Airlines face EU pollution bill from New Year

Airlines will have to buy pollution permits to fly in Europe from January 1 under a disputed EU system to fight climate change, but slumping carbon market prices could make the bill less painful. The cap-and-trade scheme, which has angered the US and Chinese governments and airlines worldwide, comes into force on Sunday after the European Union's highest court rejected a challenge brought by US carriers this month. The Airlines for America association grudgingly indicated that its members would abide by the EU law, but "under protest" while pursuing legal options. Chinese airlines plan to file a complaint in a German court this week. For now, buying a permit through the EU Emissions Trading System (ETS) will be much cheaper than paying a fine for ignoring the rules. Prices in the carbon market have fallen dramatically to eight euros ($10.4) per tonne of CO2, after fluctuating in the past few years between 15 and 25 euros. Refusing to comply would cost an airline 100 euros per tonne, with the possibility of being denied the right to land in the 27-nation EU in extreme cases. "Airlines must understand that the price of CO2 will probably increase, but they are free to decide when they will buy permits," Isaac Valero, spokesman for EU climate change commissioner Connie Hedegaard, told AFP. Launched in 2005 in a bid to reduce carbon emissions, the ETS has been applied to 11,000 power stations and industrial plants across Europe. If firms get below their emissions ceiling, they can sell the surplus on the ETS. If they are above it, they can meet their quota by buying what they need in the marketplace. The EU decided to include airlines, responsible for 3.0 percent of global emissions, in the system in the absence of a global agreement to cap aviation emissions. Airlines will only have to pay for 15 percent of their emission allowances in 2012, amounting to 256 million euros under current market prices. They will have to pay for 18 percent from 2013. Airlines denounce the system as a new tax and warn that it would cost the industry 17.5 billion euros ($23.8 billion) over eight years. The European Commission says the scheme could add between 4.0 and 24 euros ($32) to the price of a two-way transatlantic flight, if airlines choose to pass the cost on to passengers. "This is not a tax. It's a market," a commission official said. "The price for permits reflects the market reality. For now it is low because of the (debt) crisis and a surplus of permits, but the European Union will do everything to increase it," the official said. The commission has proposed taking between 500 million and 800 million tonnes of CO2 out of the market in 2012, while the EU parliament is seeking a cut of 1.4 billion tonnes -- this would drive a price increase. The airline ETS system is going ahead despite a plea by US Secretary of State Hillary Clinton for the EU to halt or delay its application. She also warned of "appropriate action" if it is enforced, raising fears of a trade war. A commentary by China's official Xinhua news agency warned last week the EU scheme "infringes on national sovereignty, violates international aviation treaties and will lead to a trade war" in the sector. China's four main airlines and the China Air Transport Association (CATA) have decided to take the matter to court in Germany. "The positive thing in this decision is that the Chinese have chosen the legal route rather than retaliation," said a European official.