Global Solution Urgently Required On Green Taxes

By David Jessop

News Americas, LONDON, England, Tues. Oct. 11, 2011: On October 6th, Juliane Kokott, an Advocate General of the European Court of Justice, handed down an opinion in a case that brings aviation, the environment, taxation and sovereignty face to face. In doing so she potentially put the US and many other concerned nations on a collision course with Europe.

In accepting that the EU has the right to include non-European airlines in its Emissions Trading Scheme (EU ETS) and that this was compatible with the provisions and principles of international law, Ms. Kokott’s judicial opinion has increased the likelihood that the issue may eventually have to be resolved at the World Trade Organisation (WTO).

Although the opinion is not binding and the next step is for the judges of the European court to deliberate the finding, in most cases their final conclusion coincides with the view expressed by Advocates General.

If this is so – the final judgement is likely to come early next year – and Europe levies the equivalent of an environmental emissions tax on all airlines entering and leaving EU airspace, there is a real possibility that the US airlines involved may ask the US administration to make a formal complaint to the WTO.

For their part, United and American through the US Air Transport Association argued that the unilateral inclusion of carriers from outside Europe infringed key articles in the 1944 Chicago Convention, the treaty that regulates international civil aviation. They also suggested that it violated the Kyoto protocol on climate change, which confirms that only the International Civil Aviation Organisation (ICAO), a UN body, has the authority to establish policy for international aviation.

In a parallel move that theoretically threatens US airlines with double jeopardy, the US Congress is developing legislation that will prohibit its airlines from complying with the EU’s emissions trading rules by threatening fines of around US$25,000 per day if US airlines comply, an expense which could be matched by EU-imposed penalties for non-compliance.

The EU case is being followed closely by many other Governments and air carriers.

Just prior to the judgement a group of 26 countries met in New Delhi, to make known their concerns about the EU’s approach to taxing aviation emissions.

The meeting adopted a joint declaration, stating that inclusion of aviation in EU ETS was ‘discriminatory’ and a violation of international law. They indicated also that they will file a formal complaint against the inclusion of aviation in EU ETS at the November ICAO summit in Russia that some Caribbean aviation ministers may attend.

Earlier China and Russia had issued a very strong joint statement describing EU ETS as an attack on other countries’ sovereignty: ‘We oppose any unilateral and coercive decisions that were made without any agreements among the countries concerned’. ‘Including international aviation in the EU’s ETS violates the principles of the Chicago Convention and trespasses the sovereignty of other states.’

Although the only Caribbean nation at the meeting in India was Cuba, whose national carrier flies into EU airspace, Air Jamaica, Bahamas Air, Caribbean Airlines, Cayman Airways, Cubana, LIAT, together with all significant Latin American Airlines had earlier made known their identical concern through ALTA (The Latin American and Caribbean Air Transport Association).

Initially the cost of EU ETS on aviation is expected to be neutral but after 2012 the amount of carbon that airlines will be allowed to emit will be reduced year on year up to an agreed level. This means that from 2012 on, airlines will have to buy or trade licences for the CO2 that they emit above the EU imposed annual emissions level.

Because the EU cap is based on airline emissions from 2004-2006, most carriers expect to have a permit deficit, meaning they will need to buy additional allowances or offsets to comply with the limits.

It is not yet clear how airlines will pass costs on to passengers as airlines will have to do so in a manner that is not anti-competitive. Although the European Commission estimates that the additional cost of EU ETS will be between Euro2 and Euro12 per ticket (US$2.7 to US16), much depends on the price at which carbon will be trading. Some analysts have suggested that the eventual figures may be around Euro40 (US$54) per round trip long haul ticket.

Alarmingly for the Caribbean’s tourism sector and the Diaspora, the UK, one of region’s prime feeder markets, has confirmed that its Air Passenger Duty, a discriminatory ticket tax, will not be adjusted to take account of the EU ETS as the carriers and the Caribbean would like. Instead Britain is anticipating additional revenue from EU ETS of around US$155m-US$233m (£100-£150m).

Interestingly, China has taken a significantly different approach to that of the US.

In a move of particular significance to the Caribbean, Chinese aviation authorities have noted to the EU that under the Kyoto Protocol they are exempt from international legally-binding obligations to reduce carbon emissions as a nation classified as a developing nation and have threatened trade retaliation.

The issue is also creating difficulties in Europe as some nations and many major airlines are concerned that the measure, if it were eventually only to be limited to EU carriers, would damage their global competitiveness.

All of this may of course be a part of a longer term if high risk strategy by Europe to speed up international agreement through the ICAO on aviation and carbon emissions, take aviation into the ambit of national taxation, and to ensure that all transport is included in any new global agreement on climate change.

Brussels is threatening separately to announce the inclusion of Maritime transport, which includes cruise ships, in EU ETS later this year if the UN International Maritime Organisation (IMO) does not arrive at a globally binding scheme.

Unfortunately, taking this approach when significant parts of the global economy are contracting and possibly going back into recession could have significant longer term implications for regions like the Caribbean that are both aviation and tourism dependent.

What is happening in Europe, and the slow pace of debate within the ICAO and the IMO suggests that there is an urgent need to find equitable market oriented multilateral solutions if green taxes are not to damage aviation and tourism, key export industries in small developing states.

David Jessop is the Director of the Caribbean Council and can be contacted at [email protected] Previous columns can be found at www.caribbean-council.org.