ANALYSIS: ETS row hangs heavy over European carriers

Brussels
Source:
This story is sourced from Pro
See more Pro news »

Speak to European network carrier chiefs and what is immediately apparent is a growing sense of frustration at the political stalemate, and consequent looming trade war, surrounding the thorny topic of emissions trading.

Each side in the dispute remains implacably opposed to the other's position. The European Union is still determined to push through with its unilateral implementation of its emissions trading system (ETS) which brought aviation within its scope in January. But there has been no softening of the stance of countries outside the EU who are fiercely resistant to ETS. Out of this deadlock, the only progress so far is towards a trade dispute.

"A few months down the road [since its launch], the opposition to it is as strong as ever," said Bernard Gustin, chief executive of Brussels Airlines and president of the Association of European Airlines (AEA), during a media briefing after an AEA presidents' meeting in Brussels.

"You need to have people listening to ICAO and avoid giving the impression that you are taking away their sovereignty. Europe wants to lead the way without listening," he says.

Europe's ETS formally took effect at the start of the year, against the backdrop of strong protests from around the world. This included more than 20 countries - dubbed the "coalition of the unwilling" - attending a conference in Moscow earlier this year and a failed challenge through the courts over the legality of applying the scheme outside of the EU.

The first stage of the scheme sees airlines having to collect the necessary data on which airlines' carbon allocations will be calculated, before the first payments will be made next year. Despite the vocal criticism from outside Europe, EC climate commissioner Connie Hedegaard recently pointed out that only ten carriers - eight from China and two from India - had not complied with submitting emissions data by the 31 March deadline.

But AEA chiefs dismiss suggestions this means opposition to the scheme has evaporated. "You should not confuse compliance with acceptance," says International Airlines Group chief executive Willie Walsh. "Compliance at this stage does not mean handing over money. The fact that India and China are not compliant is a significant development and of concern.

"Everywhere I go, particularly when I go to China, where I was last week, in every interview the sole topic of conversation is ETS," he adds. "As airlines we hear it every day. We have been concerned about it for some time now."

While there is widespread acknowledgement that the commission has shown leadership in pushing green issues to the top of the global agenda with ETS, there is equally frustration among airlines that a too-rigid implementation of the scheme will scupper the prospects of a global solution through ICAO.

"We need Europe to recognise they are putting at risk the progress that has been made," says Walsh. "When I spoke to [EU transport Commissioner Siim] Kallas I expressed to him some of the frustration, and indeed the anger, that exists within the industry to what many people believe has been an arrogant approach by the Commission to the application of the EU rule to all airlines and all countries."

The political stand-off leaves airlines, particularly those in Europe, at risk from an escalation of the dispute into a full-blown trade war. China has already fired the first shots in that conflict by faling to authorise a number of widebody orders from Chinese carriers with European airframer Airbus, worth around €12 billion ($15 billion).

Walsh adds: "Europe cannot afford a trade war at a time like this. We need the EC to move quickly to defuse the tensions that exist. They need to take concrete steps towards a global solution.

"We recognise it must be addressed, but it is a global issue and needs a global solution,"

"[A trade war] is not inevitable," he adds. "There is a solution available. The EC has it in its own control. It's too important an issue to take a stance that may result in retaliation."

The key issue will be reconciling ETS, now being enshrined in European law, on the one hand, with the timescale of ICAO's work on developing a global scheme on the other.

The timing of the stalemate could not be less welcome for European network carriers. They face a grim economic climate, which has already seen two AEA members fall by the wayside this year - Malev and Spanair - which could yet get much worse depending on developments in the Eurozone.

At the same time, Europe's airlines complain of feeling straight-jacketed by the regulatory environment. On top of ETS and other legislative moves, capacity constraints - both through the failure to implement Single European Skies and a lack of new airport capacity - have left European airlines feeling distinctly unloved and looking enviously to other regions where air transport is used to drive economic growth.

"When we look at the development of our competitors, we are sometimes jealous," says Gustin. "We want to develop with the Commission a strategy to grow a strong airline industry to enable us to grow a strong European economy. And the European economy needs growth today.

"It's high time we favoured the development of this infrastructure in Europe," he adds. "We are not asking or begging for money, but we want a policy that supports [infrastructure development], which is not the case today."