Airlines brace for climate strings attached to COVID-19 bailouts

Green dealing

BRUSSELS BRIEFING / FT 

By Mehreen Khan

April 17, 2020

Brussels is saying all the right things about its determination to push ahead with the European Green Deal despite the coronavirus pandemic. With the immediate emergency phase of the crisis beginning to pass, European Commission president Ursula von der Leyen and her senior officials have insisted that ambitious environmental goals — dubbed the EU’s “man on the moon moment” — are still alive and kicking.

Von der Leyen told the European Parliament on Thursday that the commission will be “doubling down on our growth strategy by investing in the European Green Deal.” “As the global recovery picks up, global warming will not slow down”, she said.

EU officials are hopeful that the huge public investment needed to create jobs, boost demand and get economies back on their feet will be an opportunity to revolutionise Europe’s industry and accelerate, rather than slow down, the green transition. Frans Timmermans, commissioner in charge of the Green Deal, thinks the reconstruction is a chance to “replace old and polluting infrastructure with a modern, clean and efficient one across all sectors”.

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But before embarking on its post-pandemic plans, Brussels is facing pressure from embattled industries to delay and even freeze green regulation. Europe’s car industry is among those most concerned. Last month, lobbyists for the auto industry wrote to von der Leyen asking the commission to show leniency on carmakers who need to meet tougher CO2 standards this year by “adjusting” timelines for compliance.

Those calls have triggered a backlash from other corporate and green lobbyists who fear backsliding on CO2 standards in the age of coronavirus.

In a letter to the commission, seen by the Brussels Briefing, European giants like Ikea and Unilever backed by environmental NGOs urged Brussels to stick the course with emissions targets for cars and “assure full compliance to ensure the urgently needed investments take place and for the sake of Europe’s regulatory credibility”. “Rather than altering the regulation or penalties, the focus should be on economic support to ensure jobs and green investment are maintained,” they write.

For now, Brussels is holding firm against calls to relax standards. EU officials say the commission is also still on course to review and possibly toughen the current 2030 emission targets next year. “Delaying stronger car emission standards won’t help the car industry when cities are banning combustible engines and customers are moving towards electric cars,” Mr Timmermans writes in Euractiv.

Even if the battle against emissions targets is lost, carmakers have another dog in the fight: scrappage schemes. During the last financial crisis, a host of European governments introduced car scrapping schemes allowing drivers to exchange older vehicles and get cash towards new purchases. Europe’s Automobile Manufacturers Association on Thursday said it wants to see similar “fleet renewal schemes for all vehicle categories across the EU” to help revive the sector.

Here again the commission could flex its green credential and prove that this time around is different. William Todts, executive director of campaign group Transport & Environment, wants Brussels to use its state aid rules to ensure any pandemic scrapping schemes promote the use of electric and low-emission vehicles.

“If a member state proposes a scrappage scheme without sufficient adherence to environmental and CO2 standards, will the commission step in and stop those schemes? Will they say no? It would be historic”, says Mr Todts.

Airlines brace for climate strings attached to COVID-19 bailouts

With the industry desperate for bailouts, Brussels and EU capitals are sticking to their green guns.

By LEIGH PHILLIPS 4/17/20, 6:00 AM CET Updated 4/18/20, 7:14 AM CET

https://www.politico.eu/article/airlines-brace-for-climate-strings-attached-to-covid19-coronavirus-bailouts/

Airlines bludgeoned by the coronavirus crisis are seeking urgent assistance to stave off bankruptcy, but that doesn't mean they're going to get an easy ride on efforts to slash emissions.

With the sector at its most desperate for taxpayer cash, now could even be a pretty good time to twist arms.

Rather than offering some carbon leeway to aviation companies at perhaps their lowest point in the history of commercial flying (and there’s only a fewer percent lower you can go than, as in Italy, an 80 percent drop in ticket sales), Brussels is eyeing a global-warming quid pro quo as the sector seeks unprecedented financial support.

“In line with the increased ambition proposed under the European Green Deal, all sectors, including aviation, are expected to contribute to the EU’s 2030 economy-wide target,” a European Commission official told POLITICO.

Officials stress that a key plank of Commission President Ursula von der Leyen’s priorities for her term was to make airlines pay their fair share for the industry’s substantial and growing contribution to greenhouse gas emissions — and this remains the case even in the face of the COVID-19 crisis.

“Environmental taxes are just going to make this bad situation even worse” — Jennifer Janzen, spokeswoman for the industry trade group Airlines4Europe

Exiting the crisis "means doubling down on our growth strategy by investing in the European Green Deal. As the global recovery picks up, global warming will not slow down,” von der Leyen told the European Parliament on Thursday.

That includes staying the course with plans for a possible elimination of free allowances within the bloc’s Emissions Trading System, and discussions on a possible EU-wide tax on jet fuel.

Airlines aren’t pleased.

“We definitely don’t need new taxes right now,” Jennifer Janzen, a spokeswoman for the industry trade group Airlines4Europe, told an industry conference in Brussels in March. “Environmental taxes are just going to make this bad situation even worse.”

But they're not in much of a position to argue.

A report from the Center for Aviation, a Sydney-based industry consultancy, has projected that, without assistance and with cash reserves dwindling, most of the world’s airlines would be bankrupt by May.

To prevent this, Sweden and Denmark have offered credit guarantees to pan-Scandinavian flier SAS. Finnair has won support from Helsinki, and Air France-KLM has approached Paris and The Hague with requests. Alitalia, Germany's Condor and Brussels Airlines are all tipped for nationalization.

Brussels has conceded a relaxation of EU state aid rules because of the extreme circumstances, with France the first to win approval.

But in response to these developments, former EU Climate Commissioner Miguel Arias Cañete said in an interview with the Guardian that any state aid directed toward aviation "must be conditional, otherwise when we recover we will see the same or higher levels of carbon dioxide.”

Cost calculation

In more bad news for airlines, the Commission is also plowing on with fresh efforts to speed up the difficult and expensive switch to electrification and clean alternative fuels such as synthetic hydrocarbons.

The widescale reduction in flying advocated by climate campaigners, including teenaged Swedish activist Greta Thunberg, could lower emissions. But carbon-neutral electro-fuels could eliminate them altogether, so the Commission is pressing ahead with its pitch to accelerate adoption of these and other options. It will launch a public consultation on policy to push clean aviation fuels in June, a Commission official said.

Key will be ensuring carbon neutrality once the full life-cycle of production and distribution is accounted for. Brussels is keen not to be embarrassed once again by the poor emissions intensity of once-promising alternative fuels as it was a decade ago, when researchers belatedly realized many first-generation biofuels were overall worse for the environment than some fossil fuels — but only after EU incentives for them were introduced.

However, with aviation accounting for 3 percent of global emissions, the climate payoff could be substantial. In 2019, Irish low-cost carrier Ryanair became the seventh-largest carbon emitter in the EU (all the others in the top 10 are coal plants), according to Commission data, even though the short-haul flights that the firm specializes in are more amenable to electrification or electric-hybrid engines, which simply do not work for long-haul because the batteries would be too massive.

Clean aviation campaigners argue many European governments have been in favor of the technology-switching required to fully decarbonize aviation, and have identified some of the innovations that can make it work. It is airlines which have most strongly resisted the move due to the costs involved.

Now, lawmakers see an opportunity to shift the calculations.

If airlines ask for bailouts they should commit to an "ecological transformation contract," Pascal Canfin, the French MEP in charge of the European Parliament's environment committee, tweeted on Thursday, adding: "Public money should not only be used to rescue but also to transform."

The industry receives free ETS allowances covering just under half its emissions. In November, finance ministers from nine countries led by the Netherlands called for this to end, a demand reiterated in early March by environment ministers, led by Poland and joined by a further nine member countries — just before the coronavirus had firmly established itself in Europe.

Despite the radical change in the financial situation of airlines, none among the “clean aviation coalition” of EU countries has backed away from their position.

And while von der Leyen has up to now only mentioned a reduction to this ETS giveaway, an official said: “The Commission is considering all options regarding the increase of auctioning,” potentially including complete abolition of this free ride.

The Commission underlines any change to the allocation of emissions allowances is not going to happen this year. At the end of February, airlines continued to receive their free allocations for 2020, with compliance to be assessed next year.

Trade off

A similar coalition of countries backs a Europe-wide lifting of jet fuel’s global exemption from taxation — a dispensation that dates back to the 1940s and was intended to encourage the takeoff of a nascent industry.

France introduced an eco-tax on flights this year with revenues to be spent boosting local train services, despite Air France-KLM asking for a delay — although it has since paused in implementing the levy. The Dutch government voted at the end of March to move ahead with a flight tax, although Junior Finance Minister Hans Vijlbrief did note in a letter to MPs that "the corona crisis also has serious consequences for the aviation sector" and that the date of the tax could be delayed.

France and the Netherlands also want an EU-wide approach. While changing the bloc's tax rules requires unanimous agreement among EU ministers, the Commission suggests that requirement could be avoided if the subject is considered as an environmental topic instead of a tax one. It launched its consultation on energy taxation last month, testing the waters of a pan-European jet fuel tax.

Even some aviation sector executives recognize a climate trade-off may be inevitable in return for billions in bridge loans, bailouts and nationalizations.

The CEO of Brussels Airport, Arnaud Feist, said at the end of March: “I don't think it's abnormal if conditions are attached to government support. And the climate is a major challenge for aviation.”