Airlines say carbon law cutting EU off from growth

BRUSSELS (Reuters): Rising tensions with India and China over the European Union’s “arrogant” law on carbon emissions could rob the region of the markets that can rescue it from economic malaise, airline leaders said last week.

They also said they had prepared contingency plans for a possible exit of Greece from the euro, as part of the industry’s extensive crisis management, and they were worried about a domino effect of more countries’ being forced out of the currency bloc, with implications for all businesses.

“Europe is going to have to go outside of Europe to deliver the sort of growth that everyone wants, and that means doing business with the likes of China, Russia, India, with Latin American countries, all of whom are opposed to this Emissions Trading Scheme (ETS),” International Airlines Group Chief Executive Willy Walsh told reporters.

“To have a crisis in Europe and concerns about growth, and political leaders coming together to talk about a growth agenda, and at the same time have something going on in the background that risks undermining that fragile growth we believe is absolutely the wrong thing to do.”

Since the start of this year, all airlines have been bound by an EU law making them acquire carbon permits under the ETS.

The European Commission last week issued figures showing more than 1,200 airlines had complied with its ETS and only 10 - all from China and India - had not.

“We should not confuse compliance with agreement,” Walsh said. “The fact that India and China have not complied we believe is significant and of great concern.”

Chinese and Indian opposition has been largely about the principle of sovereignty. The airlines said for them it was financial too as they battle rising costs and competition.

Speaking after a meeting of 34 airline CEOs in Brussels, Walsh said they had met EU Transport Commissioner Siim Kallas.

“We expressed to him the frustration and anger of the industry at what many believe is an arrogant approach by the Commission,” he said.

“We believe the Commission has to defuse the tensions that are rising rapidly on a daily basis and to take concrete steps to move towards a global solution.”

Any Greek exit from the euro zone would be a business issue in general, not just for airlines, executives said.

“We’ve looked at what we would do if Greece left the euro zone, if there were major problems with the euro. I don’t think it’s an airline issue, it’s a business issue,” Walsh said.

“For the Greek exit, I don’t really see it for my company as a significant issue. The issue is, does it stop with Greece, if Greece exits, is that the end of it?”

Bernard Gustin, co-CEO of Brussels Airlines, said the aviation sector offered a way to get Europe back to growth.

“We believe that airlines can really fuel the growth of the EU economy. You are talking about an industry that in terms of GDP has a real impact on the European economy,” he said. “It can be a vector for EU economic growth.”

But he argued EU policy, notably the ETS, meant there was “a lack of fertile soil” for the industry to grow.

Even though it will not face a carbon bill until April next year, Walsh said IAG, formed from the merger of British Airways and Spain’s Iberia, was already feeling the impact of the ETS.

“The reality is that we’ve accounted for the cost of emissions trading in IAG’s first quarter results released the week before last,” he said.

“We had 15 million euros ($18.9 million) in fuel bills and associated costs for the ETS, and we’ve projected 60 million euros for the course of this year. So it’s already impacting on the airlines.”

For Brussels Airlines, part-owned by Deutsche Lufthansa AG , Gustin said first-quarter extra costs were 1.2 million euros.

The European Commission is looking to the United Nations’ International Civil Aviation Administration (ICAO) to come up with a global approach to curbing emissions from airlines.

The airlines say they would also be happy with an ICAO solution. Many analysts, however, doubt it can deliver.

The Commission has said it only decided on its law after more than a decade of talks at the ICAO failed to agree on a global scheme to combat rising carbon emissions.

In December last year, the EU’s highest court, the EU Court of Justice, ruled the ETS law was valid and did not breach international treaties. It also agreed with the Commission that the ETS was a market-based mechanism, not a tax.