August 11, 2011
by Diana Furchtgott-Roth
With its proposed new tax on aircraft emissions, the European Union has succeeded in doing what neither the debt limit nor any other issue has done in Washington-unite Democrats and Republicans.
President Obama, the Democrat Senate Leader, Harry Reid, and the Republican Speaker of the House, John Boehner, are one in their opposition to the proposed EU levy.
It would apply, beginning January 1, 2012, to aircraft, European and all other, arriving in European Union countries. It would be calculated on miles traveled to the final European destination.
Because there are more non-European aircraft that fly to the continent, the levy would raise more revenue from them than it would raise from European carriers.
Although lightly-reported in the American press, this dispute has been simmering since the EU proposed the tax in 2006.
The EU offers an environmental rationale for the tax. It argues that because no global agreement on emissions reduction from aircraft is in place, it has the right to take the first step.
Washington, Beijing, New Delhi and other capitals take exception to what looks like European unilaterism. There are solid arguments that aircraft emissions are declining, anyway, as technology improves and as airlines try to conserve increasingly-expensive fuel, and so no such levy is necessary.
For instance, Boeing estimates that its new 787 Dreamliner, scheduled to go into service this fall, will have a carbon footprint that is 20 percent smaller than similarly-sized aircraft.
Under the new tax, travelers from San Francisco to London would pay a higher levy than travelers from Washington to London, even though their emissions in European airspace would be equivalent.
From 2012, if the tax goes into effect, all planes flying to and from any country within the EU would have their carbon dioxide emissions capped at 97 percent of their average 2004-2006 levels, rising to 95 percent in 2013, thereby cutting emissions by five percent. Airlines would face fines of up to $142 for every ton of carbon dioxide they emit above the limit.
Europeans are not calling this a tax, but an "emissions trading scheme." Whatever the term, the Canada-based International Air Transport Association has estimated that the tax would add $21 to $45 per passenger to fares for flights to Europe from the United States. U.S. airlines estimate that the tax could cost them, or their passengers, up to $3 billion through 2020.
The Air Transport Association, which has filed a suit to block the tax, has calculated that 8.7 percent of emissions in a flight from San Francisco to London are released over Europe. The remainder is released either over the United States or Canada, or over international waters. In my opinion, even this estimate appears high because only a small fraction of the flight is in Europe.
The Association's vice president of environmental affairs, Nancy Young, said in a statement that the scheme "violates international law, including the sovereignty of the United States and imposes an illegal, exorbitant and counterproductive tax."
The EU defends its tax on the grounds that it will reduce global emissions. Bill Hemmings, spokesman for the European Federation for Transport and Environment, declared, "The EU's carbon trading scheme gives international aviation an opportunity to start addressing its carbon footprint, which is ten times greater than other modes of transport."
However, a 2006 study by London-based Frontier Economics concluded that "While within the EU-15 airline emissions may amount to around 4% of total CO2, the figure is likely to be significantly lower once the 10 new member states are taken into account."
Representative John Mica (R-FL), chairman of the House Transportation and Infrastructure Committee, has introduced a bill, the European Union Emissions Trading Scheme Prohibition Act of 2011, cosponsored by Rep. Nick Rahall, D-WV, ranking minority member of the committee. The bill would prohibit U.S. airlines, or any operators of American civil aircraft, from paying aircraft emissions taxes to Europe.
The Obama administration agrees. In hearings before the Transportation Committee on July 27, Krishna Urs, a deputy assistant secretary at the State Department, testified that even though the administration supported reducing greenhouse gas emissions, it objected to this tax.
Asian countries also object. The Civil Aviation Administration of China estimates that the tax would add as much as $123 million in 2012 and $461 million by 2020 to the cost of flights from China to Europe.
Not all Europeans are in favor of the tax. Willie Walsh, CEO of the International Airline Group, which owns British Airways and Iberia, said in June that the tax should be delayed because "It is clear that the countries are going to retaliate, whether in the form of imposing additional taxes on European airlines or restricting access to markets...The uncertainty will add more cost."
In fact, a trade war of sorts began in June when China suspended its order for ten Airbus 380 superjumbo aircrafts. The Financial Times reported that a $3.8 billion contract from Hong Kong Airlines was cancelled due to opposition to the tax.
The European High Court is considering a suit by the Air Transport Association and U.S. airlines. The advocate general of the European High Court will issue an opinion on October 6, and the court frequently endorses the opinion. The court will issue its decision early in 2012.
If the levy survives legal challenge, Asian airlines might reroute their European flights to stop briefly just outside Europe, such as in Cairo, and then continue to their final destination, reducing the tax. This would generate more emissions, because take-off and landing burn more fuel. Unfortunately, U.S. airlines cannot stop in the Atlantic, and Iceland, which is not part of the EU, has signed on to the tax.
Europe has the right to charge an emissions tax within its borders, but not on flights over other countries or in international air space. On that, President Obama, House Speaker John Boehner, and Senate Majority Leader Harry Reid all agree.
Diana Furchtgott-Roth, former chief economist of the U.S. Department of Labor, was a Senior Fellow at Hudson Institute from 2005 to 2011.
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