Isra-Mart srl: The view from Chinese airspace

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From 2012, the European Union’s Emission Trading Scheme (ETS) will set carbon quotas for airlines flying into or out of the trading bloc. Airlines exceeding their quota will need to buy extra emission permits. China’s airlines have consistently opposed the move and threatened to take the matter to court.

Is the EU move legal? Does it breach the principle of common but differentiated responsibilities set out in the Kyoto Protocol? chinadialogue’s Meng Si asked three Chinese experts for their views: Jiang Kejun, head of the Energy Research Institute at the National Reform and Development Commission, China’s top economic planner; Yang Fuqiang, senior adviser on climate, energy and environment for the Natural Resources Defense Council’s China Program; and Luo Rui, senior consultant at ICF International, a consultancy specialising in energy, environment and transport.

For a view on the row from Europe, read “Battle of the skies” by Oxford University aviation expert Christian Carey here .

Meng Si: What’s your view on Chinese threats to sue the European Union over the inclusion of aviation in the ETS?

Jiang Kejun: It’s natural that China’s airlines will object to paying charges, but I don’t think there’s any need for China to make too much of a fuss. The inclusion of aviation in the ETS will have a greater impact on European airlines, as they have more European routes. Also, there are advantages for China. First, the higher costs for European airlines will result in a relative increase in the competitiveness of Chinese firms. Second, it will promote low-carbon development for China’s airlines. China’s late-starter advantage means its firms are very likely to lead others in emissions reductions – there’s no need to be particularly concerned.

Yang Fuqiang: China has failed to pay enough attention to the way this has developed. The European Union has been working on the inclusion of aviation within the ETS for years, and they informed other nations and asked for feedback well in advance – but nobody thought there was any rush and didn’t pay too much attention. Now the EU has actually passed the legislation and everyone’s apparently been caught unawares. China’s in the same boat, but it’s too late now.

Another thing is that the EU has been working on this for years – it’s legally sound, and China won’t win any court cases. So China’s opposition is merely political. And flights between China and the EU are more important to China than to Europe, so the EU has the stronger negotiating position.

Luo Rui: Aviation emissions should be a focus of concern, but enforcing an emissions policy in the face of widespread opposition may affect international climate talks and disrupt genuine cooperation.

International industry associations such as the International Air Transport Association have already produced roadmaps for emissions reduction, but the EU’s unilateral, regional measures mean this is no longer a simple climate change matter – it has become a trade issue. China has every right to make its opinions clear. Of course, the EU’s own airlines may believe that including overseas firms is fairer, for the sake of their own competitiveness.

There’s nothing wrong with the ETS itself – the problem is that it’s not a global system. Steve Ridgway, Chairman of the Association of European Airlines, said in Brussels in September that the ETS will result in annual costs of 3.1 billion euros [US$4.3 billion] for European airlines – 1.1 billion euros [US$1.5 billion] of which will go to EU governments. This has been opposed by airlines and some industry associations. The ETS rules that the length of flights landing in the EU will be calculated from the last non-EU point of landing. So if you fly from Beijing to Paris, you are judged to have flown that whole distance. But if you fly from Beijing to Dubai, then to Norway, then to Paris, then only the Norway to Paris leg is used. That’s a focus of debate, as there’s a loophole there.

Developing nations will also worry that this model will be extended to other sectors, wrecking the principle of common but differentiated responsibilities.

Meng Si: If this system goes into effect, what impact will it have on China?

Jiang Kejun: In terms of response to climate change, I think it’ll have a positive effect. Chinese airlines need to look to the future and become low-carbon if they are to be more competitive. Their passengers come from all over the world and, in particular, European consumers will tend to choose environmentally friendly airlines. If the airlines fight this too much, they’ll spoil their image and that won’t help future growth. I think China’s consumers can stand the extra costs, it won’t affect the market.

Yang Fuqiang: Chinese airlines have said this will result in 800 million yuan [US$126 million] of increased costs a year. That’s a huge number, but divide it across passengers and it’s not that much, under 100 yuan [US$15.7] extra per ticket. The EU looked at this when they were designing the system and believe that the costs are bearable.

But it should be stressed that, from China’s standpoint, this is not fair. Developing nations will suffer more, which breaches the principle of common but differentiated responsibilities.

This affair should sound a warning bell for China’s climate negotiators. China’s airlines have sent representatives to negotiations on aviation emissions, but sometimes they turn up, sometimes they don’t – often they’re just seeing what’s going on, rather than putting forward their own proposals. Then when things get started, it’s too late and there’s little they can do about it. Even if the ongoing discussions go well for China, I guess the airlines are still looking at extra costs of 200 to 300 million yuan.

Luo Rui: Needing to buy emission permits will increase costs for airlines, but those costs are related to the price of carbon, and ultimately might not be as high as the 800 million yuan figure that’s been mentioned. Currently buying carbon credits costs 3% of fuel costs, and if the price of carbon increases it still shouldn’t be more than 10%. I don’t think initially there’ll be very much increase in costs, but by around 2014 to 2016, expected increases in the cost of carbon may make things much more expensive.

Different companies will have different abilities to absorb those costs, so it’s hard to say how much will be passed onto consumers. China’s aviation sector is expected to expand rapidly and it’s unlikely the number of flights to the EU will decrease – but environmental costs will become more important when routes are being chosen.

Meng Si: How could a compromise be reached?

Jiang Kejun: It’s hard to say whether or not the Chinese airlines will be able to change the rules through legal action. Personally, I don’t think they’ll gain anything. The lesson here for the European Union is that there was a lack of communication early on. China being suddenly informed like that – that’s hard to accept in Asian culture.

Yang Fuqiang: I think China and the EU should sit down for constructive talks rather than just work against each other. Both sides should seek a solution though high-level government talks. After all, the EU has no desire to see deadlock with China.

The EU should offer a grace period for developing-nation airlines, during which these charges will not be collected. That would be in line with the principle of common but differentiated responsibilities. The length of the grace periods should be set in accordance with the ability of different nations to make emission cuts.

China’s aviation industry wasn’t included in the emission-reduction and energy-saving plans of the 11th Five-Year Plan, and the targets now set for the industry in the 12th Five-Year Plan aren’t very ambitious. If airlines had made improvements during the 11th Five-Year Plan, they could argue more convincingly with the EU. China should join with developing nations and argue for the principle of common but differentiated responsibilities to be applied, rather than opposing the move along the same lines as the United States [north American airlines have sued the EU on the grounds that its aviation ETS plans violate international law].

Luo Rui: In September, the EU publicised a proposal for allocation of free quotas, with charges to be reduced or waved in exchange for measures to reduce emissions, such as using biofuel or new materials. Currently, China is trying to gather as many bargaining chips as possible in the hope that the EU will recognise the industry’s undertakings on emissions reduction and thus reduce its costs. At the same time, I think the industry should be preparing, working out emissions data and making sure it is ready for the worst-case scenario.