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Aviation Body Slams EU's 'Massive' Carbon Tax

by Ulrika Lomas, Tax-News.com, Brussels

16 September 2011


The International Air Cargo Association (TIACA) is urging the European Union to suspend implementation of its controversial Emissions Trading Scheme (ETS) for aviation and to instead pursue a global agreement of aviation carbon emissions through the International Civil Aviation Organization (ICAO).

In a letter to EU Climate Action Commissioner, Connie Hedegaard, TIACA’s Industry Affairs Committee states four main concerns over the upcoming legislation, which from January 1, 2012, will require any airline landing or taking off inside the EU to take part in the regional bloc's emissions trading scheme.

Under ETS, airlines flying to Europe will be required to purchase permits to allow them to emit additional tons of carbon dioxide above a predetermined cap. According to the proposals, sanctions for non-compliance will include fines and flight suspensions.

Warning that the ETS will impose "massive new taxes on aviation", Hedegaard states that:

"By directly regulating conduct outside of EU airspace, the EU ETS encroaches upon the sovereign authority of each State over its own airspace. The Chicago Convention also prohibits any levies on international flights except on a cost basis 'related to the provision of facilities and services for civil aviation'.”

“According to the International Air Transport Association, the cost to airlines of purchasing the necessary carbon allowances will rise from USD1.3bn in 2012 to USD3.5bn in 2020. There is no requirement that EU member states must use these revenues to reduce carbon emissions, either from aviation or any other sector – nor that they dedicate the money to any environmental effort at all.”

“Ironically, the EU ETS will cripple the industry’s ability to continue investing on its own in greener technologies. In recent years, the industry has made impressive progress in reducing emissions, largely through utilization of more efficient aircraft and operating procedures. Furthermore, the industry has actively supported development of sustainable alternative aviation fuels and implementation of next-generation, more efficient air traffic management systems. The cost of EU ETS emissions allowances will divert crucial monies away from investment in such initiatives.”

“In addition, the EU ETS may lead to some unintended consequences such as encouraging carriers to fly less direct routing that could increase aviation carbon emissions. For example, a direct flight from Hong Kong to Amsterdam has 5% lower emissions than the same flight with a stopover in Moscow. However, the stopover would sharply reduce the airline’s emissions charges – thereby benefiting the airline’s bottom line, but not the environment.”

“Aviation is intrinsically an international industry. It is the transportation mode that ties together the globe most expeditiously, and many airlines and aircraft operate across borders. The EU has seemingly ignored this reality in taking a regional approach [on] the issue.”

At an aviation seminar held on August 1, attended by industry leaders, the Vice President of Environmental Affairs at the Air Transport Association of America, Nancy Young, noted that the scheme is ludicrous as analysis has showed that on a flight, for example, from San Francisco to London only 9% of emissions are emitted in EU airspace; the majority instead is emitted in US and Canadian airspace, but would face the same amount of taxation as an internal EU flight.

Furthermore, the issue of double taxation has been raised by airlines. Japan, Australia and New Zealand have all announced they are considering their own cap-and-trade emissions schemes, and China said in July that it planned to commence regional pilot schemes, with the aim of establishing a national cap-and-trade regime by 2015.

The EU legislation does provide that an airline will be tax exempt for the portion of the trip that a similar tax is imposed domestically, but its implementation may be problematic, and if another country, or group of countries, were to impose an identical levy to that of the ETS significant disputes and double taxation could indeed arise.

US and China have both placed significant pressure on European ministers. The US considers that by 2020, if implemented in its current form, it could cost the US industry USD3bn. Chinese estimates are more conservative in the short-term but as the domestic industry grows, losses as a result of the tax are expected to surpass those in the US.

United States airlines have begun legal proceedings, arguing that the system infringes, for one, the Chicago Convention, which grants individual countries the right to complete and exclusive sovereignty on taxation issues within their territory. The EU's ETS is thought to also infringe bilateral open skies agreements between the EU and other nations. US authorities are reportedly even considering outlawing airlines from complying with the ETS.

TAGS: environment | tax | business | law | aviation | Australia | China | agreements | legislation | carbon tax | Hong Kong | New Zealand | United States | trade | European Union (EU) | Japan | services | Europe

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