EU carbon ruling ‘threatens African airlines’ profits’

December 22nd, 20115:50 am @

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EU carbon ruling ‘threatens African airlines’ profits’

THE European Union’s (EU’s) highest court ruled yesterday that the EU can charge all airlines flying to or from European airports to offset their carbon emissions, a move that could threaten the profitability of African airlines like state-owned South African Airways (SAA).

Aviation accounts for 3% of global greenhouse gas emissions.

Carbon trading was designed to create an incentives framework for emitters to cut greenhouse emissions by creating a system of credits and penalties that allows emitters to buy credits, where they are unable to reduce their emissions, from countries or entities that actively take up greenhouse gases.

The case before the European Court of Justice has triggered hostile reaction from airlines around the world, as well as prompted blocking legislation in the US Congress and a threat from Secretary of State Hillary Clinton. EU Climate Commissioner Connie Hedegaard welcomed yesterday’s ruling, saying the EU now expects US airlines to respect EU law.

Ms Clinton and Secretary of Transportation Raymond LaHood wrote to several EU commissioners earlier this month urging the bloc to suspend enforcement of its new rules and negotiate with other governments on how to limit airlines’ carbon dioxide emissions globally. Without this, the US would “be compelled to take appropriate action”.

Under EU law, from January 1, all airlines using EU airports will have to buy permits under the EU’s emissions trading scheme to help offset the carbon emissions of European flights.

A case contesting the legislation was brought to the London High Court of Justice by the Air Transport Association of America, American Airlines and United Continental, but the London court referred it to the European Court of Justice.

The court’s advocate-general, Juliane Kokott, delivered a preliminary opinion in October in which she said EU legislation did not infringe on the sovereignty of other states and was compatible with the relevant international agreements.

But SAA CEO Siza Mzimela has warned that the combination of depressed demand, high fuel prices and increased taxes will make next year a challenging one for the airline industry. SAA had already calculated the financial impact of the ruling but was not allowed to disclose the figure, Ian Cruickshanks, its manager for environmental affairs, said yesterday.

SAA spokeswoman Dileseng Koetle said: “SAA has previously joined the South African government in objecting to these taxes and is … complying under protest. Passing these taxes will obviously increase our costs and place airlines in general under increased pressure, and put an additional strain on profitability in these volatile economic conditions.”

SAA operates three flights to the UK daily and two flights to Germany each day.

The International Air Transport Association, which represents most airlines, said it was disappointed by the EU court’s decision, but not surprised.

The decision “represents a European legal interpretation of the EU emissions trading scheme ; however, the success of Europe’s plans will depend on how non-European states view its legal and political acceptability. In this respect, there is growing global opposition,” it said in a statement yesterday.

According to the EU plan, airlines will have to hold permits to cover emissions for the whole length of a flight taking off or landing in the EU.

The European Commission, the EU executive body, has estimated that the plan could increase the cost of a single-trip ticket by between €2 and €12, depending on the length of the flight, the Dow Jones agency reported.

This means that on a flight between Johannesburg and Frankfurt, the carrier would have to have credits for the distance across the airspace of multiple African countries that will not benefit from the scheme at all.

Aviation analyst Linden Birns said an emission trading plan was “not necessarily a bad thing, but the EU’s proposal is dangerous” as it could create a precedent for each aviation jurisdiction to create its own scheme, which would create multiple taxation.

“SA is also contemplating a carbon tax for industries, including the aviation industry, which means that with the EU’s unilateral plan, a double tax could arise, which is not a good idea for an industry that is already under enormous pressure,” he said.

SA, China, Brazil, India and Australia signed an agreement in Delhi in October agreeing to oppose the unilateral imposition of the scheme.

Airlines will have to start making payments to the EU at the beginning of 2013.

Article source: http://www.businessday.co.za/articles/Content.aspx?id=161561