Europe’s Emission Trading Scheme — When Bad Ideas Threaten An Industry
Earlier in the year, I had voiced my opinion/concern about how Europe’s latest efforts to tax airlines (or commonly known as fare hikes) was simply not a good idea. The concept in its basic form would give carriers a certain amount of “credits” for their flights that land or depart in Europe. Any flight acitivity beyond the “credits” would result in an Emissions Tax that would be levied on the airline. Forecasts had suggested that a ticket between the US and Europe could go up $50-$100 on the Emissions Tax alone. The American Airline forecasted that it would cost US based carriers $3.1 billion over 8 years.
A huge flaw in the law is the fact that the law itself does not require the revenue generated from this tax to actually go towards emission improvement activity or research. When I first read about the law, my immediate reaction was that this was just another way for the EU to generate much needed revenue for general purposes (like the bailing out of various member countries from their fiscal irresponsibility, but I digress).
Now 2 months into the Scheme, there are obvious signs of chafing and discontent among the airlines that are subject to it, and MORE IMPORTANTLY, it has become a weapon between nations and international trade.
As far as the European aviation community is concerned, seven aviation industry companies including Lufthansa, British Airways, Virgin Atlantic, Air France, Iberia, Air Berlin and AIRBUS have banded together and approached the EU with their concerns about the unintended consequences they are realizing as a result of the Tariff. The group has sent letters citing their concerns to the leaders of England, Germany and France. In their communication to these heads of state, they are requesting that the Emission Scheme be suspended until a global program can be implemented. You know theres a major problem when these airlines became willing bedfellows.
The group is suggesting that 2000 jobs are at risk and also fear retaliation from those countries who have not agreed to abide by the EU scheme. As far as AIRBUS is concerned, they have the most to lose as a result of the tariff. China has recently and quietly tapped the brakes on finalzing orders for 45 aircraft valued at $12 billion dollars. Typically China has final say when one of its national carriers wants to purchase airplanes.
As the adage goes, a tax is only as good as the ability of the taxing body to collect it. When countries are refusing to pay the tariff and at the same time are threatening to cancel billions of dollars in new orders that have a direct impact on the European economy, you know something is wrong. Is the EU willing to lose billions in much needed revenue for it’s economy and willing to shed thousands of jobs for the sake of some foolish tax that it can’t enforce? Granted, the EU can prevent non-EU carriers from landing in Europe, but then the reciprocity from the rest of the world will ground most European carriers, so thats not the answer.
The EU has to come to the realization that layering another tax in this environment is plainly a bad idea, especially when it is directionless and lacks enforcement ability. The EU has far bigger issues that it needs to address to save itself from disaster. The one thing it can ill afford to do is ruin its leading industries. In my opinion the EU took point blank aim at their “foot” and willingly pulled the trigger and may have started yet another chain of events that will impact its citizenry.
