Starting on January 1, 2012, the European Union (EU) will impose a carbon tax on international flights that originate or end within countries that are part of the European Union as well as Iceland and Norway. U.S. and Canadian airlines tried to block the tax in court on grounds that it violates international aviation treaties and intrudes on national sovereignty. On December 21, the European Court of Justice ruled against the U.S. and Canadian airlines and further paved the way for the law to take effect at the beginning of the year. While much of the attention has been on the airlines and the increased cost likely to be passed on to passengers, the tax would also apply to air cargo carriers and impact the cost of shipping freight and packages.
The Full Story:
In 2008, the European Union adopted the carbon tax on air transport as part of the aviation directive to its Emissions Trading System (ETS). The ETS utilizes the “cap and trade” principle as the framework for EU policies to combat climate change and reduce greenhouse gases. The intent of the tax is to force airlines and other air carriers to purchase more efficient aircraft that use less fuel and thus emit less carbon dioxide.
Airlines and air carriers will be allocated free allowances based on historical carbon dioxide emissions that can then be redeemed to offset future emissions. The base line for acceptable emissions is reduced in future years. Those airlines and air carriers exceeding emission levels can purchase allowances from other airlines and carriers which have credits, or will be fined the tax. Exempt from the law are those commercial air transport operators that have 2 flights or less per day, emit less than 10,000 tons of carbon dioxide a year or use small aircraft of less than 5,700 kilograms. Also exempt are aircraft used for state, military, rescue, emergency or training purposes.
Airlines for America, the trade organization for U.S. airlines, initiated the lawsuit in 2009 against the carbon tax. China, India and other countries with airlines and air cargo carriers with flights to and from Europe also strongly oppose the tax. Since the ruling by the European Court of Justice in London, the U.S. State Department and other foreign governments have denounced the decision to uphold the tax. Airlines for America is reviewing its legal options and the China Air Transport Association has previously stated that it plans to bring legal action in another European court against the carbon tax.
It is expected that the U.S., Canada, China, India and Russia will continue to put strong pressure on the EU to alter or eliminate the aviation carbon tax. Here in the U.S., we will likely see renewed support in Congress for U.S. air carriers on the issue. In July, Congressman John Mica (R-FL) introduced the European Union Emissions Trading Scheme Prohibition Act (H.R. 2594) with Senator John Thune (R-SD) introducing the Senate companion bill (S. 1956) on December 7. H.R. 2594 and S. 1956 would prohibit U.S. air carriers from participating in the Emissions Trading System and paying the carbon tax. While the legislation if passed would be a directive from the U.S. Congress, it is uncertain what influence it would have on the EU.
Despite legal and legislative efforts, a vast majority of airlines and air carriers have applied for the free allowances and spokespeople for airline trade groups have noted that their organizations and members will reluctantly comply with the ruling.
Impact on Worldwide ERC Members:
Aviation industry experts believe that the airlines will pass along the tax directly to passengers and customers. It is unclear whether airlines and air cargo carriers will be proactive in determining the anticipated cost of the tax and pass the tax along sooner rather than later. Airlines opposing the tax have stated it will cost the aviation industry $23.8 billion over the next eight years. The EU has calculated the cost per passenger to be $15.70 for a one-way trans-Atlantic flight. So while many of the details are still up in the air, Worldwide ERC members can expect airfare and shipments by air to and from Europe to increase in the near future unless the EU unexpectedly caves to foreign pressure.
Posted by Tristan North