The Chinese government said today that it has barred its airlines from joining a European Union scheme to charge for carbon emissions from flights into and out of Europe. It is also prohibiting airlines from charging customers extra due to the EU plan, as nations around the world, including South Africa, battle with carbon taxes and other challenges.
The escalation of the dispute, which comes a week before Chinese and EU leaders hold a summit next week, could potentially subject Chinese airlines to fines or prohibitions on use of EU airports.
The aviation row also comes as eurozone countries have looked to China, with its big holdings of foreign exchange reserves, for a show of economic support while they grapple with the latest phase of their debt crisis.
The announcement from the central government’s State Council, or cabinet, bolstered China’s opposition to the plan, which is intended to help curb greenhouse gases from aviation that are adding to global warming.
It said Chinese airlines would need approval if they want to join in the EU airlines emissions plan, which Beijing has already denounced as an unfair trade barrier.
“China hopes Europe will act in the light of the broader issues of responding to global climate change, the sustainable development of international aviation and Sino-European ties, strengthening communication and coordination to find an appropriate solution acceptable to both sides,” an unnamed official from China’s civil aviation authority said, according to the announcement, issued by the official Xinhua news agency.
The official also issued an opaque warning about additional consequences.
“As well, the Chinese side will also consider taking necessary measures to protect the interest of the Chinese public and businesses based on developments,” said the official.
“China will not co-operate with the EU on the ETS, so Chinese airlines will not impose surcharges on customers relating to the emissions tax,” China Air Transport Association (Cata) deputy secretary-general Cai Haibo said on Saturday. Cata represents the country’s four major airlines: flag-carrier Air China, China Southern Airlines, China Eastern Airlines and Hainan Airlines.
From January 1, all airlines using EU airports have been brought into the EU’s Emissions Trading Scheme (ETS), alongside EU utilities and heavy industry.
Any airlines that do not comply face fines of 100 euros for each tonne of carbon dioxide emitted for which they have not surrendered allowances. In the case of persistent offenders, the EU has the right to ban airlines from its airports.
Late last year, the European Court of Justice ruled against a group of U.S. airlines that challenged the European law requiring a carbon cap on all airlines flying to and from European Union airports.
In December, too, the China Air Transport Association (CATA) urged China’s airlines to refuse to take part in the emissions scheme.
CATA says the scheme would cost Chinese airlines 800 million yuan in the first year and more than triple that by 2020.
Airlines and their associations argue that the disputed EU scheme will hit profit margins already squeezed by rising fuel prices, fierce competition and national taxes.
The Air Transport Association of America (ATA) said the EU’s climate regulations breached US sovereignty, and that they comprised an illegal charge under the main international treaty on air travel, the Chicago Convention.
“The EU does not have competence to regulate third country airlines in third country airspace,” Derrick Wyatt, a lawyer for ATA, told the European Court of Justice in Luxembourg. “It is astonishing that a US airline must acquire an EU license to cover emissions at a US airport.”
On a typical San Francisco to London flight, just under 9% of emissions occur in the EU, compared to 25% over the Atlantic, 37% over Canada and 29% over the United States, he added.
EU Climate Commissioner Connie Hedegaard has repeatedly said she is open to talks with other nations and that the EU law provides for “equivalent measures”. Those could be other forms of carbon reduction, rather than the purchase of permits under the EU scheme.
Airlines say their emissions should only be tackled in U.N. bodies, such as the International Civil Aviation Organization (ICAO), which have clear rules to prevent countries imposing illegal charges on each others’ airlines.
Aviation expert Linden Birns said that China’s move is an expression of “displeasure and alarm” at the emissions tax and they reacted so forcefully because the European Union is threatening China’s sovereignty. Birns said that the problem is not with the carbon tax itself, but the fact that the European Union is unilaterally imposing the tax on foreign airlines and this could set a dangerous precedent – if many nations did the same, the taxes would overlap and air travel would become prohibitively expensive.
Tony Tyler, the director-general of the International Air Transport Association (IATA), has said the emissions tax would cost airlines 1.2 billion euros this year, and he warned that airlines could struggle to pass this on to passengers in a relatively weak travel market.
IATA, whose 230 members carry more than 93 percent of scheduled international air traffic, forecast a 29 percent drop in the industry’s profit this year to US$4.9 billion, dented by the weak global economy and high fuel prices.
“The airline industry is currently struggling with the impact of cost increases brought about by tariff increases…increased ATNS [air traffic and navigation services] charges as well as escalating fuel costs. The volatile state of the industry means that further cost increases are likely to be absorbed by many of the airlines themselves,” said Chris Zweigenthal, Chief Executive of the Airlines Association of Southern Africa. He added that proposed cost increases “need to be reviewed urgently to ensure the sustainability of the airline industry in South Africa.”
South Africa is one of many countries that will be affected by the EU carbon tax. According to Giovanni Bisignani, former CEO and Director General of IATA, “South Africa is a particularly carbon-intensive destination and relies extensively on long-haul flights from key international tourism markets. Putting a tax on aviation would put in jeopardy the very substantial benefits delivered to SA’s society and economy which far outweigh any additional tax revenues.”
South African Airways (SAA) CEO Siza Mzimela has warned that the combination of depressed demand, high fuel prices and increased taxes will make 2012 a challenging one for the airline industry.
SAA spokeswoman Dileseng Koetle said that “SAA has previously joined the South African government in objecting to these taxes and is…complying under protest. Passing these taxes will obviously increase our costs and place airlines in general under increased pressure, and put an additional strain on profitability in these volatile economic conditions.”
There are concerns that the proposed carbon tax will hurt the tourism industry, from which South Africa generates billions of rands. South Africa aims to increase tourism’s contribution to the economy from R189 billion in 2009 to R499 billion by 2020, creating 225 000 new jobs in the process, Business Day reports.
Doing this would entail increasing the number of foreign tourist arrivals from 7 million in 2009 to 15 million by 2020. However, the proposed carbon tax could dent these numbers as flights become more expensive. There is also concern that the carbon tax will not go towards carbon reduction initiatives.
The South African government is planning on introducing a carbon tax this year, amounting to R75 per tonne on carbon dioxide emissions. The proposed tax was first announced in December 2010, but the treasury is still working on plans to take the tax forward.