Still time to resolve carbon tax dispute

PUBLISHED : Thursday, 16 February, 2012, 12:00am
UPDATED : Thursday, 16 February, 2012, 12:00am


The European Union has the most comprehensive system of caps on greenhouse emissions of any major polluter. It makes sense to extend them to the aviation industry, a small but increasingly important contributor to global emissions. But the way it has gone about it has offended scores of countries who have agreed to defy it, and put China and the United States on the same side of a trade dispute for a change. Unless the dispute is resolved before airlines are due to make their first payments next year, it has the potential to escalate into a trade war involving China.

Since January 1, the scheme has required airlines to buy tradeable permits for carbon dioxide emissions by flights to and from the EU. The permits will be based on the entire length of any flight. Beijing and other capitals argue that imposing taxes beyond territorial limits amounts to an infringement of sovereignty. The State Council has barred mainland carriers from complying with the scheme. The US Congress has expressed similar sentiments and Russia and India have threatened retaliatory levies on flights out of Europe.

While the world waits anxiously as Europe's leaders continue to fumble a resolution of their sovereign debt crisis, its climate-change bureaucrats appear aloof to international concerns. A spokesman for the EU climate action commissioner says there will be no backdown and that the law carries fines for airlines that ignore the scheme.

Climate action may be a mission to save the world, but the unilateral, extraterritorial imposition of such a tax is an affront to multilateral trading partners and international co-operation in aviation. Moreover the timing is inept, amid an uneven recovery from the financial crisis that has put airlines under pressure and seen five European airlines go bankrupt.

It is hardly the time to flirt with the risk of a trade war. According to a spokesman for the Civil Aviation Administration of China, Beijing's ban is a curtain-raiser for further retaliatory measures, including trade sanctions.

A carbon tax would be passed on to passengers. The international air transport association says it should be dovetailed with a strategy for fuel economy, since a 1 per cent cut in consumption would save airlines US$2 billion, twice the amount the tax would raise this year. European bureaucrats could make a contribution by untangling the mess of 30 air-traffic control jurisdictions, said to be responsible for millions of tonnes of extra carbon emissions annually.

Europe's bungling of the new scheme is no excuse for other countries to drag their feet on controlling aviation emissions. A delay in the first permit payments until next year presents another opportunity for negotiations to reach a meaningful accord and defuse tensions.