Carbon emissions policy setback: EU suspends scheme

THE European Union (EU) has succumbed to international pressure to suspend the Emissions Trading Scheme (ETS) that it introduced on January 1 this year. The ETS rules that airlines that land at EU airports will have to pay a carbon emissions tax.

Among the chief protesters are the United States, China and India – the last two countries actually banning their airlines from participating in the scheme.

Imperfect as the ETS may be, its suspension is a setback in the efforts to combat pollution and global warming. The EU commission on climate change had earlier said it was going ahead with the implementation only because international agencies such as the International Civil Aviation Organization (ICAO) had failed to come up with any proposal. There is little evidence that while airlines brag about their commitment to the green effort, they are keen on any framework that would add to their operating costs, in spite of the EU’s argument that the ETS would add but only between four and 24 euros (US$1.27) to the price of a long-haul flight. To the airlines, it is 17.5 billion euros (US$22.3 billion) collectively over eight years.

EU Climate Commissioner Connie Hedegaard, Courtesy reuters.com

The EU is prepared to allow the ICAO another go at working out an acceptable framework, with EU climate commissioner Connie Hedegaard saying, failing which the ETS would be reintroduced a year from now. Having taken a step backward, it may be difficult to re-implement the veiled threat in the absence of a compromised solution emerging. The game belongs to ICAO – no doubt an unenviable task – so long as it can demonstrate progress, a little each time even if it is the mere act of meeting and agreeing to disagree, and the commitment to continually meet again to try and resolve previous disagreements.

Meantime, will Australia succeed where the EU has failed? The proposed date of its implementation of a similar scheme by July this year has come and gone. And lest it be forgotten, Qantas and Virgin Australia announced early in the year that they would be adding a carbon tax to the fare. Travellers would be wise to check out the component costs of their tickets – another controversial policy that makes you wonder why so many airlines are finding it so hard to be honest about what they are charging their customers for!

Qantas goes green

THE red kangaroo is flying green. It has announced a feasibility study to commence in May into the potential for an Australian sustainable aviation fuel industry, backed by funding from the Australian government.

This was heralded by the airline operating Australia’s first commercial flight powered by biofuel on April 13. The flight operated from Sydney to Adelaide and back. To show the Qantas group’s commitment to using sustainable aviation fuel, two Jetstar flights also flew, powered by the same fuel, from Melbourne to Hobart and back on April 19.

The biofuel is a 50:50 blend of biofuel – derived from recycled cooking oil – and conventional jet fuel certified for use in commercial aviation. Its ‘life cycle’ carbon footprint is said to be around 60 per cent smaller than that of conventional jet fuel.

Recognizing the global call to reduce carbon emissions and the pressure on airlines to meet carbon emissions standards or pay a penalty for non-compliance – beginning with the European Union’s carbon emissions trading scheme, and a similar scheme soon to be introduced in Australia – Qantas chief executive said: “Alternatives to conventional jet fuel are vital to the Qantas aviation industry meeting ambitious targets for carbon-neutral growth and emissions reduction.” The Qantas study would tell how that could be achieved in Australia.

It is not really a matter of choice. Qantas makes an early move, and shows that action speaks louder than words.

Qantas raises fuel surcharge yet again, spinning the same stock explanation

AREN’T we tired of listening to the same stock explanation every time an airline announces increases in the fuel surcharge? The announcement is usually prefaced by how much the prices of jet fuel have gone up, and a reminder to the public that fuel makes up the biggest component in an airline’s operations. And before you call the move unreasonable, the airline will have you know that the increase never fully covers the full impact of the soaring fuel cost, in fact barely.

The latest round of known increase comes from Qantas, which will raise the surcharge for international flights on April 12. Yes, yet again, making it an annual affair. And it is the same story that has been used before by all and sundry in the industry.

You hear it so often that you simply go “blah” these days. You no longer care to question or seek to understand. Raising the fuel surcharge is in reality increasing the fare, because ultimately it is the bottom-line number that matters – the full fare of the ticket to include all taxes and surcharges.

Short of more innovative methods to prop up the business, airlines are falling back on surcharges. Qantas had already in February imposed a carbon tax – to compensate for penalty costs imposed on the airlines by the European Union for failing to meet set carbon emissions standards vis-a-vis a carbon emissions trading scheme.

So much about such charges being cost recoveries, they are really revenue earners. The downside is that they may reduce travel or cause a loyalty shift. For Qantas, its home clientele for international operations has fallen to 20% compared to its stronger domestic market of 65%. More Australians are travelling with competitors such as Emirates and Singapore Airlines, therefore making it more expensive is not going to help.

Pressure on European Union to rethink carbon trading scheme

AN apparent move by China to block Airbus deals in retaliation against the European Union`s implementation of the carbon emissions trading scheme to all airlines operating to and from the EU territory has given gumption to Airbus to plead for a rethink by the authorities. The Airbus petition has the support of six European airlines, namely British Airways, Virgin Atlantic, Lufthansa, Air France, Air Berlin and Iberia.

China has already banned its airlines from participating in the scheme – which poses a headache for the EU which has so far shown no willingness to concede although the implementation date was January 1. While the EU could prevent Chinese carriers from landing within its territory, such action would have political ramifications.

The United States is also opposed to the scheme and some other countries too have voiced their displeasure but would comply.

Australian flag carrier Qantas along with compatriot Virgin Australia have already announced a carbon surcharge to be added to the ticket fare, perhaps also largely in preparation for a similar carbon trading scheme to be implemented in Australia by July.

Singapore Airlines chief executive Goh Choon Phong said: `We will comply but we don`t think it is an equitable measure.”

The external protest is now boosted by pressure from within. Airbus and its supporters are citing possible job losses. Airbus chief executive Thomas Enders said: “The measure is threatening more than 1,000 jobs (at Airbus) and another thousand through the supply chain.”

Does the EU have a Plan B or will the issue go the way of reciprocity the way that freedoms of the air have been negotiated? The unfavourable current economic conditions might provide the EU with an excuse – if it needed one – to placate some key trade partners without conceding its objective. But it is slippery ground. To get back up again may be as difficult, especially when the renewed call for a global solution through an international agency is bound to be plagued with differences that can only stall the process.

Doing nothing is an option, as the EU waits and sees.

Increased fuel surcharge and new carbon tax may reduce air travel

SINGAPORE AIRLINES (SIA) will raise its fuel surcharge from March 8. The increase also applies to SilkAir flights. Qantas has already done so from February for domestic and regional airfares and from February 15 for international flights.

With all the news about how many airlines are reporting fall in revenue because of the rising fuel price, this should not come as a surprise. It is a fact that the price of jet fuel has gone up, and today reached a record level following reports of a pipeline explosion in Saudi Arabia.

SIA said: “The adjustments will offer only partial relief from the higher operating costs arising from increases in the price of jet fuel.” The explanation is not new. It is not an argument to be refuted. The challenge it will face – as will the other airlines that are likely to follow suit – is customer retention in the face of higher fares (including fuel surcharges).

Just as several airlines are reporting improved passenger traffic in January and starting the year on a promising note after the dismal results of the last quarter of 2011, the industry may be faced with another round of travel cutback.

It will cost even more to fly Qantas because the Australian flag carrier will be imposing a new carbon emission surcharge following the implementation of the carbon emission trading scheme by the European Union (EU) in January and a similar plan by the Australian government in July. The fee will be applied on a per sector basis. For domestic and regional flights, based on a carbon price of A$23 per tonne, it will range from A$1.82 to $6.86. For flights operating into Europe, tickets purchased from 15 February will be subject to an A$7.00 carbon surcharge.

Qantas’ subsidiary budget arm Jetstar will also see higher fares.

Virgin Australia will similarly be imposing the new carbon surcharge which ranges from A$3.00 to A$6.00 for domestic flights. The airline, which operates codeshare flights with Etihad Airways from Abu Dhabi to various destinations within the EU, will be adding a carbon surcharge of $3 per passenger from 1 March. However, the fee may fluctuate.

Expect other airlines to follow suit but with the exception of carriers from China, which has banned its carriers from participating in the EU’s carbon emission trading scheme and from raising fares on that account. However that turns out, the cost of air travel is certainly heading north, and this may not be the best of time for airlines to push it without some cautionary discernment.

China defies EU on carbon emissions scheme

CHINA is putting its words into action, banning its airlines from participating in the European Union (EU)’s emissions trading scheme (ETS). This was a course of action voiced by the United States before the scheme was effected, but was then clearly not accorded much respect by the EU authorities which asseverated that they would not bow to pressure by the US.

Would it be different this time? And how would the EU respond?

The EU could call China’s bluff and assert its sovereign right to implement the scheme within the EU. This would mean compliance by airlines that wish to operate to its ports. But barring non-complying airlines, particularly if it is a blanket application to all the airlines, is likely to impact adversely the travel business between the two regions, result in repercussions in other areas and invite retaliation beyond the boundaries of aviation.

China’s move may embolden other nations, so the EU may not find the problem escalating.

On the other hand, the EU can ignore all manner of censure, protest and threat, and allow business as usual until a solution is found. This is not uncommon, particularly in matters of political dispute.

But is a compromise possible?

China said the ETS could cost its carriers 95 million euros (US$124 million). Observers may agree that in view of the present state of the industry, this may not be an appropriate time to implement the scheme. To demonstrate its concern, China has at the same time prohibited its airlines from increasing their fares or adding new charges because of the scheme, contrary to how the affected carriers of other nations would be passing on the additional cost incurred to their passengers. According to the EU, the cost of air fares would rise between 2 and 12 euros per passenger – as if that is the way it should go.

It will be interesting to see what happens next. A way out of the discord is imperative, as it has become too a matter of saving face.

Full-fare disclosure gains momentum

JUST as the United States kicks in a new regulation on January 24 requiring airlines to publish the full fare including taxes and surcharges in their sale pitch, Australia is taking Malaysian budget carrier AirAsia to court for misleading advertisements.

According to the Australian Competition and Consumer Commission, AirAsia’s website did not show the full disclosure fares for some routes out of Melbourne, Perth and the Gold Coast. The commission said: “Businesses that choose to advertise a part of the price of a particular product or service must also prominently specify a single total price.” As a consequence, AirAsia may be fined.

The new rule introduced by the US Department of Transportation (DOT) has already been in force within the European Union (EU) although there, it applies only to EU carriers. Now Canada is working on a similar implementation which Canadian carriers have argued is unfair because foreign carriers are excluded. Quite rightly so, why should any airline targeting the same market be exempt?

More disturbing is how all these arguments actually lend weight to the new rule to protect the right of the consumer. Indeed, are there no ethical considerations in the business of making money?

After the EU, North America and Australia, it should be expected that the rule should gain momentum in other regions, especially if it applies to all carriers. The absence of universal applications is apt to raise concerns about unfair competition. So, recalling all that fuss about not leaving the carbon emissions issue to the International Civil Aviation Organization (ICAO) to come up with a global procedure (instead of the EU going ahead on its own to introduce the carbon emissions trading scheme in this specific case), this may be an opportunity for international aviation agencies to not later regret being sidelined.

Will EU call China’s bluff that it will not cooperate on carbon trading?

IT’S one week into the European Union (EU)’s implementation of the carbon emissions trading scheme (ETS) for all airlines landing or taking off within the EU, and objection from those affected has found expression in either threats of retaliatory action and non-compliance or decisions to pass on the cost to their passengers.

The United States has warned through no lesser an office than that of Secretary of State Hilary Clinton that it would respond with retaliatory action, but until it is known what that is the EU is unlikely to be much bothered by it. Besides, EU Commission spokesman Isaac Valero-Ladron has said the EU will not yield to threats.

Neither is the EU going to be concerned about how the airlines would recover the additional cost, which some carriers such as Singapore Airlines and Lufthansa – and more will follow suit – have indicated will most likely if not already certainly be passed on to their passengers. As far as the EU sis concerned, it means compliance by the airlines in spite of the protest.

What about non-compliance, as when China airlines under the umbrella of the China Air Transport Association (CATA) – amongst them Air China, China Southern Airlines, China Eastern Airlines and Hainan Airlines – have decided to defy the ruling. CATA deputy secretary-general Chai Haibo said: “China, of course, will not cooperate with the European Union on the ETS.” CATA is objecting to “EU’s improper practice of unilaterally forcing international airlines into its ETS.” It is estimated that the ETS would cost China airlines an additional 95m euros (US$124m).

Once again, EU spokesman Valero-Labron reiterated EU’s uncompromising stance. He said: “We’re not modifying our law and we’re not backing down” Apparently, non-compliance carries high pecuniary penalties, and defaulters may be barred from operating into the EU.

It looks like the EU is calling China’s bluff as it did with the US threat of retaliation. The question now hinges on how opposing countries and their airlines are prepared to go in their protest and how far the EU will resort to instituting penalty actions for non-compliance, and at what point the issue will become a political hot potato. Or, is it likely to be a situation of compliance under protest until a solution is found that over time becomes irrelevant as more airlines turn to the expedience of passing on the cost to their customers?

Airlines to pass on emissions trading cost to passengers

SINGAPORE AIRLINES (SIA) has said it may pass on the cost of the European Union (EU)’s emissions trading scheme (ETS) to its passengers. The ETS, which came into effect from January 1, applies to all airlines landing or taking off within the EU.

Although the ETS cuts both ways as a reward or penalty scheme, airlines are more concerned about the additional cost to its operations for failing to meet set carbon emission standards. The more efficient airlines may benefit from trading excess credits.

Lufthansa has followed SIA’s announcement to say it will pass on the ETS cost to its customers, to be included in the existing fuel surcharge. The German flag carrier expects to incur an additional Euro 130 million (US$169) in 2012 because of the ETS.

Australian flag carrier Qantas is expecting to incur an additional A$4 million (US$4.06 million) to A$5 million (US$5.08 million) but has not announced its intention on how it would recover the cost. It (and and other airlines calling at Australian airports) may be doubly hit if Australia goes ahead to implement its own ETS by mid-2012 to also apply to airlines.

The ETS aims to motivate airlines to be more fuel-efficient and conscious about their carbon footprints. But if the ETS becomes a mere matter of passing the cost from legislators to consumers, then it is the sad story of a dog chasing its tail. While the airlines feel not the pinch as intended and as the ETS becomes yet another significant revenue source, it is the consumer that is left carrying the can.

US and EU cross swords on carbon emissions

COME January 1, 2012 all airlines that land or take off from any point within the European Union will be subject to the carbon emissions trading scheme (ETS).

The United States has objected to the scheme, perhaps a little too late even though the US House of Representatives had two months ago directed the US transport secretary to prohibit US carriers from participating in the plan. That is now seen as a veiled threat with little bite, with no real option for US carriers. A spokesman for EU Climate Change commissioner Connie Hedegaard said the EU would not bow to pressure from the US. Sauce for the gander is sauce for the goose. It is to be seen what the US would do next, with the latest threat from an official no less than Secretary of State Hilary Clinton warning that the US would respond with “appropriate action” if the scheme went ahead but stopping short of saying what action.

Naturally the US is concerned about its carriers being disadvantaged by the EU ruling and would prefer the matter to come under the ambit of the International Civil Aviation Organization (ICAO). But ICAO has done little to develop or promote concerted alternatives, let alone efforts by some airplane manufacturers and individual airlines demonstrating their green commitment.

The US has argued that the ETS is an infringement of the Open Skies agreement, but that has been refuted by the EU, which has rebutted that it is a regulation implemented within EU territory, in all likelihood no different by comparison how other countries have also imposed certain local charges within their own jurisdiction. The International Air Transport Association (IATA) is lending support to the US’s argument, saying it is “extra-territorial”, hence an infringement n the rights of airlines flying in international airspace.

IATA also claimed that the EU initiative is a tax on carbon emissions, and this breaks international conventions. But spokesman Isaac Valero Ladron of the EU Commission refuted that argument, saying: “This is not a tax, it’s pollution saving.” How much more is this a tax than, say, the fuel surcharge that permits airlines to unilaterally pass on additional fuel costs to their customers with no considerations of efficiency? At its very best, though punitive, the ETS is supposed to motivate airlines to be more fuel-efficient in their operations.

Canada, China and other countries in Asia and Africa – practically almost the rest of the world – have also expressed their disapproval of the EU’s regulation. So far Australia is the only country outside the EU that may be following in its footstep by the middle of next year. For now, there are concerns that the EU ruling may lead to a trade war, which Airbus and some national carriers are keen to avoid, urging the EU to modify its plans. Airbus chief Tom Enders said it was “madness to risk retaliation” from these countries.

There may be compromises yet the EU has indicated it may consider exemption for airlines whose countries are implementing similar ETS plans, suggesting reciprocity. But Mr Ladron made it clear that “we (EU) don’t work on the basis of threats, but on discussions.” ICAO may be wishing it had long ago started working on an acceptable global system.