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.
@Filipe: No one is stating the EU doesn’t have the authority to enforce whatever law they pass, but if the only way they can enforce them is by banning airlines, then the issue becomes one of international trade and Europe will lose. In other words ban Chinese carriers over the carbon tax and they ban European airlines from serving their country, flying over their airspace or their airlines from buying European aircraft. Repeat this enough times and pretty soon airports like Kiev will grow in size to replace FRA/LHR which will suffer from shrinking traffic due to transit traffic moving elsewhere. You know the large number of travelers who route through those airports on their way to India and the middle east? I know I’m already looking at alternatives for trips that used to route through the EU.
As to earmarks, in some cases like this one it makes sense. Simply taking money away to spend it on unrelated expenses doesn’t effect the airline except with possible lower sales due to higher prices. What it does effect are those with little money trying to visit family in other countries or those in other countries wanting to come home to visit their families. What makes much more sense would be to create and enforce efficiency/emissions requirements on airliners and allow for credit to airlines that upgrade their fleet to better planes. This actually accomplishes something and will be far more effective then implementing yet another cap/trade system that serves no realistic purpose except to make the traders rich.
@LF: Earmarks are not that common in European law. This is – thank god – not US politics. It’s also a natural extension of carbon credits, which are used across all industries in the EU. The idea originates in the Kyoto protocol which, as you might recall, was signed by most OECD countries, but not the US – because the economy was deemed more important than the environment.
@Kris: The EU has full authority to enforce any laws for any company operating in Europe. If it wants to charge 500€ per ticket, it can. If it wants to charge based on the full mileage, it can. Note that there are no trade barriers here, since the tax applies equally to EU and non-EU carriers; in fact, its impact on EU carriers is higher. If you don’t like a country’s laws, you’re free not to operate there.
Not only has China put the brakes on the Airbus orders, but I think they have also banned their carriers from paying the tax, so it will be interesting to see if the EU really stops allowing Chinese planes to land when the bill comes due.
The absolute worst thing about this law is not that it taxes every mile of the flight, so United 900 is charged based on the 5,700 miles from SFO-FRA, not the few hundred miles over EU airspace. I don’t quite understand where the EU thinks it got the authority for to charge a US airline flying a US aircraft over the US for carbon emissions.
“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.”
By your logic, any governmental spending that’s going toward emission abatement or research right now should be terminated because it hasn’t been earmarked for such purposes.
Also, the economic goal of a carbon tax or cap-and-trade scheme is a reduction in emissions that is commensurate with the harm of the emissions; the use of the revenue is irrelevant.
But the Scheme was specifically advertised as a fund raising tool to help the research and improvement in emissions. I wouldn’t have a problem with it if they actually spent the money on improving efficiencies, versus just a way to raise capital for their general coffers. In the case of the EU’s scheme, since they are going at it alone in terms of nations and no one else is buying into their concept, I can’t see it succeeding in its current format.