As European Carbon Tax on Airlines Takes Off, Higher Air Fares Loom

Patrick Goodenough | January 3, 2012 | 4:48am EST
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American Airlines planes at Dallas-Fort Worth International Airport. (AP Photo / Tony Gutierrez)

(Update: Adds Lufthansa statement details)

( – As the European Union on Sunday began charging all airlines entering European airspace for their carbon emissions, the German carrier Lufthansa became the first to warn that ticket prices will inevitably rise as a result.

A legal challenge against inclusion in the E.U.’s emissions trading scheme (ETS), led by airlines in the U.S., failed shortly before Christmas when the European Court of Justice (ECJ) ruled against it.

Opponents have argued that imposing the ETS undermines national sovereignty, violates international law, and weakens attempts to achieve a global solution through the International Civil Aviation Organization (ICAO). U.S. airlines and officials are joined in their opposition by counterparts in India, China, Russia and several dozen other countries.

For their part, environmental advocates say the ICAO has taken too long to come up with a solution, first called for under the 1997 Kyoto Protocol. The E.U.’s Executive Commission says aviation accounts for three percent of total emissions of greenhouse gases blamed for “global warming.”

Starting on January 1, all air carriers flying to, from or within the E.U. are liable for charges for emitting carbon dioxide (CO2). Under the ETS directive, all airlines using European airports are allocated tradable allowances covering a certain amount of CO2 emitted each year, based on historical data.

Any emissions beyond the allowance must be paid for, and airlines may also trade permits among themselves.

Lufthansa, one of the world’s biggest long-haul carriers, announced Monday that the expected $169 million in additional costs for carbon permits this year would be passed on to customers, although not immediately.

“In the face of intensive competition, especially of companies from non-E.U. countries whose production is subject to emissions trading to only a small degree, Lufthansa will have to pass on the burden via ticket prices, as suggested by the E.U.,” it said in a statement provided to

“The incorporation of airlines in the E.U. Emissions Trading Scheme means that European operators are now facing additional costs which will make flying within and via Europe more expensive for passengers,” said Carsten Spohr, a member of Deutsche Lufthansa AG’s executive board.

“It will also distort competition and impact on the sustainability of the aviation industry if it proves impossible to implement with the competitive neutrality promised by policy makers,” he added. “However, given the huge resistance at international level, it is unclear just how the situation will develop.”

The International Air Transport Association (IATA), which represents some 230 airlines accounting for 93 percent of scheduled international air traffic, opposes the ETS plan and was a party to the legal challenge that ended up before the ECJ.

IATA has estimated that the ETS will cost the airline industry overall $1.16 billion this year, up to $3.63 billion in 2020.

Passing on the costs to consumers alone will not work, according to a 2007 study commissioned by the aviation industry. It found that airlines would themselves have to absorb a large proportion of the additional costs, estimating that complying with the ETS would cost carriers more than $60 billion between 2011 and 2022.

Among the more significant responses to the E.U. scheme in leading countries over recent months:

--The U.S. House of Representatives last October passed a resolution prohibiting U.S. carriers from participating in any ETS unilaterally set up by the E.U., declaring that the E.U. action “directly infringes on the sovereignty of the United States.”  A similar bill is before a Senate committee and 15 airline industry groups are urging senators to support it. Also, the U.S. secretaries of state and transportation warned the E.U. last month of unspecified “appropriate action” should it not suspend the ETS directive.

--India’s aviation ministry has threatened to levy a retaliatory tax on European airlines operating to and from India, and at one point even considered the possibility of revoking landing rights for E.U. carriers altogether.

--The Chinese government warned it may impose punitive tariffs, China’s four major airlines and the China Air Transport Association (CATA) plan a joint lawsuit against the E.U., and CATA – which estimates the ETS will cost Chinese airlines about $124 million a year each – has suggested that Beijing should threaten to reduce future purchases of E.U.-made Airbus aircraft.

--Russia has threatened to hike overflight charges for European airlines flying to and from Asian destinations.

‘U.S. must level the playing field’

Any airline that refuses to comply with the new ETS requirements faces fines that will amount to considerably more than they would have to pay to comply with the scheme. They could also be prohibited from flying in European airspace.

Airlines for America, the industry group that initiated the legal action against the ETS on its members’ behalf, has said the 14 U.S. carriers “will comply under protest and will continue to operate safely and efficiently to Europe.”

At the same time it will consider the possibility of pursuing further legal steps at the High Court in England and Wales, where the airlines had originally brought the suit that ended up before the ECJ, Europe’s highest court.

Meanwhile, green groups in the U.S. are hoping the developments in Europe will spur efforts to impose carbon fees in American airspace too.

“Americans invented the airplane, now it’s time for us to create climate-friendly skies,” said Annie Petsonk, international counsel at Environmental Defense Fund. “The E.U.’s leadership challenges U.S. airlines to take charge and deliver to the flying public clean and green air travel.”

Earthjustice managing attorney Martin Wagner said that although U.S. aircraft account for nearly half of worldwide aviation CO2 emissions, “the U.S. airline industry has fought to avoid playing its part in preventing runaway climate change.”

“The airline industry should now pressure the U.S. government to level the playing field by imposing equivalent restrictions on aircraft pollution in the United States.”

Environmental Defense Fund and Earthjustice were among six American and European environmental groups that were permitted to intervene in the legal case before the ECJ.

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