Carbon Permits Ignite Trade War Between The EU And The USA

by Olivia Azevedo

The Chinese are refusing to pay, the Indians are studying ways to avoid it, the Americans are totally and utterly furious. Of course this is all going on at a governmental level because the average person in any of these countries isn’t fully aware of a war raging right above their heads. These three dominant world economies are united against a common enemy – the EU -, locked in a trade war caused by a little thing called the environment.

From the 1st of January, airlines flying to and from European Union airports will have to buy carbon permits under the EU Emissions Trading Scheme (EU ETS). This ruling has the backing of the European Court of Justice whose verdict, just before Christmas, gave the green light to start the scheme. The decision follows a preliminary assessment from October 2011 in which Europe’s highest court found that the EU’s legislation did not violate the sovereignty of other states and was in line with international agreements. The judicial process was initially launched by a group of American airlines and trading partners that led the legal challenge against European plans. This dispute was also followed closely by forlorn European airlines which were unhappy with the imposition of the policy.

Under the Kyoto protocol of 1997 countries agreed to jointly tackle aviation emissions, but in reality very little has been done to improve the situation. Therefore, the European Court of Justice understood that is within the EU’s rights to take this unilateral action.

The carbon permits at the centre of the dispute are part of a vast scheme created by the EU in order to cut down carbon emissions. When it was launched in 2005, the EU ETS was greeted as Europe’s magic solution against climate change and became the world’s largest cap-and-trade initiative to date. The scheme is far from perfect, but many would agree that it’s a positive step nevertheless.

The European Union already has a cap in place for carbon emissions produced by factories and power plants under this Emissions Trading Scheme. The problem is that studies show that while those emissions are dropping the pollution created by airlines doubled since 1990 and is expected to treble by 2020. There’s a great urgency to act now, but businesses are dragging their feet…

Airline companies in Europe are echoing the same worries of their American counterparts, with troubled Lufthansa fronting the chorus of protest. The carrier announced that the additional $169 million expected for this year’s carbon emissions bill will be passed on to their customers, eventually. The figures are a bit hazy and it’s still not clear whether this is an empty threat.

In Europe, travel and transport specialists quickly started doing the math. According to an independent think tank Civitas, a family of four travelling from Britain to the United States would pay an extra £130 (around $200) under the new EU ETS. Seeing trouble brewing ahead due to possible public discontent when faced with these figures, the European Commission’s London office reacted quickly to dismiss these observations in a statement: “This scheme is not intended to raise ticket prices but to provide incentives for airlines to cut emissions. Until 2020 permits will be over 82% free. If airlines pass on to travelers the full additional costs, the actual cost to passengers at current carbon prices is estimated to be well below £2 per one-way transatlantic flight until 2020.”  In declarations this week, the European Union also intervene by saying that all revenues from the scheme will be reinvested to tackle climate change in particular that caused by aircraft.

Just as a reminder of the magnitude of the pollution caused by this type of transport, one should look at the events of April 2010 when the skies of Europe where blackened by volcanic ash from a relatively small volcano in Iceland. The incident caused a major disruption by grounding around 10,000 flights daily for almost a week. People complained about the disturbance and were worried about the pollution levels and its health implications. Scientists later explained that the volcano produced 150,000 tonnes of carbon dioxide every day, but the grounded flights were capable of producing 344,000 tonnes daily. Putting things nicely into perspective.

The intentions of the EU in this area seem sensible. What could be more honorable than to protect the environment by creating a few reasonable measures that will force companies to be more conscious of their detrimental role to the planet? In an ideal world, countries would make good on their word and comply with the contracts signed in the past like the Kyoto protocol, agreed 15 years ago. Unfortunately, like many other promises pledged to protect the environment, that is not the case and expressions of goodwill don’t find matching actions when ultimately required.

What we see in this case, instead, is quite an ironic standoff. The United States through Hillary Clinton vented their disappointment, to put it mildly, by promising not long after the announcement of the verdict to exact retaliatory tariffs on European exports: “Absent such willingness [to stop or defer the resolution] on the part of the EU, we will be compelled to take appropriate action…It is the responsibility of the EU and its member states, not the United States or other countries, to find a solution to this impasse.”

European countries take note for future reference: the USA will treat any decision without meeting their approval (financial, environmental or otherwise) like they would a nation helping terrorists. In this occasion, America’s stance is no different from China’s, becoming hostile every time a country makes choices that bring difficulties to their own program or lack of.

If you see the carbon permits issue as an intrusion to the sovereign right of the USA (and China and India) to decide their own set of laws concerning carbon emissions, then you would have to be consistent through and through, not just in this instance, but in all economic matters. Yet, this kind of one-sided policy happens all the time to the detriment of other countries rule of law. One example is the prohibition in many civilized nations of the sale of articles of clothing manufactured by using child-labour, even if its occurrence is perfectly legal in the country where they’re made.





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