Retaliation over EU carbon fee

The EU law, which requires global airlines to pay for carbon emissions on flights to and from Europe with effect from 1st January, 2012 has evoked a severe response from the US authorities and other nations. According to a senior US administration official, "we are contemplating a wide-range of possible steps that we could take, or actions that we might take." Although the variety of possible steps was not specified yet it was asserted that an array of actions was on the table and the Obama administration was laying the groundwork for retaliation in consultation with the relevant key agencies. Steve Lott, a spokesman for the Airlines of America stated optimistically that "we take the White House at their word that they are prepared to take action, which could include a country-to-country legal action, retaliatory measures or any number of steps to urge the withdrawal of the EU's unilateral scheme in favour of a global approach." It may be recalled that the State and Transportation departments had warned the EU in December, 2011 that the administration was prepared to "respond appropriately" if the EU did not reconsider the measure. However, the EU has not taken into account such warnings and the law took effect as planned, prompting an outcry from airlines globally. China, India and some other countries have also attacked the scheme, saying it infringes on their sovereignty and the EU should not act alone. The EU regulation of imposing carbon fee is not without a cost. Under the mandate that puts a price on pollution, airlines are required to buy permits to offset emissions from jetliners operating into and from the 27-nation EU and three neighbouring countries. Costs under the programme will be phased in with carriers expected to cover 15 percent of the carbon they emit in 2012. In the meantime, airlines are already passing on the costs to consumers. Major American airlines have imposed $ 3 surcharge each way on fares purchased in the US for European routes while Germany's Lufthansa has told passengers to brace for higher prices. Admittedly, both the action by the EU countries that have long been advocating for a carbon fee and the response by other countries, particularly the US, were not unexpected. EU countries have been arguing that their skies are clogged with air traffic and they must be compensated for air pollution. The only way to do that was requiring the global airlines to pay for carbon emissions on flights to and from Europe. Other countries contend that while the EU argument cannot be dismissed easily, they would also be forced to take retaliatory steps, with the result that there would be no winners by the end of the day. The airlines are of the view that announcing a new tax at a time when they are wrestling with historically high fuel costs and softening demand would damage the industry and punish them unnecessarily. The continued tug of war over the matter could hurt global investment and undermine chances of recovery besides reducing employment opportunities. In our view, it is important for all the countries to proceed with caution because the airline industry is so crucial for the world economy and its role is bound to expand in the coming years due to increasing interaction between the residents of various states. The best solution to the ongoing conflict or controversy could be some vast technological improvement, leading to sharp reduction in carbon emissions from aeroplanes but until such a stage is reached, a country or a group of states should refrain from taking unilateral action and instead work through the United Nations to resolve the problem. The involvement of the UN is necessary to ensure that all the countries, including small underdeveloped countries, also get a fair deal. It needs to be recognised that the issue has externalities associated with it and the poorer countries, even those without their own airlines, have a stake in the matter and, as such, should be compensated for the degradation in their environment, caused without any of their fault. Moreover, a UN-sponsored agreement would reduce the present tensions to a considerable degree and provide a level-playing field for all the stakeholders in the industry besides dispelling the impression that only powerful countries have a monopoly on decision-making, affecting all the economies of the world. Copyright Business Recorder, 2012