China draws battle lines over ETS

Experts envisage fiery fight over emissions trading if a compromise is not found

Chinese aviation officials continue to brand the EU Emissions Trading System (ETS) as trade protectionism and a breach of national sovereignty, but there are signs that Beijing is looking for ways to compromise that would prevent an outright breach with European regulators.

EU diplomats in Beijing point to comments made by Sun Cuihua, the vice-director of China’s climate change department within the policy-setting National Development and Reform Commission. Sun said that, while Beijing remains opposed to Chinese airlines paying into the EU ETS, her office is looking at how to include aviation in a domestic ETS, which would allow China exemption from the EU scheme under the “equivalent measures” clause in the EU legislation.

A recently released draft of China’s climate change law formalised a national emissions cap-and-trade scheme. Beijing, which has studied EU blueprints in drafting its own plans, is looking at ways to cut and tax emissions to relieve acute environmental and energy challenges.

However, EU sources noted that the Chinese ETS is still in the pilot stage and is unlikely to be functional until 2016. There are also suggestions among EU officials meeting Chinese aviation authorities that Beijing could divert some of the CNY90 (USD14.14) international passenger fee towards reducing greenhouse gas emissions as a stop-gap solution.

The stakes are high if a compromise is not found. According to the ETS, Chinese airlines could be restricted from flying in and out of the EU from April 2013: “The economic impact could be considerable if the process went down the route of [Chinese airlines] being banned from flying into European airspace,” Martin Craigs, chief executive officer of the Pacific Asia Travel Association (PATA), told IHS Jane’s. “I cannot believe that politicians would allow things to deteriorate at this rate – ultimately, the EU needs to back down.”

A Civil Aviation Administration of China (CAAC) directive bans Chinese carriers from complying with the EU ETS (or from increasing fees and tariffs on those grounds), but similar orders have not come from the top of the policy-making chain. There has been no formal communication from Beijing to Brussels, which suggests the issue remains open to negotiation.

CAAC demands

For now Chinese airlines will not submit the emission data required by the EU to assess the levelling of carbon fees; Li Jiaxiang, head of the CAAC, said he prefers “comprehensive measures” such as operational efficiency and technologies to reduce emissions.

The CAAC continues to demand a global deal spearheaded by the International Civil Aviation Organisation (ICAO), which has drawn up proposals for a carbon tax and global cap-and-trade scheme for airlines. Beijing has also asked the EU to hold off on ETS implementation until the next ICAO assembly in October 2013, and Chinese official media has pointed to support from the International Air Transport Association (IATA), which also wants the EU to address the issue within the framework of the ICAO.

IATA is fully aware of the influence China is seeking to exert on the issue. Tony Tyler, director general and chief executive officer of IATA, noted in June that China is “at the forefront” of a “growing dispute” with the EU, adding: “As you know, Chinese carriers are prohibited from participating. Nobody wants a trade war. But China, Russia, and the US are among more than two dozen countries that see Europe’s plans as an attack on their sovereignty.