Chinese Airlines Boycott EU Carbon Tax

by Mary Swire, Tax-News.com, Hong Kong

06 January 2012

The association that represents Chinese airlines, including Air China, China Southern Airlines, China Eastern Airlines and Hainan Airlines, has said its members will not abide by the European Union Emissions Trading Scheme, which on January 1, 2012, was extended to international airlines that use European airports.

Following the inclusion of international aviation to the scheme on January 1, after a failed legal challenge by representatives of the US and Canadian aviation industries at the European Court of Justice, the China Air Transport Association (CATA) released a statement confirming that its members would boycott the scheme.

Other nations' airlines have begun to introduce surcharges on their tickets to pass on costs to the consumer, but Chinese airlines have said that fares will remain the same and the Chinese government is reportedly considering countermeasures and a legal challenge in response.

CATA has estimated that the scheme will cost domestic airlines around USD120m during 2012, ramping up to more than triple that figure by 2020 as China's domestic industry grows.

Under the ETS, from January 1, 2012, in accordance with the European ETS directive, airlines operating into and out of the EU, regardless of how long that flight is in EU airspace, will be required to surrender varying emission allowances, and will be required to purchase any additional permits outside of their free allowance.

Non-EU nations' airlines would also be required to pay such an emissions tax to the EU member state to which they most frequently fly, without any requirements that those EU countries use the funds collected in emissions reduction efforts. As a result of the new provisions, experts have calculated that passengers on long-haul flights may be faced with additional costs of between EUR2 (USD2.77) and EUR12 a ticket.

Airlines are required to immediately begin purchasing emissions allowances, but are only expected to remit the sums in 2013. The scheme provides for penalties in the event that airlines fail to comply, including fines of up to EUR100 for each tonne of carbon dioxide emitted without the payment of a permit, and eventually an EU-wide ban on the offending airline.

The International Air Transport Association (IATA) has estimated that the cost to the entire aviation industry globally could be USD1.6bn annually, at a time when the industry's profitability has been dented by the global economic crisis. IATA said that charging passengers for the cost of the ETS would undoubtedly impact the recovery of air passenger traffic.

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