Aviation industry warns of trade war over EU carbon tax

(SINGAPORE) - World aviation bosses warned Monday of a potential trade war over a carbon tax imposed by the European Union, which expressed readiness to compromise while insisting on its environmental agenda.

In a conference on the eve of the Singapore Airshow, one of Asia's largest aviation trade fairs, representatives of the airline and plane manufacturing sectors expressed concern over a potential political and economic standoff.

"I have to say I'm really worried, also as a manufacturer, about the consequences," said Airbus Chief Executive Thomas Enders.

"I have seen the position in China, in Russia, in the US, in India, and what started as a scheme to present a solution for the environment has become a source of potential trade conflict," he added.

The EU imposed its Emissions Trading Scheme (ETS) on airlines flying into the continent on January 1 despite opposition from over two dozen countries including India, Russia, China and the United States.

The EU says the scheme was designed to reduce carbon emissions blamed for climate change, and will help the 27-nation bloc achieve its goal of cutting emissions by 20 percent by 2020.

China, the world's fastest-growing aviation market, has barred its airlines from complying with the requirement.

EU transport commissioner Siim Kallas, who also spoke at the Singapore conference, said Europe was committed to reducing carbon emissions.

"We don't have enough reasons or ground to suspend the legislation," he said at the forum.

But he added that Europe was "sincere" in expressing readiness to achieve a "multilateral solution" through the UN airline watchdog, the International Civil Aviation Organisation (ICAO).

Speaking later to reporters, Kallas said it was difficult to predict the likely fallout if China and other countries refused to comply with the ETS.

"We don't know what exactly are they concretely planning to do," he said.

"I think that to avoid trade war is really very important for us, we are ready to compromise but the question is to which extent."

Tony Tyler, director-general of the International Air Transport Association (IATA), which represents airlines, warned the Singapore forum that "aviation can ill-afford to be caught in an escalating political or trade conflict over the EU-ETS."

While Europe deserves credit for being at the forefront of efforts to reduce emissions, Tyler said "non-European governments see this extra-territorial tax collection as an attack on their sovereignty, and they are taking action."

Singapore Airlines CEO Goh Choon Phong said that "we are objecting to the principle of how it is being applied, that it is applied to flights outside of Europe, to airspace outside Europe."

John Slosar, CEO of Cathay Pacific of Hong Kong, said that "when people go it alone whether for good reasons or bad, troubles come and difficulties arise."

Airlines opposed to the system say it would cost the industry 17.5 billion euros ($23.2 billion) over eight years.

But the head of the European Low Fares Airline Association said last week that the United States and other opponents should work harder to develop their own plans to reduce harmful emissions to gain exemptions from the tax.

The European Commission, the executive arm of the EU, argues that the cost for airlines is manageable, estimating that the scheme could prompt carriers to add between four and 24 euros to the price of a round-trip long-haul flight.

Some 655 million people flew within Europe last year.

The EU launched the ETS in 2005 in a bid to reduce carbon emissions of power stations and industrial plants.

It decided to include airlines, held responsible for three percent of global emissions, in the absence of a global agreement to cap aviation emissions.

Under the EU scheme, airlines will have to pay for 15 percent of the polluting rights accorded to them in 2012, the figure then rising to 18 percent between 2013 and 2020.