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Carbon air war looms

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China threatens retaliation if Europe forces global airlines into emissions trading scheme. Ultimately the consumer will pay the price. Are aviation bioufuels the answer?

China has threatened Europe with a trade war and legal action if the European Union forces Chinese airlines to participate in a carbon emissions trading scheme.

The EU has exempted airlines from its pan-industry ETS, but is forcing them to join in 2012, when airlines will have to pay for carbon credits above a threshold of emissions.

Wei Zhenzhong, secretary-general of the China Air Transport Association, told Reuters that forcing non-EU airlines to comply with the ETS was “inappropriate in content and the way they have done it.”

Global airlines have objected to the scheme because it forces them to pay carbon costs from the point of origin, which places a significant tax on long haul flights.

They’ve also called the plan illegal. One industry group, the Air Transport Association of America is challenging it in EU court. Wei threatened similar measures, telling Reuters, “I believe we have to take legal action,” and noting that Air China was preparing litigation. Air China is among at least 16 Chinese airlines that operate services to Europe, including China Southern and China Eastern.

Wei expressed hope that the EU would negotiate changes to the scheme before it takes place and told Reuters that failure to do so could lead to a trade war.

He spoke with the news agency at the annual general meeting of the International Air Transport Association in Singapore, where Willie Walsh, chief executive of BA and Iberia parent International Airlines Group, elaborated on what form a trade war could take.

According the UK’s Guardian newspaper Walsh said that China and other non-EU countries could impose punitive taxes on European carriers or block access to routes. Walsh called for a global emissions scheme and, until then, for an EU compromise in which the ETS applies only to European flights. IATA director of aviation environment Paul Steele also called or a global scheme.

A trade war could also include retaliation against the Chinese manufacturing arm of Airbus, the Guardian noted.

The Financial Times reported that Airbus CEO Tom Enders last month wrote to EU climate change commissioner Connie Hedegaard saying that it is “madness to risk retaliation” against the airline industry. Enders co-signed the letter with letter with Virgin Airways CEO Steve Ridgway, who is also chairman of the Association of European Airlines.

Analysts have estimated the ETS will cost airlines €1 billion ($1.46 billion), and as the Guardian notes, Standard & Poor’s says consumer airfares could increase by up to €40 ($58) to compensate.

With all the ETS controversy, biofuel vendors hope to make inroads into the aviation industry. Several airlines have run biofuel test flights. Lufthansa had hoped to start using biofuel from Finland’s Neste Oil on commercial Frankfurt-to-Hamburg flights in April, but has not yet received approval from international standards group ASTM. Lufthansa and Neste now hope to announce a commercial go-ahead later this month, possibly at the Paris Air Show, one source said. That's looking unlikely though, because an ASTM spokeswoman told me late today that July 1 would be the earliest date by which ASTM would approve changes to its jet fuel standards that would cover Neste's recipe.

But don’t expect biofuels to immediately solve the price problem posed by Europe’s ETS. Airbus parent EADS paid an “almost unbelievable” price for the biofuel it used on demo flights last year, EADS vice president and executive adviser for energy and propulsion John Price told me recently. And Dutch airline KLM paid about 5 times the price of kerosene fuel for its biofuel test flights in 2009. Aviation biofuels face other challenges. They must come from sustainable sources that don’t compete against food and water. And they’ll have to work on a “drop-in” basis that allows them to tap existing fuel infrastructure.

Note: This post updates an earlier version, adding information from ASTM.

Photo: Airbus/e'm Company/H. Goussé

Related Post: Making biofuels fly

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Mark Halper

Contributing Editor

Mark Halper has written for TIME, Fortune, Financial Times, the UK's Independent on Sunday, Forbes, New York Times, Wired, Variety and The Guardian. He is based in Bristol, U.K. Follow him on Twitter. Disclosure