Something Dangerous In The Air

Turbulent markets are breeding turbulent skies. China has taken an unprecedented step by declaring that it will not comply with the requirements of the European Emission Trading Scheme. The CCAA, or China Civil Aviation Administration, recently ordered all Chinese airlines to disregard the ETS, declaring it “a unilateral move” that “violates international laws,” putting Chinese airlines in the awkward position of risking sanctions either at home or abroad, or giving up business in the EU altogether.
The ETS is part of a European emissions reduction program known as the carbon tax, which imposes fees based on production of carbon dioxide emissions. What makes the ETS so unique, and incendiary, is that it extends the carbon tax to all commercial aircraft that use an airport in the 27 country union. For the first time since its introduction in 2005, the carbon tax scheme will require tribute for each commercial aircraft takeoff and landing, despite the fact that these operations only make up 3% of total CO2 emissions.
The decision is intended to help Europe reach self-imposed reduction targets in harmful emissions, and is characteristic of the overall European strategy for economic and environmental sustainability. Beijing, on the other hand, believes the new regulations have been introduced with other intentions, as a “trade barrier in the name of environmental protection.” The CCAA’s statement is a clear challenge to the tax, vowing to “consider additional measures to protect the interests of our citizens and our companies,” and China is not alone in protesting. The US also expressed its dissent, unofficially siding with United Airlines and American Airlines in challenging the ETS at the European Court of Justice. The claim was eventually rejected, despite the governments of Brazil and India having joined the opposition in support of their flagship carriers, further stoking international furor.
Despite a legal victory and apparent determination to proceed with its cause, the EU must be aware that it cannot stand against the superpowers on principle alone, and is moving forward with caution. The measure has been in force since January of this year, but has yet to be imposed or collected, and significant exemptions were granted to the airline companies for 2012. Fully 80% of taxes on forecasted emissions from Chinese carriers will be exempted as a sign of goodwill, resulting in a mere €8.5 million to pay in 2012, distributed among the Big 5: Air China, Cathay Pacific, China Eastern, China Southern, and Hainan. Brussels estimates the tax will translate into a 6-12 Euro increase in every intercontinental air ticket, something travelers and businesses should be able to absorb in the same way they did when oil prices went up.
Concessions aside, the ETS is sure to add fuel to the fire of international negotiations. The last thing China and Europe need is another bone to pick, and the friction over the scheme does not help create a friendly atmosphere at the China-EU summit this week, where the agenda is already full of contentious points. Beijing and Brussels have bigger fish to fry, such as how China can help Europe to alleviate its debt problem, and the ETS may very well fall apart as a result. Whatever the outcome, it should push Europe to reflect on diplomacy, and how convenient it really is to stand your ground on a secondary issue, at the risk of being left alone with only your declaration of principle to comfort you.