China bars airlines from EU plan to cut pollution

EU’s move could cost Chinese airlines as much as 800 million yuan ($127 million) in 2012.

China, home to the world’s fastest growing aviation market, banned airlines from taking part in a European Union carbon-emissions system designed to curb pollution, saying the program violates international rules.

The system contravenes the United Nations Framework Convention on Climate Change and international civil aviation regulations, the Civil Aviation Administration of China said in a statement posted on its website today. Carriers were also barred from using the EU program as a reason for raising fares, it said.

The EU hopes to resolve the issue through negotiations or it may ultimately be ruled on by the courts, Markus Ederer, its ambassador to China, said at a press briefing in Beijing today. India, the US, Russia and global airlines have also objected to the levy, saying it will be less effective than a global solution.

“I believe all sides will negotiate again and find a solution,” said Chai Haibo, vice president of the China Air Transport Association. “I can’t imagine that the worst case, such as the EU grounding Chinese flights, could happen.”

The airline group has called on the government to oppose the EU levy and it is working on a legal challenge in Germany. Whether the lawsuit will continue will depend on the EU reaction to the China ban, Chai said. The group’s members include China’s big three state-controlled carriers, Air China Ltd., China Southern Airlines Co. and China Eastern Airlines Corp.

A call to Civil Aviation Administration of China wasn’t answered.

The EU added aviation to a wider carbon-trading system on Jan 1. The move could cost Chinese airlines as much as 800 million yuan ($127 million) in 2012, according to the China airline group. Based on current carbon prices and the fact that airlines will get permits for some emissions for free, the system would boost Beijing-to-Brussels ticket prices by 17.50 yuan, Ederer said.

“I leave it to you to make a judgment on whether this is too much for saving the Earth,” he said. There is also further time for discussion, Ederer said, as airlines have until April 2013 to submit permits for carbon emissions this year.

Other nations’ carriers can be exempted from the EU system if their own governments introduce similar programs, he said. The International Civil Aviation Organisation, a UN body, has said that it plans to form a global system.

The EU Court of Justice in December upheld the legality of the bloc’s drive to extend the world’s largest carbon cap-and- trade program beyond its borders. The system covers the EU’s 27 members as well as Iceland, Liechtenstein and Norway.

The EU climate commissioner, Connie Hedegaard, has repeatedly said that she is open to talks with other nations and that the EU law provides for “equivalent measures.”

But what those measures are has not been fully explained, said Andrew Herd-man, director general of the Association of Asia-Pacific Airlines, which represents 15 regional airlines, including Cathay Pacific and China Airlines.

Equivalent measures

He was unaware of any governments that might be considering equivalent measures, like a matching program that would impose carbon costs on incoming and outgoing flights.

“We’re now at the stage that it’s absolutely clear that a whole host of foreign governments are not going to allow the EU to do this,”  Herdman said, but he added that the Chinese government’s ruling was problematic.

“It does put the Chinese airlines in a difficult position where you’ve got to comply with the legislation and yet your government is telling you not to comply,” Herdman said.

China Southern’s chairman, Si Xian-min, said last week that the European emission-trading program was not beneficial in the current economic environment or for Europe’s  efforts to escape the sovereign debt crisis. He made the comments at a briefing in Mumbai that was also attended by Chancellor Angela Merkel of Germany and Prime Minister Wen Jiabao of China.

China Southern, Asia’s biggest airline by passenger numbers, flies to Amsterdam and Paris, and it intends to start service to London this year. Air China, the nation’s largest international carrier, generated 11 per cent of revenue in Europe in the first half of last year. Its destinations in Europe include London, Paris and Madrid.

Countries opposed to the emission trading program have said it is illegal and impinges on their sovereignty because carriers are charged for pollution that happens outside Europe — for instance, on the first part of a flight from Asia to Europe.

“This is more of a political fight than about protecting the airlines,” said Kon-rad Hanschmidt, a carbon markets analyst at Bloomberg New Energy Finance. “The carbon costs would have a relatively small impact on airfares, as they account for approximately 1 percent of fuel costs.”

India has asked carriers not to give emissions data to the European Union, K G Vishwanath, vice president for commercial strategy and investor relations of Jet Airways (India), said last month. The country also plans to work with other nations opposed to the program, M F Farooqui, the Indian Environment Ministry’s joint secretary, said last week.

Shinichiro Ito, president of All Nippon Airways, Asia’s largest listed carrier by sales, said last month that he favoured a global system over a regional one. The carrier and the Japanese government are working on ways to oppose the system, he said without elaboration.

The US House of Representatives passed a bill last year prohibiting US airlines from participating in the EU carbon program, after the industry estimated that participation in the system would cost US airlines $3.1 billion from 2012 to 2020. The bill still needs approval from the Senate and President Barack Obama.

Cathay Pacific, which is regulated by Hong Kong rather than Beijing, said it was complying fully with EU emissions systems “under strong protest.”

“The scheme will lead to additional cost, complexity, distort the global air transport market, could lead to carbon leakage and it is unlikely to achieve its intended environmental objectives or contribute to reducing climate change,” the carrier said by e-mail Monday.