With planned implementation of European Union Emissions Trading Scheme (EU-ETS) due on 1st of January 20012. Strong pressure is building up by a number of industry entities and countries to take measures to oppose its implementation, some calling for joint action.

On 5^th July 2011, before the European Court of Justice (ECJ), the Air Transport Association of America (ATA) America's oldest and largest airline trade association argued the European Union application of ETS  should be found contrary to international law and invalid.  The action was brought on behalf of all of its members, stating aviation greenhouse gas (GHG) emissions should be regulated on a global sectoral basis and that unilateral action by any country or group of countries violates international law.

IATA declared its support of legal challenge led by the ATA at the ECJ. The first indication of the result when the Advocate General delivers an initial opinion next week.

Prashant Sukul, joint secretary of India’s Ministry of Civil Aviation, a panelist at the  World Route Development Strategy Summit in Berlin stated on 2^rd Oct 2011 to the press. “If they (the EU) don’t call it off, we will retaliate,”  and continued. “People (in other countries) have ideas about retaliatory measures, and they will act their way”. “If Russia doubles the overflight charges, European airlines will be out of business,” he said “They could no longer fly east of Europe.”

Sukul stresses that EU ETS will create major market distortions and “penalize the consumer at the end of the day” while putting “further stress on airlines, which are an easy target.” Sukul points out that while European officials have been trying to make their case, they have not listened to the concerns of other regions. “But it is a different call now having to deal with 26 countries and more coming.”

Indian Market:
India is the fastest growing aviation market in the world driven by rapid domestic growth. However, IATA on 29th Sepember 2011 warned that infrastructure and taxation woes could hurt the industry. “There are some issues in India, particularly in infrastructure and so on, which are possibly a problem and constraint for the industry there. We encourage the Government to make the necessary investment. But the potential for these markets is enormous,”. While noting the Airports Economic Regulatory Authority (AERA) had a “critical role to play in bringing much needed regulation to this area”, “high levels of taxation” in the country as well as other charges paid by international carriers at Indian airports.

Air India prior to its recent aircraft replacement drive had a fleet average age of over 15 years, while currently it stands close to 10 years (please see below)

Arab Response:
During the Arab Air Carrier Organization's (AACO) 61st Executive Committee Meeting - Beirut on 12 September 2011 representatives of Egypt Air,  Middle East Airlines, MEA, Yemen Airways, Syrian Air, Gulf Air,  Air Algérie, Etihad and Qatar Airways met. Hussein Massoud Chairman and CEO of EgyptAir Holding Company stated to local Lebanese media that “AACO is currently coordinating with Arab League and Arab Civil Aviation Commission to take decisive action to address the laws and legislation enacted by the European Union which hinder Arab carriers operating to and from European countries”.

He added “the Secretary-General of AACO (Abdul Wahab Tufaha) was tasked to handle the case” he would “press for equal opportunities for AACO members in the European markets, as European airlines obtain in the Arab markets”. (ealier article on arabaviation.com  HERE)

On  9 August 2011: Emirates, stated that it will lose up to $1 billion during the first eight to ten years of the EU ETS. Around 24% of Emirate's global operations are in Europe.

The Arab fleet enjoys a comparative advantage over the world fleet in terms of meeting environmental requirements. The average aircraft age for Arab airlines is less than 8 years, as stated by Arab Air Carriers Organization

IATA's Position:
Tony Tyler Director General and CEO of IATA. on 27 September 2011 at the Greener Skies Conference, Hong Kong said in a speach

“But more important than industry opposition to ETS is the growing opposition among states. While the EU sees the ETS as environmental policy, the rest of the world sees it as an attack on sovereignty. The colonial era, when Europe imposed taxes on the world ended some time ago. China, India, Russia and the US are among states taking action.  In fact the US is processing a bill that would make it illegal for its carriers to make the required payments. This has passed through the House of Representatives Transportation Committee already—unanimously.

The third point of contention is the layers of uncoordinated taxation that are developing. The UK APD—originally conceived of as an environment tax now collects GBP 2.5 billion. That is enough to offset all of the UK’s aviation emissions four times over. Germany and Austria have introduced copycat taxes. But I don’t see any commitment to withdraw these when the EU ETS starts.  We should compensate for our emissions once, not many times over.  Last week I met QANTAS CEO Alan Joyce who noted that when the EU ETS takes effect QANTAS will be participating in three uncoordinated ETS schemes – in Europe, Australia and New Zealand.  On top of payments due under these schemes, there are big complexity and compliance costs.

As we approach 2012, the ETS will continue to get significant attention and rightly so, given its $1.2 billion cost in the first year. But economic measures are only one part of our environmental strategy. And, I would like to make two points here.

• First, our long-term vision is to reduce emissions, not pay for emissions trading permits. Economic measures are a medium term measure until technology, operations and infrastructure solutions are fully developed.

•  Second, any market based measure must go hand-in-hand with governments doing their part. Airlines should not have to pay for emissions that could have been avoided with responsible government investment in more efficient infrastructure and low-carbon technology."

Background:

The EU Emissions Trading System (EU ETS) is a cornerstone of the European Union's policy to combat climate change and its key tool for reducing industrial greenhouse gas emissions cost-effectively. Being the first and biggest international scheme for the trading of greenhouse gas emission allowances, the EU ETS covers some 11,000 power stations and industrial plants in 30 countries.

Launched in 2005, the EU ETS works on the "cap and trade" principle. This means there is a "cap", or limit, on the total amount of certain greenhouse gases that can be emitted by the factories, power plants and other installations in the system. Within this cap, companies receive emission allowances which they can sell to or buy from one another as needed. The limit on the total number of allowances available ensures that they have a value.

At the end of each year each company must surrender enough allowances to cover all its emissions, otherwise heavy fines are imposed. If a company reduces its emissions, it can keep the spare allowances to cover its future needs or else sell them to another company that is short of allowances. The flexibility that trading brings ensures that emissions are cut where it costs least to do so.

The number of allowances is reduced over time so that total emissions fall. In 2020 emissions will be 21% lower than in 2005.

The ETS now operates in 30 countries (the 27 EU Member States plus Iceland, Liechtenstein and Norway). It covers CO2 emissions from installations such as power stations, combustion plants, oil refineries and iron and steel works, as well as factories making cement, glass, lime, bricks, ceramics, pulp, paper and board.

Nitrous oxide emissions from certain processes are also covered. Between them, the installations currently in the scheme account for almost half of the EU's CO2 emissions and 40% of its total greenhouse gas emissions.

Airlines will join the scheme in 2012. The EU ETS will be further expanded to the petrochemicals, ammonia and aluminium industries and to additional gases in 2013, when the third trading period will start. At the same time a series of important changes to the way the EU ETS works will take effect in order to strengthen the system.

 Air India Current Fleet:

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