EU says India, China violate carbon law

By Barbara Lewis

BRUSSELS | Tue May 15, 2012 7:44am EDT

BRUSSELS (Reuters) - A total of 10 Chinese and Indian commercial airlines have broken EU law requiring them to offset their carbon emissions, while all other international carriers flying to or from Europe have complied, the European Union's climate chief said on Tuesday.

The EU law demanding all airlines participate in the EU's Emissions Trading Scheme (ETS) has prompted outcry and threats of a trade war.

But only eight Chinese and two Indian airlines have delivered on threats not to comply, while more than 1,200 airlines have met the EU's requirements.

"We have given them (India and China) until mid-June to report back their data," EU Climate Commissioner Connie Hedegaard told a news briefing.

The Commission, the EU's executive arm, has the option of fining airlines that break its law, or even banning repeat offenders from flying to Europe, although this would be a last resort.

To reduce tension, the Commission has looked to the U.N.'s International Civil Aviation Administration (ICAO) to come up with a global approach to curbing emissions from airlines.

The body is expected to meet next month to review progress.

"We are using a lot of time and energy in trying to ensure a global solution through ICAO," Hedegaard said. "Nobody would be happier than the EU if it could achieve (that)."

The Commission has said it only decided on its plan after more than a decade of talks at the ICAO failed to agree on a global scheme to combat rising carbon emissions. It has also said it would modify its law if ICAO can deliver a deal.

FINES FOR OFFENDERS

Penalties for breaking the EU law start at 100 euros ($130) per metric ton (1.1023 tons) of carbon airlines fail to pay for, while the cost of compliance is estimated at about 2 euros per passenger for a flight from Shanghai to Frankfurt.

Opponents of the law accuse the European Union of imposing an extra-territorial tax and say it sets a dangerous precedent.

More than 20 nations opposed to the scheme grouped together in a "coalition of the unwilling". They last met in Moscow, when they agreed possible retaliatory measures and said they would meet again in Saudi Arabia, although a date has not been confirmed.

"You cannot enforce laws outside your sovereign area. Its implications are huge," Indian Civil Aviation Minister Ajit Singh told Reuters last week.

"Now you are talking about aviation, tomorrow you will talk about shipping. ICAO is there, these things will have be done in a multilateral basis."

The EU's highest court, the EU Court of Justice, ruled in December last year that the 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.

WEAK CARBON MARKET

The cost of carbon allowances on the EU ETS has fallen to record lows, pressured by oversupply following economic recession.

On Tuesday, carbon prices were trading at below 7 euros a metric ton - far below levels needed to spur low carbon investment.

Hedegaard said in April that the Commission was reviewing its carbon auctioning timetable to try to reduce oversupply in the market.

She expected news on the review before the Commission breaks for its August recess, with a legal decision expected before the end of the year.

Changing the auctioning timetable to limit supply in the nearer term - or "backloading" - was a relatively quick solution, but other options under discussion, including setting aside allowances, could take longer.

"We should not expect backloading will do the whole trick. That's a first step, which does not take a lot of time. The more structural things are a more complicated process," Hedegaard said.

(Additional reporting by Anurag Kotoky in New Delhi; editing by Rex Merrifield)

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