29 September 2007

Emissions Trading in Aviation - a treatise

For some time now there has been a brewing friction between the airline community – as represented by IATA and ICAO and the European Community over the EC’s ETS – Emissions Trading Scheme. When initially proposed the Airline community was not included in the scheme, however as a major consumer of hydrocarbons this was soon rectified and added to the mix. However the Airline Community did not like it or support it.

In September 2005 the issue spilled out into the open. “Air transport is a global industry and the environment is a global concern. Effective solutions must be global solutions. Member states of the International Civil Aviation Organization (ICAO), including all EU members, are committed to deciding a course of action on aviation emissions in 2007. A European solution is no solution at all. Unilateral regional efforts will only distract from this process," said Giovanni Bisignani, IATA Director General and CEO.

In September 2006, The EC came to plead its case in front of the US Regional meeting of the WEF – World Economic Forum. They were told in no uncertain terms that the proposal was flawed for the design not necessarily the concept. In February 2007 when officially announced, the ETS was given a very cool reception by the Airline Community. While being very careful not to attack the concept, IATA and ICAO have been very strong in their opposition to the scheme’s implementation. This Autumn 2007 as the scheme reaches its roll out, the official aviation organizations (ICAO and IATA) have ramped up their opposition to it.

Let’s consider the issues and try and make sense of it…

Without a doubt the airline industry contributes to global climate change through the extensive use of Hydrocarbons. However jet fuel is one of the cleanest burning of any oil distillate. Further the global use is quite small at only approximately 2% for all uses of Oil based hydrocarbons.

IATA and ICAO have 3 basic objections.

1. They want a global scheme not a country or regional specific one. The UN (of which ICAO is a member organization and so chartered), endorses this point of view. Aviation is a global industry. There is a concern that some countries not just the EC and its member states plus the ECAC covered additional states will unilaterally impose both green taxes or other schemes. The complications of a single unit of countries such as the European Community (EC) starting this scheme creates all manner of issues.
2. They want a fair treatment of aviation particularly airlines in proportion to the amount of climate change contribution from the industry vs other more heavy hydrocarbon and polluting market sectors
3. Full consideration of the issue rather than picking on a small number of user types. (More on this below).

As a note there is several other lurking issue. For example the Chicago Convention of 1946 which explicitly forbids the use of any form of taxation on airline fuel. It could be argued that ETS is such a form of taxation. Clearly IATA and ICAO are somewhat miffed into having to react to this rather than addressing the issue in their own way and on their own time. Caught napping, they are not happy at being told what to do.

For the EC there are significant advantages to making the play to include aviation – especially airlines. Why? Firstly it must be remembered that the EC is trying to become the supra-national organization that legislates and represents the member states. As such it is important for the EC to take a single position. The EC is ramping up more and more to have a single voice with regard to airline. For example it is clearly emboldened by the agreement in May of this year to get all member states a deal with the USA on the Transatlantic Open Skies agreement. In the event that the EC is able to proceed with the ETS and force the inclusion by the non-EC carriers they will have created the first major step. Without a doubt it will put Europe ahead of all other nations in addressing the issue of Climate Change in the sector.

As a unit, Aviation becomes very easy to regulate. With less than 100 players in Europe and points of contact and control easily administered, Aviation is one of the simplest sectors to tax and regulate.

But, and this is a big one, People do not just use airlines to get from A to B. they are but a part of the mix of transport. Popular sarcasm in many countries points to so-called Green Warriors who campaign for Climate Change limiting measures but drive SUVs and buy exotic foods that travel very far. Not to mention their use of distant locales for holidays. So too we must review the issue of the aviation eco-system. Consider the issue of the airport. These are large collectors of people and consumer massive amounts of energy in their own right. Further there are some more efficient than others. Consider the issue of ground congestion waiting for runways. London’s Heathrow airport is one of the most notorious in the world for congestion both on the ground and in the air. Yet the ground portion is not considered in the scheme.

How to resolve this?

There are many issues in front of the aviation community. As with any major issue – this is going to be a tough nut to solve. However if we stick to the broad principals, Airlines should be included as Climate Change contributors in any scheme at the supra national level. Exempting them from the scheme would be inappropriate. The EC will definitely not be backing down from the scheme which means a showdown in some court is likely. The key battle will likely emerge with the US airlines who may choose not to opt into the scheme. As such the US Administration (not that of Bush as it will only occur beginning next year), will be forced to support their citizen airlines. This will likely end up in some form of compromise. Most likely with a voluntary contribution from the US and other non-EC airlines.

It should remembered that we are not speaking of a full taxation system here but rather only an emissions trading scheme. Implementing such a system will be no trivial task. And the passenger or freight owner? Yes they will be impacted. Lets all hope that this is handled in a reasonable way and we can get on with the business of moving people with their own free choice. Do I believe in ETS? Yes. Fundementally it is important for aviation to accept its position and responsibilities. The true cost of the product must not be the past elements that created them but also the allocation of future impact. This has to be the manner of handling product responsibility. The alternative would be a tobacco style witch-hunt post fact. Let’s not make that mistake.

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