more carbon fail

[lostinblue 1,989]

By DOUG CAMERON and DANIEL MICHAELS

European officials, to the anger of foreign air carriers, have set up a controversial program to reduce carbon-dioxide emissions from the world's jetliners. United Parcel Service Inc. already has a plan to sidestep it—which will probably end up creating more carbon.

The U.S. air-cargo giant may reroute flights to cut the cost of the European plan, which will require carriers to buy permits for emissions generated on flights to, from and within the European Union.

The EU plan is due to come into force on Jan. 1 despite a growing international outcry about its impact on competition and a bill that airline trade groups claim could cost €20 billion ($26 billion) by 2020, wiping out industry profits or pushing up transport costs if carriers successfully pass on the charges to customers.

An EU court is today expected to give final approval to the extension of the existing EU Emissions Trading Scheme, or ETS, to airlines.

The program is already applied to utility and industrial companies, and the European Commission, the EU's executive arm, has resisted international pressure and a legal challenge from U.S. carriers to delay or scrap the plan.

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CloseAtlanta-based UPS has yet to reveal how much it expects to pay for the permits, some of which will initially be distributed free to carriers. If an airline uses more than its allowance, it will have to buy them on the nascent carbon-trading market.

Mitch Nichols, president of UPS Airlines, said in an interview that the company may look at redirecting flights between its hubs in Hong Kong and Cologne, Germany, by going through Mumbai. That will cut the cost of the tax by about a quarter because UPS would only be charged for the distance flown between Cologne and Mumbai.

But if the intent of the rule is to stop carbon emissions, in this example it is having the opposite effect: adding a Mumbai stop to the Hong Kong-Cologne flight would increase the total distance to around 6,800 miles from 5,700 miles currently, based on the most direct "great circle" route between the cities.

A Mumbai stop would increase carbon emissions by about a third because of the diversion and the extra takeoff and landing. UPS is the only airline to reveal a contingency plan so far. Passenger carriers are unlikely to make such changes as flyers typically prefer flights with the fewest stops.

UPS has yet to decide if it will implement the change.

Mr. Nichols said any change to its routes would depend on whether customers prefer the lower cost of a longer flight. The uncertain cost of buying carbon permits in the future could mean it is cheaper to make the extra stop, even when extra fuel and landing charges are included.

The EU said it baked such diversions into its planning, including more passengers traveling through the hubs of the three big airlines based in the Persian Gulf, but didn't expect this to occur.

Passenger and cargo airlines have lobbied fiercely against the ETS, which they maintain is full of inconsistencies and undermines efforts to introduce a global regulatory scheme to cut emissions administered by the International Civil Aviation Organization, a branch of the United Nations.

Washington last week reiterated its longstanding opposition to the EU plan, this time at Cabinet level. U.S. Secretary of State Hillary Clinton and Secretary of Transportation Raymond LaHood wrote to several EU commissioners urging the EU to suspend the enforcement of its new rules and negotiate with other governments on how to limit airlines' carbon-dioxide emissions globally.

"Absent such willingness on the part of the EU, we will be compelled to take appropriate action," the letter reads. "It is the responsibility of the EU and its member states, not the United States or other countries, to find a solution to this impasse," it also said.

The U.S. and other major economies including Russia, China and India, have publicly opposed the plan since early this year. They say the EU has acted unilaterally, exerting authority beyond its borders, and has created controversy that will delay global efforts to cut carbon emissions by airlines.

The U.S. Department of Transportation, concerned about potential costs of the plan, on Friday told nine European airlines and seven U.S. carriers to provide data about how the EU plan affects them. The DOT letters, viewed by The Wall Street Journal, said the department "will now seek certain information related to ETS."

A DOT spokesman said that "the economic effects of the ETS on both U.S. and EU carriers are of interest to us."

The U.S. letters came ahead of a European Court of Justice ruling on the case expected Wednesday.AMR Corp.'s American Airlines, United Continental Holdings Inc. and the Air Transport Association of America, a trade group, challenged the EU plan in a United Kingdom court in 2009.

That court asked the European Court of Justice to rule on the legality of the EU's plan under international agreements. In October, an opinion by a Court Advocate General—which isn't binding but is typically followed in the final ruling—backed the EU plan.

—Alessandro Torello contributed to this article.

http://online.wsj.com/article/SB10001424052970204058404577110552991531804.html