Friday, March 16, 2012

China takes on EU's Cap & Trade regulation

China is taking a stand against EU’s Cap and Trade regulation.  The EU is planning to start charging airlines operating flights over Europe for carbon emissions, which is upsetting EU’s trading partners (including the US). The EU will be charging for full flights, which means the further away you are from Europe the more you end up paying. China and the US in particular have long and frequent flights to Europe.
Reuters: The row is over a cap-and-trade scheme which could levy charges for carbon emissions for flights in and out of Europe.

Foreign governments say the EU is exceeding its legal jurisdiction by charging for an entire flight, as opposed to just the part covering European airspace.

The European Commission argues the scheme is needed to cut rising emissions and help the world fight climate change.
China, already stung by trade issues with the West, is hitting back at the Airbus maker EADS. Given the number of jobs involved with EADS and the supporting industries, it is bound to get EU's attention. China's goal is to show the Europeans that unilateral decisions impacting EU’s trading partners will have economic consequences. Rather than using diplomacy and going the WTO route, which can take a while, China can hit directly via the private sector. It helps when the government has control over the actions of the nation’s corporations, such as airlines.  
Reuters: The move to delay the purchase of extra A330 planes brings to $14 billion (9 billion pound) the value of European aircraft caught up in tensions over the EU's Emissions Trading Scheme, which has angered countries including China, India and the United States.
EADS is hardly impacted by this “embargo” from China. Their order book extends years into the future as the global fleets age. The shares are up almost 30% year to date, so the shareholders don’t view this as a problem.  Nevertherless this is helful for Boeing, who is competing with EADS in China.
Reuters: "I think you're going to see both sales of narrow-bodies and wide-bodies (in China) continue to grow," James Albaugh, chief executive of Boeing's commercial division, told a conference. "We sold 30 777's over there last week and had a lot of discussions with other customers about more." A Boeing spokesman said these included 10 jets already announced. Boeing is in "advanced discussions" for the other 20.
China will attempt to bring parties to the negotiating table, but this may become a protracted battle involving ICAO, the UN's aviation agency.
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