Every 4th of July, Americans celebrate the country’s founding with parades and fireworks. One defining event leading up to the Declaration of Independence was the Boston Tea Party of 1773. We all know the story: Colonists dumped shiploads of tea into Boston Harbor to protest a tea tax levied by the British Parliament without their consent.
Most Americans are probably unaware that something similar is happening today. The European Union is trying to force American consumers flying on American airlines operating in American airspace to pay what amounts to a tax under its Emissions Trading System (ETS).
The EU’s ETS was introduced in 2005 as a way for EU member states to comply with their Kyoto Protocol obligations. Initially, the ETS did not cover emissions from airlines, but that all changed with passage of EU Directive 2008/101, which requires all airlines—even non-EU airlines—serving any of its member nations to comply with the ETS.
U.S. airlines and others challenged the decision in the European courts, saying it amounted to an international tax on aviation violating the 1944 Chicago Convention on International Aviation. The European Court of Justice ruled in December 2011 that the EU’s unilateral action was “valid” because the EU is not a signatory to the Convention—though its member states are—and it didn’t infringe other facets of international law.
Under the EU’s Directive, in 2012 U.S. and other foreign airlines must report emissions data and in 2013 start paying a fee based on how many tons of carbon dioxide they emit on flights to and from the EU, even from those parts of the flight that occur outside EU airspace. That can be quite a lot: On a flight from Los Angeles to London, for instance, 91% of the route is beyond the EU.
Trying to defend its indefensible tax grab, EU Climate Commissioner Connie Hedegaard claims that passengers would pay only €2—about $3—more per airline ticket, the “price of a cup of coffee.” The fact is, U.S. airlines already reeling from recession and high fuel bills would have to ship off to the EU well over $3 billion dollars through 2020. That is a lot of lattes.
The political response in the U.S. has been swift and bipartisan. The House has passed legislation that would forbid U.S. carriers from participating in the ETS, and a similar bill has been introduced in the Senate. The Obama Administration also is on record opposing extending the ETS to U.S. carriers. And more recently, the House used its power of the purse to prevent the use of federal funds to impose the EU ETS on U.S. airlines. The Senate should follow suit.
India, China, and other countries already have prohibited their carriers from participating in the program, and carriers from both these nations have refused to report to the ETS as the EU requires. Playing hardball, the Chinese also have held up some Airbus orders, and the Indians have suspended talks with European carriers on new routes. Other countries are considering similar measures.
The political reaction aside, as a practical matter few if any industries have a bigger incentive to reduce its energy use than aviation. At 30% to 40%, fuel is the largest single operating expense airlines have today, even higher than labor, and has driven tremendous efficiency gains. The international aviation industry also has approved ambitious goals of increasing the use of biofuels, improving its fuel efficiency even more, and capping its emissions after 2020.
So why has the EU gone ahead with a draconian new rule that will play havoc with international aviation, is opposed by more than forty countries, and will invite trade retaliation that could send airfares sky high?
Because it says it is frustrated with the slow pace of negotiations in the International Convention on International Civil Aviation (ICAO), where an agreement of aviation emissions is being sorted out. The EU has said that it would prefer an ICAO agreement, but absent that, it felt the need to act.
It doesn’t seem to have dawned on Brussels, however, that by making an ICAO agreement a quid pro quo for ending ETS’s reach to international aviation, it has been too clever by half.
After all, what assurances do other countries have that the EU, which already has shown a willingness to run roughshod over international norms, will rescind its extension of the ETS to international aviation once an ICAO agreement is reached? And what are the chances the EU will rescind its ETS extension without an ICAO agreement in place? The answer to both questions is “none.” Add to this the mistrust the EU’s unilateral approach has created, an impasse in ICAO becomes more likely, not less.
Congressional action is welcome and important, but the U.S. and other countries should file a complaint in ICAO challenging the EU’s tax. Doing so would trigger a formal process and lead to an ICAO ruling resolving the dispute. There is every reason to believe the U.S. would prevail in such a challenge.
The EU’s cap and trade tax on U.S. aviation traversing U.S. and international airspace is a direct affront to U.S. sovereignty that defies international law and will cost U.S. airlines billions of dollars and thousands of jobs. Unless the EU sees the error of its ways, or is forced to by ICAO, U.S. aviation can expect a bumpy ride.