The first U.S. industry to face a cap on its greenhouse gas emissions is not, as may be expected, the coal-burning power utilities. It's not the oil refineries, churning through crude. It's not the automakers, manufacturing again.
It's the airline industry.
Sometime this month, the European Union will release a list of airlines it will regulate under its existing cap-and-trade system for carbon dioxide. Beginning in 2012, all international flights landing in the region must abide by the regulations. And several airlines on that list will have a decidedly New World feel: Delta, United and American.
They are not alone. A preliminary version of the list released earlier this year included more than 700 airlines registered in the United States, out of some 2,800 airlines total. While this number is expected to dwindle -- weaning out small-scale operations -- all large U.S. carriers flying into Europe expect to be on the finalized list.
The move to regulate what is an international business typically governed by treaty has raised hackles from airlines and governments around the world. Many see its position as a violation of national sovereignty -- or simply bad for business.
The European Union is seeking to "substitute its judgment for other parts of the world," said Nancy Young, vice president of environmental affairs at the Air Transport Association, the lobbying group for U.S. airlines.
"I'd say virtually every airline in the world opposes the unilateral European approach -- including the European airlines," Young said. At a certain point, she added, "the Europeans are going to have to decide whether they're playing in the sandbox or not."
E.U. legislators have enthusiastically supported taxing airline emissions, approving the law last year. While planes account for up to 3 percent of the bloc's total CO2 output, without caps these emissions could almost double within a decade, counteracting the European Union's ambitious low-carbon goals, said Philip Good, an environmental policy expert at the European Commission, the executive branch of the European Union.
"Aviation is a part of the economy that traditionally has been outside the scope of climate policies," since it was not included in the Kyoto Protocol, Good said. "Bringing aviation into the [scheme] normalizes the situation."
The airline industry is committed to reducing greenhouse gas emissions, but the E.U. scheme is shortsighted in taking a regional solution to international transport, said Quentin Browell, assistant director of aviation environment at the International Air Transport Association, which represents 230 airlines worldwide.
"What concerns us is there's no coordinated approach," Browell said. "We take responsibility for our emissions. It's perfectly valid for us to pay the cost of those emissions. But we should pay just once."
Of particular concern to U.S. carriers are fears of double taxation, given the provisions in the House's recently passed climate bill that would be tantamount to an indirect tax on aviation. While the bill is focused on stationary emissions, transportation fuel -- including jet fuel -- will be regulated at the point of sale, potentially raising the collective bill of U.S. airlines by $5 billion, according to Young.
The provisions that increase fuel prices for aviation could be revised in the Senate climate debate. Already, the Air Transport Association managed to insert a provision into the House bill that called for working "with foreign governments towards a global agreement that reconciles foreign carbon emissions reduction programs to minimize duplicative requirements."
European officials argue that fears of double counting are unfounded, as when another nation adopts similar caps, the bloc will take steps to exclude international flights from its system, according to Sophie Knight, spokeswoman for the United Kingdom's Department of Energy and Climate Change.
The E.U. 'model'
The European Union is "providing a model that the rest of the world could choose to implement," the European Commission's Good added. "Once developed, similar mechanisms could be linked together to give global coverage of aviation emissions."
This model is well under way.
In the next month or two, the European Commission will release the baseline used to cap airline emissions. Based off averages from 2004 to 2006, sources say the commission initially arrived at a figure north of 200 million tons of carbon dioxide. The commission delayed releasing the baseline this month, citing the need for data accuracy.
Beginning in 2012, total aviation emissions will be capped at 97 percent of the baseline, falling to 95 percent in 2013. Eighty-five percent of the CO2 allowances will be freely granted, and the rest will be auctioned. Unlike other parts of the trading scheme, it is not a hard cap, and airlines can buy as many emission credits as they like, if they're willing to pay.
The overall cost to the industry could be €1.1 billion, according to Andreas Arvanitakis, an analyst at the carbon market monitor Point Carbon who recently co-authored a report on the scheme.
In fact, Delta and United will likely face the highest carbon shortfalls of any airline operating in Europe, at 3.5 million tons and 3.3 million tons, respectively, according to Point Carbon's analysis -- higher than British Airways, at 3 million tons.
Unlike utility companies, which have the option of investing in renewable energy, commercial alternatives to oil-based jet fuel are in their infancy. The international standards board for fuels and chemicals last week approved the use of synthetic jet fuel for commercial flights, a move that could pave the way for approval of renewable jet fuels (E&ENews PM, Aug. 6).
Instead, airlines facing carbon shortfalls have several alternatives. They can purchase additional permits from the European market or invest in clean development mechanisms. And there are leaps to be made still in fuel efficiency, with many believing improvements in air traffic control and plane technology each could net more than 10 percent fuel savings.
Airlines themselves, once united in their opposition to CO2 regulations, are beginning to separate somewhat, with several airlines, notably British Airways, aggressively pursuing environmental goals, said Martin Staniland, a professor at the University of Pittsburgh's Graduate School of Public and International Affairs who has extensively studied the sector.
"It's a bit like a marathon," Staniland said. "Some people are taking off to the front."
Partly this is a function of economics: U.S. airlines remain in shaky financial condition, which has allowed their European competitors to purchase newer, more efficient fleets, Staniland said. Neither United, Delta nor American returned inquiries related to the European scheme, but reports indicated they are planning to comply with the European system.
Both regulators and the airlines opposing them are now, like so many others, pinning their hopes on the U.N. climate talks in Copenhagen this December. Britain will press that targets for aviation emissions be a part of any deal struck, Knight said.
Meanwhile, the International Civil Aviation Organization, the U.N. agency that has traditionally overseen global flight, will be defending its turf. The agency has recently released proposals focused on improving fuel efficiency to fight climate change. The regulations are voluntary, however, and do too little, from the European view.
Without a Copenhagen treaty that addresses aviation emissions from a global stance, it is likely that a country -- be it the United States, China, Japan or elsewhere -- will file suit against the E.U. scheme, the Air Transport Association's Young said.
Even with a new U.S. administration that is far more aggressive in its approach to climate change, the aviation regulations remain unappealing simply due to issues of sovereignty.
"What right does the European Union have to charge a U.S. carrier for its emission over U.S. airspace?" said Browell of the International Air Transport Association.
Young argued that if the Europeans have such rights, then, for example, the United States could decide to restrict airlines from countries with poor labor laws. "Where does it stop?" she said.
While legal challenges remain, it is clear that the European Union has spurred a coalescing debate on the shape of a global emissions scheme, Staniland said.
"The E.U. action is quite crucial," he said. "It has provided a model. Whether anyone will adopt that model, I don't know."