Wed Aug 3rd, 2005 at 06:10:53 PM EST
About a week ago the Financial Times ran a story on the inclusion of airlines in Europe's emissions trading scheme. Whether this was really news can be questioned. What is certain is that the FT did a poor job reporting it.
The FT got a look at the preliminary plans drawn up by the European Commission, from which it drew the news that the measure may end up costing the consumer up to 9 Euros a ticket.
This was called a 'pollution penalty'. But it is nothing of the kind.
The news that the European Union would try to solve the issue of aviation and climate change by including the airlines in emissions trading was reported two months ago in the EUobserver (now, like the FT article, behind the payment wall). And it could have been seen coming much earlier.
The reasons why this is the only available avenue for the EU to take are twofold. First, it is the only politically feasible solution. Second, it is the best solution.
Other measures to tackle this issue range from a lot harder to agree on to politically impossible. Under the current treaties, a tax on kerosene or a surcharge on airline tickets would require unanimity among the 25 member states to be agreed upon. Tax harmonisation is an especially sensitive topic in EU politics, and a proposal made by the Commission during the '90s to instate a comprehensive fuel tax has already died a silent death. Meanwhile, old-fashioned command and control measures would meet heavy resistance by the airlines, and tend to come at a higher cost to society. Tackling the issue at the national level is also not an option, logically, things like a fuel tax need to exist on both ends of a line, and evasion of both airlines and passengers to airports over the border can become a threat.
What interested me, then, were the precise details of the Commission's plans. But on these the FT doesn't have much, except the expected cost. Worse, because of the title of the report, some people thought that this was actually a tax.
Emissions trading is different from taxation, if only for the simple reason that the government doesn't get any money out of it; the rights in the European scheme are handed out free of charge. The argument that the effects of emissions trading are similar to taxation has been made by conservatives in the debate around the McCain-Lieberman bill in the US, and has the backing of the Congressional Budget Office. But it's wrong.
A 'downstream' emissions trading scheme of the nature of the European scheme results in a different incentive structure than a fuel tax, because of which it can have more bang for buck. Fuel inputs are only one side of the equation, and taxing them leaves out solutions on the other side. This effect is especially pronounced in the case of aviation. A study by the German 'Oeko Institut' has shown that carbon dioxide emissions probably account for less than half of the climatic impact of aviation (other impacts include cloud formation), and that when measures fixate on these emissions, the result could actually be an increase of the impact.
The inclusion of the airlines will require some changes in the European scheme too, or a semi-independent scheme for aviation with a different weighting of rights. That is required at any rate, as a tonne of carbon dioxide emitted at cruising altitude has a considerably higher impact than the same amount emitted at ground level. What matters most is that the cover of the measure is comprehensive and that there are no restrictions on trading between the different sectors.
The cost of this all will then be determined on the market for emission rights. And no, the companies won't pay (a lot) for it, they'll base their costs on the market price of the emission rights, pass those on to the consumer and get a windfall profit in the process, as they got the rights for free. There are some real costs for the companies, which arise if there is a shortfall. How big those are depends upon how the sector develops.
But that doesn't really matter. Because of this measure, the price of an airline ticket will have come a little bit closer to covering the real cost of flying, and more importantly, the effort to reduce greenhouse gas emissions will intensify.