Europe Hits Struggling Airlines With Carbon Tax (AMR, UAL, DAL)

The European Union plans to initiate a plan next year that would force any major airline that flies to a European destination to participate in the European cap-and-trade system designed to limit carbon dioxide emissions. The airlines have been fighting the new plan, claiming that it violates national sovereignty and, by the way, would crimp airlines’ profitability.

The US Air Transport Association (ATA) has asked for a ruling from the EU’s Court of Justice to block the plan, and other nations including Canada, China, India and Russia have all protested the new plan. International carriers like AMR Corp.’s (NYSE: AMR) American Airlines, United Continental Corp. (NYSE: UAL), and Delta Air Lines Inc. (NYSE: DAL) would be subject to a per passenger fee of $3-$16 depending on the flight length if the rule is implemented. The high court is expected to release its ruling as soon as next week.

The International Air Transport Association (IATA) estimates the total cost to the airlines in 2012 would reach $1.2 billion. That’s nearly a quarter of the IATA’s estimated profit for all airlines in 2012.

Under the EU proposal a carrier would receive free emissions permits for 85% of their 2012 CO2 emissions, with that number falling to 82% by 2020. Carriers would need to purchase the rest at market price, currently about $18/ton.

The ATA has estimated a total cost to US international carriers of $3.1 billion by 2020. Germany’s Lufthansa estimates its annual cost for CO2 permits at about $490 million, while China puts a $172 million price tag on its annual cost, rising to more than $500 million by 2020.

The EU believes it has the right to impose this fee because there is no global agreement on how to tackle emissions from the air carriers. And if the EU imposes a fee on European carriers, it must, in fairness, impose the fee on all carriers flying into the country. Otherwise, the European carriers would be put at a competitive disadvantage. Airlines from any country that adopts an equivalent plan would be exempt from the EU’s plan. The US congressional super-committee is considering adding a carbon tax on US airlines, which would be the equivalent of the European scheme and thus capture the fees for the US rather than allowing the fees to go to Europe.

Arguably, a fee is not a tax.  That is what the Europeans will claim.  Ask yourself a simple question… WHAT IS THE DIFFERENCE?  The public lottery tickets are called “The Idiot Tax” for a reason.  Fee, tax… No difference.

A bill has been introduced in the US House of Representatives that would ban US airlines from paying the EU carbon fees. The bill would also make the US Secretary of Transportation responsible for taking action to make sure that US carriers are not penalized for refusing to pay the carbon fee. Exactly how the Secretary is supposed to do that is not specified.

Paul Ausick