Why Greenhouse Gas is Increasing Airfares

A European Union carbon law plans to charge airlines for greenhouse gasses emitted to and from EU member states, a fee that would be passed along to consumers through increased ticket prices.

Under the EU emissions trading system (ETS), flights departing and arriving from EU member states will be required to buy carbon permits to offset their emissions.

Airlines aren't the only industry being charged. The plan imposes limitations on 11,000 manufacturers and power companies. In 2020, emissions will be capped 21% lower than that of 2005.

On Jan. 1, carriers will be given permits to release 85% of the industry cap at no charge. Airlines are then required to buy the rest from industries that emit less than the cap in the union's trade system.

The EU hopes that new carbon law will encourage airlines to fly planes that emit less nitrogen dioxide, like the new Boeing 787 Dreamliner.

Ticket price hike

U.S. airlines estimate that the new tax will cost them $3.1 billion in the next decade, a price that will be passed down to consumers in higher ticket prices.

The average cost of a one-way transatlantic trip will cost a consumer between 2 and 12 euros, about $2.75 to $16.50 more.

Non-EU airlines are upset over the policy that they feel will cause dramatic profit losses and, at the same time, decrease the amount of money they have to spend of green initiatives. Non-EU airlines feel they are being unfavorably targeted by the bill, which requires airlines to pay for emissions during the entire trip, rather than just the time the aircraft is in EU air space. The cost for U.S. carriers, for example, would be significantly more than inter-EU carriers.

U.S. airlines also note the lack of policy on where profits made from the ETS will be spent. Considering the economy in EU countries, it is likely that many of the funds will go to debt reduction rather than programs to lower greenhouse gases.

Politics between EU and non-member states

A meeting by the International Civil Aviation Organization (ICAO) in Montreal, Canada, is likely to further increase tensions between the EU and non-EU members. ICAO is responsible for setting global guidelines in the industry. Any decision made by ICAO isn't legally binding, but it a step towards a formal dispute hearing.

26 of the 36 nations on the ICAO board, including China, the United States and Russia, are planning to issue a complaint. The 26 nations will call on an exception of all non-EU states from the protocol.

It's doubtful an ICAO challenge will dissuade the EU from its current plans, Gabriel Sanchez, adjunct professor of law at the International Aviation Law Institute, told Reuters.

U.S. airlines favor the ICAO resolution, which set a goal to cap emissions by 2020.

U.S. Legislation against EU

Last week, The U.S. House of Representatives passed regulations making it illegal for U.S. planes to pay the EU fees. This could mean that airlines would be stuck in the middle, breaking U.S. law if they pay the fee, or breaking EU law if they don't.

Although the fees officially start in 2012, the EU won't start collecting until 2013, giving U.S. carriers time to work out a solution.

We maintain our strong legal and policy objections to the inclusion of flights by non-EU carriers in the [program] and do not see the European Court of Justice process as resolving these objections, Krishna Urs, the State Department's deputy assistant secretary for transportation, told USA Today.

The European Court of Justice is planning to rule on the case late this year or early 2012, although it is unlikely the U.S. will back down. There is a possibility that a trade war may begin due to tension between the U.S. and the EU.