UN body at centre of Emissions Trading Scheme storm

The head of the ICAO, the UN aviation agency, is concerned that the emissions row in Europe could hurt airline profits.

As the salvos come fast and furious between those in the aviation industry for and against the European Union's Emissions Trading Scheme (ETS), Roberto Kobeh Gonzalez has become the man caught in the crossfire.

He is president of a UN agency, the International Civil Aviation Organisation (ICAO). In 2010 it was given a mandate to find a global solution for the aviation industry to reduce its carbon dioxide emissions without hurting growth in the sector.

However, airlines and governments have criticised Europe's decision to extend the regional cap-and-trade scheme, the ETS, to airlines, bringing it into effect on 1 January 2012, well ahead of any global overarching policy decision by ICAO.

The scheme charges airlines for their carbon emissions above a set cap.

The industry is now focused on the UN body to end the stand-off with a global solution.

However, Mr Gonzalez says ICAO, made up of 191 member states, will continue at the pace set out for it by its member nations, raising the prospect that a decision will be made after the first payments are due.

"We will move as fast and as far as the states decide to. The states are the stakeholders of the organisation and they have to give us instructions," he told the BBC on the sidelines of the Singapore Airshow.

Sovereignty issues

ETS stipulates that airlines flying in or out of Europe must obtain certificates for carbon dioxide emissions. Most of the credits this year will be granted free, however the airlines must buy or trade credits to cover the rest, and the cost increases from next year onwards.

Start Quote

John Slosar Cathay Pacific CEO

There is a difference between leadership and bludgeoning”

End Quote John Slosar CEO Cathay Pacific Airlines

The payment for 2012 will be calculated after each airline's annual carbon output has been added up, to be paid in early 2013.

In the current timeline set out by ICAO, there is no ruling before the first payments are due from airlines under the EU ETS.

Mr Gonzales says the next step in the ICAO process is to present a market-based solution for consideration to the assembly in late 2013.

He says six have been proposed in the first study the council received including off-setting, ETS, levies and others.

"By the end of this year we expect to have some definition of the scheme. But the final decision is for the assembly."

But until that process takes place, the airlines are stuck with the ETS.

Some complain the EU ETS measure is too costly and that it takes into account emissions from the entire journey, not just the part over European airspace.

"We don't think that it is an equitable measure," says Singapore Airlines chief executive officer Goh Choon Phong.

"The whole principle doesn't make sense, and should you be imposing anything that is outside your own airspace?"

Asian airlines also complain that they will be worst hit because the charges are based on distance, which gives Middle-Eastern airlines an advantage.

Some airlines have asked for a suspension of the ETS until that global solution is found through ICAO.

While the EU says it will continue to co-operate towards finding that global solution, the scheme will not be suspended.

Good intentions?

The European Commission, now on the defensive after the strong opposition for the ETS, say its actions were a result of the "startling" facts on emissions.

In an industry panel in Singapore, Matthew Baldwin from the directorate-general for mobility and transport, part of the European Commission, quoted that in the EU from 1990-2006 aviation carbon dioxide emissions doubled at the same time as overall transport emissions only grew by 25%.

ICAO says that by 2020 global aviation emissions could double, and increase 700% by 2050

"There was a universal sense within Europe, but I hope not just in Europe, that we have a real problem we're trying to solve in climate change and particularly with aviation," says Matthew Baldwin.

China Eastern Airlines China says the ETS could cost Chinese carriers 95m euros (£79m; $124m) in additional annual costs

The EU says the ETS as a whole will help the 27-nation bloc reach its goal to reduce emissions by 20% by 2020.

Mr Baldwin says Europe acted at a time when there was not generalised support for a multilateral solution on reducing emissions from aviation.

However, chief executive officer of Hong-Kong based Cathay Pacific Airlines John Slosar was not ready to allow good intentions to be an excuse.

"You can't have it both ways - there is a difference between leadership and bludgeoning," he says to Mr Baldwin.

"You guys tried the latter and now you're discovering it works both ways."

Political wrangling

This industry spat has turned into a political standoff. China, India, the US and dozens of other countries have expressed opposition to the ETS.

Some countries are talking about retaliatory or non-implementation schemes.

Last week China banned its airlines from paying any charges on the ETS without government permission. The issue is expected to be on the agenda at an EU-China summit which began on Tuesday in Beijing.

"When you set a scheme that attempts to tax Chinese airlines flying out of China, you're going to get China's interest. And you got it," Mr Slosar says.

China claims the plan could cost Chinese airlines 95m euros (£79m; $124m) in additional annual costs. Analysts say it could jump to three or four times that much by 2020.

The US had taken the issue to the European Court of Justice (ECJ) saying the emissions tax was invalid under the Open Skies Agreement.

That agreement allows airlines to fly between any EU country and any point in the US. However, the ECJ ruled it was legal.

Consumer costs

In all this tense back and forth, the EU Commission is eager to point out that it wants to find a global solution just as much as the airlines.

"We've always said we're flexible," Mr Baldwin says. "We can amend the ETS directive in the event of a global deal." He says the earliest review of the ETS is in 2014.

It all comes back to down to this global solution that everyone can be happy with, something Mr Gonzalez of ICAO is confident will be reached.

Not everyone is as hopeful there can be a solution everyone is happy with.

"Anything to do with carbon on a global basis has proven to be difficult, to get the four corners of the world to agree on one system," says Chris de Lavigne, a renewable energy specialist at Frost and Sullivan.

In the meantime he says the most likely scenario is airlines will pass on the cost to travellers.

"It's probably the consumer who is going to end up paying for this."

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