NCPA - National Center for Policy Analysis

The First Carbon Trade War?

April 24, 2012

The European Union seems determined to take on the whole world by demanding that all airlines pay a carbon tribute for the privilege of crossing EU airspace.  The tax, which will start being collected in 2013, would be levied not just on the miles flown over EU territory but for the entire length of the trip, says Claude Barfield, a resident scholar at the American Enterprise Institute.

The European Union justifies the extraterritorial basis of the tax system through the save-the-world mandate that has provided impetus for many of its cap-and-trade environmental policies.  Nevertheless, the implementation of the tax is likely to backfire.

  • All told, it is estimated that the European Union would have taken in $1.2 billion from all airlines in 2012 had the new system been in place.
  • This estimation rises to $3.6 billion by 2020.
  • Airlines that refuse to comply will be subject to a fine of €100 ($131) per ton of carbon dioxide, and possibly banned from operating in the European Union.
  • In violation of the Kyoto Protocol, no deference is given to airlines from developing countries that have historically not contributed as much to the global warming problem.

Needless to say, the political powerhouses of the international community are inflamed at the idea of the tax, which is set to ignite a carbon trade war.  More than 20 countries, both developed and developing, and including the United States, Brazil, Russia, China, India, South Africa, Nigeria and Saudi Arabia have met twice to consider common or individual responses.

Though no collective response has yet been agreed upon, this has not stopped individual countries from demonstrating their anger through threats.

  • China and India have already forbidden their airlines to pay the tax.
  • Russia has threatened to cancel air rights for EU airlines flying over Siberia.
  • China has also upped the ante by delaying and possibly canceling aircraft orders from Airbus worth $12 billion.
  • In October the U.S. House of Representatives passed a bill making it illegal for U.S. airlines to comply with the EU scheme.

Despite this final fact, which demonstrates the American collective will to stand against the tax, the Obama administration has dragged its feet in negotiating this position.  Analysts recognize that a showdown is likely -- it just remains to be seen if the United States will stay on the sideline.

Source: Claude Barfield, "The First Carbon Trade War?" The American, April 18, 2012.

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