Fight or flight?

EU’s ETS scheme faces rejection in the US.

EU and US drift apart on climate change

At 2am on Saturday morning (22 September), American senators were working late on legislation they had identified as crucially important before they left for a campaigning recess – a bill barring US airlines from participating in the European Union’s emissions trading scheme (ETS).

Both sides of the aisle were eager to take home news of the bipartisan bill’s passage, to impress their constituents before the election on 6 November. For both Democrats and Republicans, standing up for US companies in the face of a ‘foreign tax’ was a winning political issue. Starting this year all airlines have had to offset the carbon emissions from flights going into or out of the EU by acquiring ETS carbon credits.

“The Senate’s action today will help ensure that US air carriers and passengers will not be paying down European debt through this illegal tax and can instead be investing in creating jobs and stimulating our own economy,” said the bill’s Republican sponsor, John Thune, in a statement after the vote. The bill’s Democratic sponsor, Claire McCaskill, declared: “It’s refreshing to see strong, bipartisan support for the commonsense notion that Americans shouldn’t be forced to pay a European tax when flying in US airspace.”

The measure, which bars US airlines from participating in the ETS and promises them financial compensation for any fines they incur, passed without objection from any senator. It follows the passage last year of a similar bill in the US House of Representatives. The two versions must now be reconciled before they go to Barack Obama for signature. The president has indicated that he will sign it.

This has left Europe to ponder whether the Senate vote is empty political posturing ahead of an election, or a real risk of an impending trade war. It coincides with threats from Russia, China and India of non-compliance or retaliation, including withholding orders from European aircraft maker Airbus.

Difference of opinion

The Senate vote does, however, contain some positive signs for those who resist any EU concessions. The House of Representatives bill would immediately block US airlines from participating in the ETS, but the Senate bill merely gives the president the authority to enact the ban. It also includes a requirement, inserted by Democrats, that the US administration hold a public hearing within 30 days of taking such a decision.

Green campaigners have suggested that this could make a second Obama administration unlikely to enact the ban, for fear of being publicly shamed by environmental campaigners during the hearing.

“Is it 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?” asked Annie Petsonk of the campaign group Environmental Defense Fund.

Despite the safeguards inserted into the Senate version of the bill, the Obama administration has indicated that it supports either version of the legislation and would sign it into law. And a Mitt Romney presidency would hardly be dissuaded by the prospect of public criticism for ignoring problems of climate change.

Whether they represent empty bluster or real danger, the US votes and Chinese threats are causing anxiety in Europe. Earlier this month, Michael Fallon, the UK’s business minister, was reported as saying at an air show in Berlin: “Airbus has left us with no doubt that the threat of retaliatory action is a clear and present danger to its order list. We are very much aware the clock is ticking. We have limited time left.”

Centre-right and liberal MEPs have also been getting anxious. German Liberal MEP Holger Krahmer said that the EU has “neither the political nor the economic power” to force foreign airlines to comply with the ETS. “Aviation is not the right area to have trade wars. No one can win there, neither the airlines nor the climate.”

So far there has been no public dissension within the European Commission on the aviation issue, and Connie Hedegaard, the European commissioner for climate action, has said that the EU law can only be changed if a global deal to reduce aviation emissions is reached in the International Civil Aviation Organisation (ICAO).

But standing firm may be getting harder as the US flexes its legislative muscle and China wields its economic power.

Airspace sovereignty

The crux of the argument made by the United States and other countries is that the EU has no right to impose ‘taxes’ on air travel outside EU airspace. The airlines argue that subjecting flight time in US airspace to the ETS is a violation of US sovereignty. But environmental activists in the US have said that when it comes to air travel, countries routinely apply their own rules to foreign airspace.

“It is 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 US, including portions of whole flights over foreign territory” said Annie Petsonk of the US campaign group Environmental Defense Fund. “US laws governing everything from security screening to banning liquids and gels, to barring gambling apply, to flights landing and taking off from US airports.”

“It also can’t be that flight taxes per se are objectionable to the US government,” she said. “After all, Congress makes every traveller coming in and out of the United States pay a $16.70 international departure and arrival tax.”

The cap-and-trade system for airlines works in the same way as for other companies subject to the ETS since it started running in 2005, although aviation was not included in the scheme until 1 January this year. Airlines have been required to count their emissions since then, and must submit enough credits to pay for them by April 2013 – either by purchasing the credits or trading them with other companies.

In December, the European Court of Justice rejected a challenge to the ETS by US airlines, ruling it is not a tax. Airlines are not obliged to pay anything to European governments if they do not want to, the court ruled, because they can buy and sell credits in the global marketplace, and can make money by doing so.

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