With the increased opposition to the European Union’s inclusion of global aviation in its CO2 Emission Trading Scheme (ETS), NKEM OSUAGWU, writes on the impact of this scheme on the operations of African airlines.
As the global aviation industry joins forces to fight the European Union’s inclusion of international civil aviation in its Emissions Trading Scheme (EU ETS), it appears that the African continent has yet to come out with a strong stand on the issue which experts say might further retard the growth of African airlines.
Though the EU ETS was developed to contain green house emissions from the aviation which contributes about two per cent CO2 to green house emissions, its inclusion in the EU ETS scheme has been estimated to cost the global industry about $11.8 billion by the end of 2020, while the International Air Transport Association (IATA) estimates will cost the industry about $1.2 billion this year.
The growth of global aviation is not in doubt, and part of this growth is aircraft emission, which has become a major global issue. Though the contribution of aviation emission to climate change is small compared to contributions from other sectors such as road transport, industries or power generation, its 2% contribution to global greenhouse emissions is significant.
While the world tries to find a global approach to contain the impact of civil aviation to the environment through the International Civil Aviation Organisation (ICAO), the European Union has gone a step ahead to implement its Emission Trading Scheme (ETS) which simply put means imposing tax on airlines for CO2 emissions.
The scheme which became effective this year, requires all airlines to hold emission rights in the form of CO2 certificates for flights to and from Europe.?
The scheme is aimed at combating climate change by reducing carbon dioxide emissions, but has so far ignited a global condemnation because of the EU’s unilateral inclusion of airlines that operate flights to and out of the European Union into the scheme.
What is EU ETS?
Europe's highest court gave unreserved backing to an EU law to charge airlines for carbon emissions on flights to and from Europe. Under the law, all airlines flying to, from and within the European Union will have to buy permits under the EU's emissions trading scheme from January 1 this year.
The European court of Justice in its ruling stated that the, “application of the emissions trading scheme to aviation infringes neither the principles of customary international law at issue, nor the open-skies agreement,” non EU countries believe the scheme undermines the global collaboration through the International Civil Aviation Organisation (ICAO) and that it is in contravention to the Articles of Chicago Convention and violates the cardinal principle of State Sovereignty laid down in Article 1 of Chicago Convention viz: “The Contracting States recognize that every State has complete and exclusive sovereignty over the airspace above its territory”.
It also does not take into account the social and economic circumstances of different countries, especially the developing ones. It will also stunt the growth of international aviation.
EU’s unilateral inclusion of international civil aviation in the -ETS affects all airlines and aircraft operators regardless of nationality provided that they operate flights departing from and / or arriving at an aerodrome in the EU.
The EU emission taxes cover passenger, cargo and non-commercial flights. Non-complying aircraft operators face a penalty to be determined by the EU and they may even be banned from operating flights into any European airport.
Global Resistance
Though the scheme has attracted global denunciations, the EU has remained uncompromising in its stand to implement it.
This situation experts said might result into trade rows with other countries. For instance, China has banned all Chinese airlines from complying with the EU scheme, while American airlines have taken the matter to court. It is also believed that a new legislation from the United States of America will make it unlawful for US airlines to comply with the EU ETS.
Also, most European airlines are not comfortable with the scheme because of the cost implication and the fear of reprisals from other countries. British Airways in its website said, “the proposals have been made more financially burdensome for airlines”, estimating that the scheme will cost EU airlines from ?36 billion to ?91 billion over the first 11 years.?
“We have concerns about the imposition of this scheme on foreign airlines flying into the EU. We believe it will lead to a negative legal battle at a time when we need a constructive debate on a global solution. If implemented as it now stands, the scheme will lead to a significant competitive disadvantage for EU airlines, resulting in job losses and a reduction in services as international passengers by-pass European hubs”, said the airline.
Carsten Spohr, Member of the Executive Board of the Lufthansa Group, said: “The incorporation of airlines in the EU Emissions Trading Scheme means that European operators are now facing additional costs which will make flying within and via Europe more expensive for passengers.
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. However, given the huge resistance at an international level, it is unclear how the situation will develop.” Lufthansa German Airlines had announced that ticket prices will rise in Europe due to the inclusion of aviation in the Emissions Trading Scheme.
The Lufthansa Group will have to buy at least 35 percent of the certificates it needs to represent its growth in recent years. Judging by the average trend in certificate prices, Lufthansa expects to incur additional expenses of EUR 130m in 2012. Lufthansa will redirect the costs via higher ticket prices, as recommended by the EU. Lufthansa will therefore include the cost of purchasing the certificates in its existing fuel surcharge.
Some countries have also come together to propose a basket of measures against the EU over the issue. These include mandating EU carriers to submit flight details and other data; assessing whether the EU ETS is consistent with the WTO Agreements and taking appropriate action;? reviewing bilateral service agreements, including Open Skies with EU member states and reconsidering the implementation or renegotiation of the ‘horizontal agreement’ with the EU.
Others include suspending current and future discussions and/or negotiations to enhance operating rights for EU airlines/aircraft operators; and imposing additional levies/charges on EU carriers/aircraft operators as a form of countermeasure among others.
In addition, major aviation companies in European have appealed to European countries to find a solution to the problem because of the impact the scheme will cause to their businesses. The chief executive officers of nine European aerospace manufacturers and airlines wrote letters to the Prime Ministers of France, Germany, Spain and the United Kingdom to put a stop to the growing probability of a trade conflict with China and other major nations over the EU ETS.
In letters to David Cameron (UK), François Fillon (France), Angela Merkel (Germany) and Mariano Rajoy (Spain), the these firms including Airbus, British Airways, Lufthansa German Airlines and others say they expect countermeasures and restrictions on EU airlines, such as special taxes and traffic rights limitations, by countries opposed to the EU ETS.
Airbus points to the suspension of $12 billion worth of orders from China, which might jeopardize more than 2,000 jobs within the company and its supply chain. They expect that as other important markets continue to oppose the ETS, the situation might become difficult for the European aviation industry.
Effects On African Airlines
According to IATA’s Regional Vice President for Africa, Mike Higgins the enforcement of the EU carbon-trading scheme would be the “biggest threat to the growth and profitability of African airlines.” This is based on the fact that Africa has always remained the worst performing continent in aviation matters due to the low level of aviation development in the continent.
Moreover, the airline industry is still burdened with a myriad of problems including high cost of aviation fuel, poor infrastructure, staggering debt profile, lack of support from governments, poor business model among others.
However, African and other global airlines have to comply with the EU Emission Trading Scheme ‘under protest’ despite its impact on their bottom-line. Despite this, African governments have yet to take a tough stand on the issue to protect their airlines except for a few countries in Africa like South Africa which plans to come up with its own carbon tax law later this year.
That is not to say the continent is not worried, because the African union has shown some commitment in joining the rest of the world to condemn the inclusion of global aviation to the scheme.? The African Airlines Association (AFRAA), the umbrella body for airlines in Africa has taken up the matter.
In a statement it issued from its office in Nairobi, AFRAA opposed the launch of the scheme and demanded wider consultations between the European Union and affected countries around the world.
The African Union through the African Civil Aviation Commission (AFCAC) in collaboration with the African Airlines Association (AFRAA) and various civil aviation authorities has introduced programmes to reduce emissions.
These include: aircraft fleet renewal programme made possible by the Cape Town Convention, which has changed the African skies with new generation aircraft, the modernization of the Air Traffic Management System, the use of environmental friendly Ground Support Equipment among others.
Nigeria on its part has yet to come up with measures to counter the EU’s unilateral imposition of carbon tax on airlines. This might be because the country has remained a minimal player in the global aviation industry as Arik Air is the only Nigerian airline that operates flights to Europe.
Also, Arik Air has yet to state how this will impact on its operations to the United Kingdom. The airline had last year temporarily stopped its Abuja to London operations based on the astronomical amount it has to pay for slots as well as other airport charges. Though the airline has since recommenced its operations, it still pays for slots for its Lagos to Heathrow as well as Abuja to Heathrow flights.
This is in addition to the increased airport charges. Analysts believe that this additional burden will ultimately increase the cost of the airlines operations to Britain. Also, thousands of Nigerians travel to various European destinations by air and they will have to pay more on air fares as airlines pass on the additional cost from the EU ETS to the passengers. These also apply to other airlines and air passengers in the continent.
Thus, while various countries work toward adopting counter-measures to protect their civil aviation industries against the unilateral application of EU carbon tax law on airlines, it is essential that African governments equally work toward a common course to protect the air transport industry in the continent.