EU's carbon-offset programme for air travel could cause trade war

Eco-money To avoid a global trade war over carbon-offset schemes, the EU may have to compromise, according to analysts.

Since the start of 2012, airlines flying to and from Europe have been obliged to pay into a carbon-offset programme. Julian Stratenschulte/EPA

China has fired a US$12 billion (Dh44bn) broadside across the European Union's attempts to cap airlines' carbon emissions, prompting widespread warnings of a full-scale trade war.

Since the start of 2012, airlines flying to and from Europe have been obliged to pay into a carbon-offset programme. Although the carbon cost of a long-haul flight to China is less than $3 a passenger and the fact that no airline will face a bill before April 2013, China has already started using its commercial muscle to try to force the EU to change course on its carbon-emissions programme.

Thomas Enders, the chief executive of Airbus, has written to José Manuel Barroso, the president of the European Commission, the executive arm of the EU, saying that China had suspended orders for aircraft worth $12bn, putting about 2,000 jobs at risk.

China is a major buyer of Airbus and Boeing jets. It uses a central purchasing agency to buy the aircraft in large quantities before allocating them to individual airlines.

Despite its plans for the development of a medium-distance passenger jet of its own, the C919, industry watchers believe that China will still need to import more planes that Airbus and Boeing will be able to provide.

By dangling the carrot of lucrative plane contracts, China hopes to pressure the EU into changing its carbon-emission ruling. Airlines also opposing the EU measures include British Airways, Lufthansa and Virgin Atlantic.

Although all 27 EU member countries are backing the new green measures, there is also a coalition of 20 countries, including heavyweights such as China, Russia and the US, now vehemently opposing the scheme. Some analysts believe that if a global trade war is to be avoided, the EU may be forced into a compromise.

The European Commission has indicated that, should the United Nations International Civil Aviation Organisation come up with a proposal for amendments to its carbon-emissions scheme, it will consider modifying existing rulings.

Environmental groups and green analysts are, however, observing that Airbus's booming profits are no indication of a lack of orders and that carbon restrictions are essential to ensure the long-term viability and growth of the airline industry.

It is estimated that there will be more than three billion air travellers by 2014. If carbon emissions remain unchecked, the long-term negative effect of the airline industry's carbon emissions on the world's ecology could be catastrophic.

However, green investors should not see the present wrangling between the EU, China, Russia, the US and the world's airlines as entirely negative. A regulatory battle will be inevitable if the industry is to be brought to heel over its rapidly growing carbon emissions and cavalier attitude towards burning fossil fuels.

With consumers also becoming increasingly aware of the problem, carriers will have to be seen to be green if they are to avoid the stigma of becoming ecologically "dirty" airlines in the eyes of travellers.

As some airlines begin to tackle carbon emissions in earnest, investors have an opportunity to support them over less ecologically aware rival airlines. Existing shareholders in airlines now struggling with the carbon-emission challenge should also be prepared to lobby for greener strategies at shareholder meetings.

The airline industry is not the only major transport sector being asked to get its carbon emissions in order. The shipping business is mushrooming in line with the growth in global trade and international shipping now accounts for about 4.5 per cent of global carbon emissions. But, according to the United Nations Environment Program, this could rise to between 10 per cent and 32 per cent by 2050.

However, according to a report, Regulated Slow Steaming in Maritime Transport, by consultants CE Delft, a 10 per cent reduction in average maritime speeds across the globe would result in a 19 per cent increase in carbon-dioxide savings. The report also claims that, in an effort to cut fuel, many ships have already started to sail at slower speeds. But attempts to force the shipping industry to reduce the speed of ships to cut carbon emissions could also meet with resistance from industry.

"In our limited survey, there was near universal opposition to the concept of mandatory speed limits. Reduced market flexibility was the primary reason for this," the report says.

Any future rulings regarding shipping speeds also face steep regulatory hurdles. Compulsory slow steaming can be imposed by a state on ships flying its flag. But the ease of changing flags and the maritime practice of flying "flags of convenience" means such impositions could be easily avoided. This would leave it to individual authorities such as port states to try to orchestrate complex global controls.

Transport industry regulators may be obliged to fight trade wars on several fronts if they are to take effective steps in capping the industry's problem of rising carbon emissions.

And green investors can help by supporting those organisations that are making their best efforts to cap or reduce carbon-dioxide emissions.