Chinese airlines refuse to pay Europe’s carbon tax

Alison Leung and Harry Suhartono Hong Kong and Singapore

China’s airlines will refuse to pay any carbon costs under the EU’s emissions trading scheme (ETS), while other Asia Pacific carriers, already battling a weak travel market, are likely to pass on the extra cost to passengers.

The EU’s ETS initiative was launched in 2005 as one of the major pillars of the bloc’s efforts to combat climate change. From January 1, all airlines using EU airports are included in the cap-and-trade scheme.

“China will not co-operate with the EU on the ETS, so Chinese airlines will not impose surcharges on customers relating to the emissions tax,” China Air Transport Association (Cata) deputy secretary-general Cai Haibo said yesterday.

Cata represents the country’s four major airlines: flag-carrier Air China, China Southern Airlines, China Eastern Airlines and Hainan Airlines.

A European Commission spokeswoman had no immediate comment on any refusal by China’s airlines to pay.

EU law makes a provision to enforce fines of E100 (R1 047) for each ton of carbon dioxide emitted for which airlines have not surrendered carbon allowances.

In the event airlines persistently flout the EU law, the commission has the option of banning an aircraft operator.

Immediately after a December ruling from Europe’s highest court that inclusion of airlines in the ETS was valid, China’s state-run Xinhua news agency warned of a trade war, although the foreign ministry later stated its opposition less stridently and called on the EU to talk to other governments.

The US has also warned of possible retaliation, while a draft law in the US Congress proposes to make it illegal to comply with the EU legislation.

Chinese airlines would consider taking legal action against the EU in response to its charges for carbon emissions on flights, Cai said.

But they would not rush into this, he added, mindful that US airlines in December lost their legal challenge against the ETS and given that collection of the carbon cost from airlines would not be until March 2013.

Australia’s Qantas Airways has said it was also considering legal action against the scheme.

“We are now walking on two legs – first, we would not rule out the chance of taking legal action and, second, to resort to the government for retaliatory measures. Several departments have been looking into this.”

Cata estimated the scheme would cost Chinese airlines 800 million yuan (R989m) in the first year and more than triple that by 2020.

The European Commission has assessed the impact on air fares at E2 to E12 a passenger. For airlines the cost is gradual as 85 percent of carbon allowances are handed out for free this year and bills will be due only next year after emissions are calculated.

Germany’s Lufthansa, the world’s second-largest long-haul carrier after Dubai’s Emirates, warned passengers on Monday to brace for higher ticket prices as it decided to pass on costs to the passengers.

The EU said its ETS, which already applies to other industries, was the fairest way to cope with aviation’s contribution to global warming in the absence of a global scheme, which more than a decade of debate at the UN’s International Civil Aviation Organisation failed to deliver.

Hong Kong-based Cathay Pacific Airways and some other Asian airlines, facing a sluggish economy and weak cargo demand, said they might impose surcharges or increase airfares to counter the ETS impact.

“It’s inevitable that increased costs will be passed on to passengers. We will share the details at the appropriate time,” said Carolyn Leung, a spokeswoman for Cathay Pacific, whose chief executive has said the ETS would add about HK$50 (R51.81) to a ticket between Hong Kong and Europe.

Singapore Airlines (SIA), which is the world’s second-most valuable airline, said it would try to offset the impact of the ETS by improving fuel efficiency and reducing its carbon emissions, which would lower the carbon charges.

“However, we’re not yet ruling out any options for recovering the additional cost,” SIA spokesman Nicholas Ionides said in response to a query.

Tony Tyler, the director-general of the International Air Transport Association (Iata), has said the ETS would cost airlines E1.2 billion this year, and he warned that airlines could struggle to pass this on to passengers in a relatively weak travel market.

Iata, whose 230 members carry more than 93 percent of scheduled international air traffic, forecast a 29 percent drop in the industry’s profit this year to $4.9bn (R39.4bn), dented by the weak global economy and high fuel prices. – Reuters