies against EU national airlines.

"It's very rare that markets will forbid any of their nation's airlines from obeying a law in another country," Mr. Aboulafia said. "That demonstrates a clear signal that this is not even negotiable."

This intensifying pressure led Airbus and six European airlines to write a letter earlier this week asking the leaders of Britain, France, Germany and Spain to back down from the plan. They say the scheme will jeopardize more than 1,000 Airbus jobs and another 1,000 in the supply chain, and it will result in "suspensions, cancellations, and punitive actions" by other countries.

Companies signing the letter were British Airways PLC, Virgin Atlantic Airways Ltd., Lufthansa AG, Air France-KLM, Air Berlin PLC & Co., Iberia Airlines, as well as aerospace engine makers Safran of France and MTU Aero Engines of Germany, which said the standoff "is becoming intolerable for the European aviation industry."

"We have always believed that only a global solution would be adequate to resolve the problem of global aviation emissions," they wrote.

The European governments, however, have shown no signs of backing down.

Silvia Kofler, spokeswoman for the European Union Delegation to the U.S., said in a statement that Europe will "stick to its legal provisions."

The EU extended its emissions-trading program to European and foreign airlines at the beginning of this year, though it has said it will not try to collect the fee until Jan. 1 next year.

Airlines aren't necessarily opposed to paying for their emissions in European airspace, which is unquestionably under EU jurisdiction, but chafe at being charged for emissions over other parts of the world. For example, European airspace takes up only 9 percent of a flight from San Francisco to London, according to Airlines for America. The rest is over the U.S., Canada and the high seas, but airlines would be charged for the entire 5,371-mile trip.

The emission-control plan requires the airline industry to cut its carbon dioxide emissions from the 2004-06 average by 3 percent in 2012 and 5 percent in 2013. Carriers, which initially receive 85 percent of their emissions certificates free, must bid for the rest.

"As you know, we believe aviation emissions is an issue which needs to be tackled globally, and we expect our partners to contribute constructively to this," Ms. Kofler said.

But Mr. Aboulafia predicts that the "poorly thought out" plan will be dropped before airlines actually have to start paying out the cash.

"Given the concerted opposition," he said, "I don't think this is going to last much longer."

But it won't be so easy, environmentalists say.

"The EU can't just 'drop' the law. It's a law," said Annie Petsonk, international counsel for the Environmental Defense Fund. "That would be like the U.S. Congress 'just dropping' a law Congress enacted — only more so, because the EU Parliament and all the member states would have to undo it.

"The EU has made it abundantly clear it will not delay, suspend or repeal the law," she added.

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