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China Bans Airlines From Joining EU Carbon Levies System

By Bloomberg News
February 06, 2012 5:23 AM EST
China Bans Airlines From Joining EU Emissions System
China Bans Airlines From Joining EU Emissions System

China, home to the world’s fastest growing aviation market, banned airlines from taking part in a European Union carbon-emissions system designed to curb pollution, saying the program violates international rules.

The system contravenes the United Nations Framework Convention on Climate Change and international civil aviation regulations, the Civil Aviation Administration of China said in a statement posted on its website today. Carriers were also barred from using the EU program as a reason for raising fares, it said.

The EU hopes to resolve the issue through negotiations or it may ultimately be ruled on by the courts, Markus Ederer, its ambassador to China, said at a press briefing in Beijing today. India, the U.S., Russia and global airlines have also objected to the levy, saying it will be less effective than a global solution.

“I believe all sides will negotiate again and find a solution,” said Chai Haibo, vice president of the China Air Transport Association. “I can’t imagine that the worst case, such as the EU grounding Chinese flights, could happen.”

The airline group has called on the government to oppose the EU levy and it is working on a legal challenge in Germany. Whether the lawsuit will continue will depend on the EU reaction to the China ban, Chai said. The group’s members include China’s big three state-controlled carriers, Air China Ltd. (601111), China Southern Airlines Co. and China Eastern Airlines Corp. (670)

A call to Civil Aviation Administration of China wasn’t answered.

Emissions Program

The EU added aviation to a wider carbon-trading system on Jan. 1. The move could cost Chinese airlines as much as 800 million yuan ($127 million) in 2012, according to the China airline group.

Based on current carbon prices and the fact that airlines will get permits for some emissions for free, the system would boost Beijing-to-Brussels ticket prices by 17.50 yuan, Ederer said.

“I leave it to you to make a judgment on whether this is too much for saving the Earth,” he said. There is also further time for discussion, Ederer said, as airlines have until April 2013 to submit permits for carbon emissions this year.

Global System

Other nations’ carriers can be exempted from the EU system if their own governments introduce similar programs, he said. The International Civil Aviation Organization, a UN body, has said that it plans to form a global system.

The EU Court of Justice in December upheld the legality of the bloc’s drive to extend the world’s largest carbon cap-and- trade program beyond its borders. The system covers the EU’s 27 members as well as Iceland, Liechtenstein and Norway.

China Southern Chairman Si Xianmin said last week that Europe’s emission trading program is not beneficial in the current economic environment or for Europe’s efforts to escape the sovereign debt crisis. He made the comments at a briefing also attended by German Chancellor Angela Merkel and Chinese Premier in Mumbai.

The carrier, Asia’s biggest by passenger numbers, flies to Amsterdam and Paris. It intends to start services to London this year. Air China, the nation’s largest international carrier, generated 11 percent of revenue in Europe in the first half of last year. Its destinations in the region include London, Paris and Madrid.

Sovereignty Issues

Countries opposed to the emission trading program have said it is illegal and impinges their sovereignty because carriers are charged for pollution that happens outside of Europe, for instance, on the first part of a flight from Asia to Europe.

“This is more of a political fight than about protecting the airlines,” said Konrad Hanschmidt, a carbon-markets analyst at Bloomberg New Energy Finance. “The carbon costs would have a relatively small impact on airfares, as they account for approximately 1 percent of fuel costs.”

India has asked carriers not to give emissions data to the EU, K.G. Vishwanath, Jet Airways (India) Ltd.’s vice president for commercial strategy & investor relations, said in a Jan. 23 conference call. The country also plans to work with other nations opposed to the program, Environment Ministry Joint Secretary M.F. Farooqui told reporters in New Delhi last week.

Shinichiro Ito, president of All Nippon Airways Co., Asia’s largest listed carrier by sale, said last month that he favored a global system over a regional one. The carrier and the Japanese government are working on ways to oppose the system, he said without elaboration.

U.S. Opposition

The U.S. House of Representatives last year passed a bill prohibiting the country’s airlines from participating in the EU carbon program after the industry estimated that participation in the system would cost U.S. airlines $3.1 billion from 2012 to 2020. Bills in the U.S. also need approval from the senate and president before they become laws.

Cathay Pacific Airways Ltd. (293), which is regulated by Hong Kong rather than China, said it was fully complying with EU emissions systems “under strong protest.”

“The scheme will lead to additional cost, complexity, distort the global air transport market, could lead to carbon leakage and it is unlikely to achieve its intended environmental objectives or contribute to reducing climate change,” the carrier said by e-mail today.

To contact Bloomberg News staff for this story: Jasmine Wang in Hong Kong at jwang513@bloomberg.net; Nicholas Wadhams in Beijing at nwadhams@bloomberg.net

To contact the editor responsible for this story: Neil Denslow at ndenslow@bloomberg.net

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