Airlines ponder legal challenge to carbon emissions scheme, while Chinese government may resort to 'retaliatory measures'
China's four leading airlines have thrown down the gauntlet to the European Union by saying they will refuse to pay carbon charges levied under Europe's emissions trading scheme.
The defiant message — which could lead to a ban from European airports — marks an escalation of resistance to the scheme, which came into effect this week and is also fiercely opposed by the United States.
Despite the growing threat of a trade war, Europe sees the cap-and-trade system for aviation emissions as a crucial tool for reducing greenhouse gases that contribute to climate change.
From 1 January, any airline using an airport in the EU is obliged to participate. But China's leading aviation body said it will not. "China will not cooperate with the European Union on the ETS, so Chinese airlines will not impose surcharges on customers relating to the emissions tax," said Cai Haibo, deputy secretary-general of the China Air Transport Association.
His organisation represents Air China, China Southern Airlines, China Eastern Airlines and Hainan Airlines, which fly millions of passengers to Europe each year. It estimates that the scheme will cost its members 800m yuan (£78m) in the first year, rising more than threefold by the end of the decade.
Under EU regulations, airlines that fail to pay carbon allowances can be fined €100 per tonne of carbon dioxide. Persistent offenders are liable to be banned.
Last month, the European court of justice turned down a legal challenge to the scheme, prompting China's Xinhua news agency to warn of a looming trade war.
If the EU applies punitive measures, Chinese academics have suggested that the country's airlines should counter by reducing purchases of Airbus aircraft.
While such threats have since been played down, any escalation of conflict between these two huge economies would have implications for the world.
China says it is unreasonable for Europe to apply its policies to developing nations, which are still at the stage of rapid expansion of their airline industries and so find it difficult to cut overall emissions.
It says the costs of reducing carbon should be passed on to aircraft manufacturers — most of which are in Europe or the US — as an incentive for them to produce more efficient planes.
There is still time for a resolution because carbon fees do not have to be paid until March 2013. But Chinese airlines are already looking into legal actions against the EU and lobbying for countermeasures by the Chinese government.
"We are now walking on two legs — first, we would not rule out the chance of taking legal action and, second, to resort to the government for retaliatory measures. Several departments have been looking into this," Cai said.
China is not alone in its opposition. The US has also warned that it may retaliate and US Congressmen have drafted a bill that would make it illegal to comply with the EU policy. Qantas Airways of Australia has threatened to sue.
But other Asian airlines were more amenable to the system. Cathay Pacific — which is based in Hong Kong — and Singapore Airlines have said they would either offset the costs by improving efficiency or pass on the charge to customers.
The EU says the scheme would cost passengers between €2 and €12 per flight, depending on the distance and other factors. Airline operators fears this will hurt demand in a market that is already depressed by the economic crisis.