Will the EU ground its flying carbon tax?

For several years now, a conflict has been brewing between the European Union and many of its largest trading partners over European attempts to control carbon emissions. The specific issue has been the vast quantities of carbon dioxide generated every year by the world’s aircraft. With global negotiations aimed at addressing aircraft emissions stalled, the EU  took action of its own:

As air travel becomes cheaper, EU emissions from aviation are increasing fast. Someone flying from London to New York and back generates roughly the same level of emissions as the average person in the EU does by heating their home for a whole year. In order to mitigate the climate impacts of aviation, the EU has decided to impose a cap on CO₂ emissions from all international flights – from or to anywhere in the world – that arrive at or depart from an EU airport….From the start of 2012, emissions from all domestic and international flights that arrive at or depart from an EU airport will be covered by the EU Emissions Trading System.

The move inspired howls of protest outside the EU, and the extraterritorial reach of the tax has been the focus of the anger: aircraft landing in Europe are compelled to pay for the emissions generated even outside European airspace. The EU contends that skyrocketing aircraft emissions–and the failure of international efforts to control them–justify the measure.  For non-Europeans, however, the policy has been cast as unacceptable, and probably illegal, regulatory overreach. A European Union that loves multilateralism stands accused of abandoning international negotiations for a unilateral approach. 

The trick for livid non-Europeans has been finding an international forum that can back up their complaint. A trade association representing U.S. airlines challenged the measure in the European Court of Justice, but lost. The UN’s International Civil Aviation Organization (ICAO) is the most obvious forum, but it doesn’t have a strong record of adjudicating disputes between its members. The World Trade Organization does have a binding dispute resolution system, but the EU measure may not violate existing international trade law (which has special rules that cover aviation).

The absence of an international ruling against the directive hasn’t quieted the EU’s critics, some of whom have threatened noncompliance (the first payments under the system don’t come due until early 2013). The U.S. Congress has considered legislation making it illegal to comply with the EU law. In February, more than twenty governments opposing the measure met in Moscow to hone a set of counter-measures. Perhaps most importantly, China appears to be deploying its massive buying power to encourage European reconsideration.

The strategy may be yielding results. Key players in the European aviation industry just sent a stinging letter to EU leaders warning that the tax may spark a trade war and damage their sales:

European aviation bosses have urged political leaders to stop an escalating global row over an EU carbon levy, warning it is seriously threatening their industry.

Airbus CEO Tom Enders said that China — at the forefront of opposition to the EU Emissions Trading Scheme (ETS) – had suspended orders for aircraft worth $12 billion, putting at least 2,000 positions at risk.

Alongside Enders, eight chief executives of airlines and engine makers wrote to the leaders of Britain, France, Spain and Germany saying they expected "suspensions, cancellations and punitive actions to grow as other important markets continue to oppose ETS."

EU officials have left open the option of altering the directive if some broader international agreement is reached on aviation emissions. But that kind of complex, multilateral agreement remains distant, and few of the major players appear inclined to negotiate seriously while the offensive EU directive is pointed at them.