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November 10th, 2011:

Time running out for carbon tax deal

South China Morning Post – 10 Nov. 2011

Aircraft cause 2 to 3 per cent of the world’s air pollution, but airliners and passengers have had an easy ride when it comes to emissions. While industries such as power generation and steelmaking have been forced by governments to clean up their acts, firms involved in air travel and cargo have got off scot-free. The European Union’s plan to make aviation pay by forcing operators of flights to, from and within its borders buy tradeable permits to emit carbon dioxide has caused a stir, with sanctions threatened. Tit-for-tat measures are in no one’s interests. Common sense has to prevail so that a reasonable international emissions scheme can be put in place.

There is nothing wrong in European minds with what amounts to a tax of around HK$400 per passenger for each flight – it merely adds airlines to the EU’s existing Emissions Trading Scheme. Under it, the requirement to buy permits will apply to the entire length of a flight, not just the part within European airspace. Airlines and governments outside the EU perceive it as unfair, contending it imposes taxes beyond the EU’s territorial limits and discriminates against nations farthest from Europe. It is by no means perfect, but it satisfies EU environmental legislation which, in the absence of an international pact on emissions, is the standard to which many other nations aspire.

With the January 1 implementation date looming, the rhetoric has become increasingly heated. Last week, the UN’s International Civil Aviation Organisation, which sets the rules on air travel, adopted a working paper from China, the US and 24 other countries urging the EU to exclude non-European carriers from the scheme. Beijing in June blocked Hong Kong Airlines from buying 10 European-made Airbuses, reportedly in protest. A proposed law to ban American airlines from complying has cleared its first major hurdle by gaining the US House of Representatives’ approval, raising the unlikely, but not impossible, scenario of flights being suspended.

High oil prices have forced many airlines to look for alternatives to the kerosene that powers their planes. Hong Kong’s Cathay Pacific (SEHK: 0293) is investigating mainland-produced biofuels, while Virgin Atlantic Airways is studying waste gas from steel mills. They are welcome and voluntary moves, although years could pass before they are viable, if at all. The EU’s plan imposes a deadline.

Airlines claim that they could lose €1.2 billion (HK$12.8 billion) in 2012 – a quarter of estimated profits for this year – as a result of the scheme. They say they are worried about the pollution caused by emissions, but more than a decade of discussion has still not led to the best solution, a global carbon market. This is why the EU has decided on its own course. But avoiding the damage of trade disputes and instead pushing for a global trading deal makes the most sense.