Will Europe’s airline carbon fee actually work?

at 10:20 AM ET, 01/10/2012

It’s odd to think that a spat over carbon fees for airlines could lead to a global trade war. But that’s looking quite possible. On Jan.1, a new E.U. law went into effect requiring all flights in and out of Europe to pay for their global-warming emissions. That’s sat poorly with the rest of the world. China’s four largest airlines have threatened not to pay — risking an outright ban from European airports — and China has reportedly blocked an Airbus order in retaliation. Russia, Brazil, India and Japan are all stridently opposed. And then there’s the United States.


(Chris Ratcliffe/Bloomberg)
Since U.S. airlines can’t exactly boycott Europe — it’s far too lucrative a market — they’ve started hiking their ticket fares to pay the carbon price. (The new rule could add an estimated $3 to $6 to the cost of a flight from New York to London, according to MIT economists.) The Obama administration, however, appears to be contemplating a more forceful response. According to Reuters, one option under discussion would be for the United States to slap a retaliatory fee on any European airlines that want access to U.S. airports.

So this could get ugly in short order. But lost in all the squabbling is an underlying question: Is the airline fee actually a good policy?

Airline emissions aren’t insignificant. While aviation accounts for just 3 percent of humanity’s carbon-dioxide emissions, it’s one of the fastest growing sources, and the true climate impacts may be two to four times that of carbon-dioxide alone, thanks to the added warming effects of nitrogen-oxide emissions and contrails that planes produce.

A recent World Bank draft report on “Mobilizing Climate Finance” found that a modest carbon tax — at around $25 per ton — would be a straightforward way to cut aviation emissions. The tax would raise ticket prices 2 to 4 percent, the World Bank estimates, while emissions would fall by 5 to 10 percent. Slightly fewer people would fly, but most of the gains would come from airlines finding more efficient routes and sending their older, dirtier aircraft into early retirement.

The World Bank report also notes that a tax on air travel wouldn’t impose an unfair burden on aviation. Quite the opposite; it would level the playing field, given that aviation fuel goes largely untaxed. (The same holds true for ocean shipping — another sector that Europe and other countries are looking at as an area ripe for emissions reductions.)

Now, the European plan isn’t quite a carbon tax. Instead, airlines have to buy into Europe’s cap-and-trade system, and the aviation sector as a whole has to reduce its emissions 3 percent in 2012 and 5 percent by 2020. Airlines are initially given most of the pollution permits for free and can either reduce emissions directly (and make money by selling off excess permits), purchase additional permits from other sectors, or fund green offset projects in developing countries. Jake Schmidt has a fuller rundown here. Note that the carbon price in Europe is currently about $10.50 per ton, so this is more modest than the World Bank’s proposal.

Airlines, for their part, complain that the carbon cap is too much too soon. A spokesman for Boeing told Greenwire that plane manufacturers tend to make modest efficiency improvements in their designs — say 3 to 4 percent — every few years. The European plan, by contrast, would force airlines to make those gains immediately in 2012. The ideal way to meet the targets would be for planes to use jet biofuels, which could, in theory, cut airline emissions dramatically. But jet biofuels were only first approved in 2011 and won’t be ready on a large scale for years.

Of course, these headaches becomes moot if China or the United States can convince Europe to back down. Right now, airlines around the world have rallied behind a voluntary goal by the International Air Transport Association to cut aviation emissions in half by 2050. But that’s entirely voluntary — the EU plan, clumsy and unilateral as it is, is the only rule out there actively pushing airlines to change.

 
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