Aviation industry warns of trade war over EU carbon tax

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World aviation bosses warned Monday of a potential trade war over a carbon tax imposed by the European Union on the airline industry to reduce emissions and curb climate change.

In a conference on the eve of the Singapore Airshow, one of Asia's largest aviation trade fairs, industry executives expressed concern over the political and economic impact of the charges which took effect on January 1.

"I have to say I'm really worried, also as a manufacturer, about the consequences," said Airbus chief executive Thomas Enders.

"I have seen the position in China, in Russia, in the US, in India, and what started as a scheme to present a solution for the environment has become a source of potential trade conflict," he added.

The EU imposed its Emissions Trading Scheme (ETS) on airlines flying into the continent despite opposition from over two dozen countries including India, Russia, China and the United States.

The EU says the scheme was designed to reduce carbon emissions blamed for climate change, and will help the 27-nation bloc achieve its goal of cutting emissions by 20 percent by 2020.

EU transport commissioner Siim Kallas, who also spoke at the Singapore conference, said Europe was committed to reducing carbon emissions.

"We don't have enough reasons or ground to suspend the legislation," he said. But he added that Europe was 'sincere' in expressing readiness to achieve a compromise through the UN airline watchdog, the International Civil Aviation Organisation (ICAO).

"Of course Europe wants to see a multilateral solution and we are ready to battle for that outcome," Kallas said.

China has barred its airlines from complying with the requirement while Europe's low-cost carriers accused their Chinese and US rivals of employing "gunboat" diplomacy in opposing the scheme.

Tony Tyler, director-general of the International Air Transport Association (IATA), which represents airlines, warned the Singapore forum that the growing row was a danger for the industry.

"Aviation can ill-afford to be caught in an escalating political or trade conflict over the EU-ETS," he said.

While Europe deserved credit for being at the forefront of efforts to reduce emissions, the continent's "unilateral approach is problematic," Tyler said.

"Non-European governments see this extra-territorial tax collection as an attack on their sovereignty, and they are taking action," he added.

Singapore Airlines CEO Goh Choon Phong said that "we are objecting to the principle of how it is being applied, that it is applied to flights outside of Europe, to airspace outside Europe."

Airlines opposed to the system say it would cost the industry 17.5 billion euros ($23.2 billion) over eight years.

But the head of the European Low Fares Airline Association said last week that the United States and other opponents should work harder to develop their own plans to reduce harmful emissions to gain exemptions from the tax.

The European Commission, the executive arm of the EU, argues that the cost for airlines is manageable, estimating that the scheme could prompt carriers to add between four and 24 euros to the price of a round-trip long-haul flight.

Some 655 million people flew in Europe last year, and EU climate action commissioner Connie Hedegaard said the additional cost per passenger for Indian airlines, for example, 'will be around 65 cents'.

The EU launched the ETS in 2005 in a bid to reduce carbon emissions of power stations and industrial plants.

It decided to include airlines, held responsible for three percent of global emissions, in the absence of a global agreement to cap aviation emissions.

Under the EU scheme, airlines will have to pay for 15 percent of the polluting rights accorded to them in 2012, the figure then rising to 18 per cent between 2013 and 2020.

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