A perfect storm

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Aviation faces ruinously high fuel prices, an economic downturn and the prospect of an emissions trading regime imposed by Europe - simultaneous events whose collective impact many are now calling the perfect storm.

The confluence of such diverse phenomena came to a head this month when members of the European Parliament overwhelmingly voted to approve the compromise deal struck in June with the European Council of Ministers covering aviation's entry into the flagship European climate policy, the European Union emissions trading system.

MEPs deliberating on the second reading of the legislation in a plenary session on 8 July voted 640 in favour and 30 against the scheme, with no amendments.

perfect storm
 © Bruce Dale/National Geographic/Getty Images

The Council, which has already backed the compromise deal, is now expected to give its formal approval to the scheme after further legal and technical work on the legislative detail. The compromise will see all flights operating within, to or from the EU participating in the scheme from 2012. It sets a cap for the scheme at 97% of 2004-06 average emissions levels for the first year, dropping to 95% from 2013. The agreement will also see 85% of emissions certificates allocated to airlines for free, with 15% to be bought at auction.

The Parliament's rapporteur on the subject, German Conservative MEP Peter Liese, who has steered through the legislative proposal, believes the agreement is a step closer to the European objective of reaching a global agreement should the International Civil Aviation Organisation fail to come up with anything universally applicable. "The inclusion of third-country flights starting and landing in Europe is a major step for the global fight against climate change," he says.

Many believe the compromise deal with the member states has failed to fulfil its original ambitious vision, something which Liese concedes, saying it is "not perfect". But he points out that the Council "went further than on any other comparable occasion".

JOB LOSSES

In response, the European Regions Airline Association says that although the revised agreement contains welcome amendments from the European Parliament's original proposal, its additional costs make it inevitable that some airlines will fail. European job losses will be significant and unavoidable, it says.

ERA director general Mike Ambrose says that while it is to their credit that the compromise rejected the earlier proposals of the European Parliament's environment committee, this legislation nevertheless imposes massive additional and unprecedented fuel costs.

"Even if the legislation's questionable environmental benefits are ignored, it is a mark of failure of the legislative process that this has been adopted without a thorough assessment of its economic and social impact: this is not responsible law-making," Ambrose says.

While supportive of emissions trading as a tool to tackle climate change, the European aviation industry is increasingly warning of sectoral fallout should the scheme be made too punitive at a time of record fuel costs.

They have concerns over applying the scheme unilaterally in Europe rather than globally, something that could put European operators at a competitive disadvantage and may lead to carbon leakage - flights being re-routed to countries exempt from carbon trading.

For the International Air Transport Association, the scheme has come at the worst of all possible times. With oil trading above $140 a barrel and jet fuel above $170 a barrel, the industry 2008 fuel bill could reach $190 billion.

"Airlines are struggling to reduce fuel burn to survive. Adding €3.5 billion [$5.5 billion] to industry costs will not produce any better results," says IATA chief Giovanni Bisignani.

Meanwhile, João Vieira of environmental group T&E says the compromise is a "missed opportunity" that will offset just one year's growth in emissions from aviation, according to the European Commission's own analysis.

"National governments must take the blame for failing to deliver a law that will actually cut emissions. The European Parliament had asked for a number of measures that could have resulted in real emissions cuts from aviation, but national governments once again took the side of their flag-carrying airlines."

British Airways chief executive Willie Walsh has serious reservations about some of the scheme's aspects - despite BA being a long-time advocate for the inclusion of aviation in emissions trading. He says Europe's carbon trading scheme has been saddled with unnecessary and expensive flaws that will discount it as the basis of a workable global system. "The original proposals have been made considerably more burdensome for airlines in financial terms by increasing the proportion of carbon allowances that are subject to auctioning, and imposing limits on what have been free baseline allowances for every other industry within the scheme," says Walsh.

ANOTHER TAX

"Auctioning is just another tax. Auctioning brings no direct environmental benefit. It was not part of the original cap and trade proposals and seems to have added to the package with little thought for its financial impact on airlines. I doubt whether thought was given to its impact on airlines with oil at $150 a barrel."

If the current economic trauma is not enough to knock aviation off its growth trajectory, then the sideswipe of a protracted legal dispute could. Walsh says BA, like many other carriers, has concerns about the imposition of this scheme on foreign airlines flying into the EU. "We believe it will lead to a negative and time-consuming legal battle at a time when we need a constructive debate on a global solution. I believe it will be challenged."

The USA, the keenest critic of the EU scheme, says emissions from its airlines are anything but out of control. Predicting aviation emissions levels will fall to 1997 levels by the end of 2009, US Federal Aviation Administration energy chief Carl Burleson says: "We may have a lot of other challenges to deal with, but we think we have this one under control."

Many European airline chiefs agree. KLM chief executive and Association of European Airlines chairman Peter Hartman says the scheme's environmental aims had been politicised - seen as a punitive instrument and a source of fiscal revenue. "The emissions trading scheme has been shaped by the misconception that aviation is the fastest-growing source of CO2 emissions," says Hartman. "This was never the case, and is even less so now. I question whether our emissions will be growing at all in the foreseeable future."