Europe’s Doomed Flight of Decarbonizing Fancy

Green taxes are soaring

Europe’s Doomed Flight of Decarbonizing Fancy
By Peter C. Glover

Green taxes are soaring. To be precise, to 30,000 feet as the EU’s new carbon tax on airlines for all flights to or from Europe kicked in on January 1. While the levies involved will push profit margins to the limit for some, with ETS carbon permits trading at pathetically low levels and expected to stay that way through 2012, the pain in the first year for airlines may not be as much as the €1.1 billion initially projected. Even so, letting the plane take the carbon strain represents seriously poor long-term strategic planning for Europe given the looming global trade war it is about to ignite.

One can only wonder what the Brussels-based mandarins were thinking. The global war on CO2 is going nowhere. By the end of 2011 global emissions had hit an all-time high. China, India and others are fast-industrializing opening new coal-fired power stations more quickly than the EU can shut down the old ones. The Kyoto alliance is crumbling as Russia backs Canada’s pull-out. Renewables subsidies and investments are being devastated by shale extraction investments – ironically, with natural gas from shale impacting CO2 levels far more than the global carbon war has.

To cap it all, the EU carbon price is currently languishing between €6 and €9 per tonne; nowhere near the levels needed to secure industrial action and raise the revenues required to keep renewables on subsidized life support. As well as alienating the airlines and air travellers, the EU is mired in its Eurozone mess. It has chosen this moment to fire the first shot in a global trade war; as Dirty Harry would say: “Outstanding”.

As the 2012 New Year hove into view, a Chinese industry insider told the London FT that his government was seriously considering retaliatory measures. The state-owned news agency was blunt calling the carbon tax a “trade barrier in the name of environmental protection”. He adding, “It will be difficult to avoid a trade war focused on a ‘carbon tax’ for airlines.” In fact, China has already made a pre-emptive strike. In July 2011 Beijing blocked a multi-billion euro order from Hong Kong Airlines for 10 European Airbus. Neither is it the only deal in jeopardy. A glum Airbus executive recently told the London Financial Times, “These are not the only orders taken hostage by the Chinese. The A380s are just the first”. The Chinese Government also intends to file a complaint in a German court early in the New Year. If the EU Commission wants to cripple its flagship Airbus industry, it’s going the right way about it.

The Chinese hardline response not only reflects general international opposition, it shows the economic clout that could have the EU reeling in an escalating trade war.

Just before Christmas the Indian Government told its national airlines to refrain from submitting carbon emissions data, advising that any EU correspondence on the matter be referred to them. Indian carriers estimate the new EU regulations will cost them four billion rupees per year (around $75 million). The EU-imposed penalty for non-compliance has been fixed at €100 per tonne. Something gotta give. Speaking to Aviation Week, Prashant Sukul, joint secretary for India’s Ministry of Civil Aviation, had a pithy response, “If they don’t call it off, we will retaliate” adding, “If Russia doubles the over-flight charges, European airlines will be out of business. They could no longer fly east of Europe.” India has already introduced a proposal to the International Civil Aviation Organization opposing the EU move. It will carry a great deal of weight. Of its 36 members, 21 are already signatories to India’s declaration. (Energy Tribune)