Beijing has thrown down the toughest gauntlet yet to the European Union's plan to impose a carbon charge on global airlines.
The State Council yesterday banned mainland carriers from taking part in the EU's emissions trading scheme, putting pressure on Brussels to back down from a proposal that will cost the industry Euro900 million (HK$9.12 billion) this year and Euro2.8 billion by 2020.
Since January 1, global airlines are being charged for the carbon emissions of flights to and from the EU, as part of efforts to curb pollutants across Europe. However, they won't have to pay until next year.
Beijing's move not only casts doubt on the plan's viability but ups the ante in already tense trade relations between the mainland and the West. 'This is the first reaction from China after vocal opposition over the past few months and I am sure it will incite repercussions internationally,' said Wei Zhenzhong, secretary general of the China Air Transport Association.
Airlines including Air China, China Eastern Airlines, China Southern Airlines and Hainan Airlines were told not to join the plan or to increase their airfares or other charges for European routes. They risk losing landing rights at European airports or facing punitive charges by the EU. Airlines that fail to pay carbon allowances can be fined Euro100 per tonne of carbon dioxide. Persistent offenders could be banned.
China Eastern and Air China both said they would follow Beijing's edict and have not been charging passengers for the potential cost of the EU scheme since last month.
The ban by Beijing is seen as a curtain-raiser for further retaliatory measures, including trade sanctions, according to an official from the Civil Aviation Administration of China.
The European Commission said yesterday that it would stand by the new rules. 'We are not backing down and this legislation will apply to companies operating in Europe,' said Isaac Valero-Ladron, spokesman for EU climate action commissioner Connie Hedegaard.
Valero-Ladron warned that the law carries fines for airlines that ignore it but he said the commission remained confident that Chinese airlines would comply with the rules.
The EU plan could not come at a worse time for airlines, which have been hard hit by the global economic downturn. The sovereign debt crisis in Europe has taken a particularly heavy toll on the regional airline industry, with five European airlines going bankrupt over the past few months. Hungarian flag-carrier Malev has just filed for bankruptcy.
China is not the only country opposed to the EU scheme and airlines would be subject to a patchwork of carbon charges if governments across the globe adopted their own emissions trading schemes.
The governments of 26 countries, including the United States, China, Russia, India and Brazil agreed on a joint declaration opposing the EU scheme in New Delhi in October. Officials from Russia and India have threatened to ban their airlines from joining the plan and charge overflying fees for every flight out of Europe.
Prashant Sukul, joint secretary of India's Ministry of Civil Aviation, threatened to charge emissions on routes between India and Europe in October.
Hong Kong's Cathay Pacific and Singapore Airlines have said they would either offset the costs by improving efficiency or pass on the charge to customers.