Daily Israel Report

US Threatens Retaliation for EU Carbon Tax on Airlines

The EU and the US are on a confrontation course over the EU carbon tax designed to reduce pollution by airplanes.
By Amiel Ungar
First Publish: 12/22/2011, 4:46 AM

The European Court of Justice has upheld the legality of the emissions tax that the EU intends to impose on all airlines flying in and out of Europe, with the view of forcing them to become cleaner and less polluting.

The court ruled that since the tax was not discriminatory, it did not violate any conventions. It also noted that the International Civil Aviation Organization (ICAO) has failed to make progress for over 14 years, due to the objections by foreign airlines, primarily American airlines.  Therefore the EU was entitled to act unilaterally.

The tax is applicable only when the aircraft are physically in the territory of EU member states. The airlines are free to bypass the EU and avoid paying the tax.

This sets up a confrontation between the United States and the EU. The U.S. House of Representatives has passed a law prohibiting the airlines from collaborating with the tax and a similar bill is being introduced in the Senate. But the administration as well is adamantly opposed.

Before the EC J decision, Secretary of State Hillary Clinton wrote a letter to the EU claiming that it was isolated on this issue as other countries outside the EU such as Canada, India and China objected to the regulation. Secretary Clinton warned that if the EU would try to enforce the new tax on American carriers, Washington would "be compelled to take appropriate action" without going into specifics.

What particularly enrages the non-EU members is that the tax is imposed for the entire length of the journey. Hence if an American airline took off in San Francisco and flew nonstop to London or Paris, it would be taxed also for the flight over US airspace as well as over international airspace.

While passengers would probably balk at the idea of adding needless additional stopovers, delivery companies such as UPS are contemplating adding an extra stopover to minimize the tax. Thus instead of flying nonstop from Cologne, Germany to Hong Kong and paying the tax calculated on a flight from Germany to Hong Kong they would stop at Mumbai and then continue on to Hong Kong. This way the tax would only be calculated on Cologne to Mumbai. The end result would be more rather than less pollution.

It would be unfortunate if precisely at a time that the EU and the United States need to cooperate economically, that they should lock horns over this issue. However as the EU views itself as in the forefront of the fight against global warming, it needed to prove that the debt crisis has not paralyzed its ability to act in unison in this area.

The issue poses a test for the Obama administration. Although both Clinton and US Transport Secretary Roy Lahood have opposed the measure, the Obama administration is counting on the support of environmentalists in the next election and US environmental groups back the European measure. Should the noncompliance bill pass in the Senate Obama would be faced with a tricky choice.