The World Bank has now endorsed a long-standing proposal that governments should impose a carbon levy on jet and shipping fuel to finance climate change mitigation. The proposal comes against the backdrop of a growing controversy surrounding the European Union’s (EU’s) unilateral move to impose its internal emission trading system on all airlines touching Europe from January 2012. Henceforth, airlines that land in or depart from Europe would have to buy certified emission reduction permits for each tonne of carbon dioxide that they spew in excess of a pre-fixed cap. This cost-escalating measure has predictably upset airlines and governments around the world, with many countries threatening retaliatory action. This action also comes at a time when the fate of the carbon trading-based clean development mechanism (CDM) launched under the Kyoto accord is unclear. Worse, the proposal to collect $100 billion annually for funding CDM projects in the developing countries, agreed voluntarily by the developed countries two years ago, has remained a non-starter.
Clearly, these concerns seem to have influenced the World Bank proposal. The EU’s debatable action of imposing its homespun system of emission trading on unwilling non-EU airlines is not a multilateral initiative and, therefore, cannot be supported. It is an action that will hit smaller airlines in particular. They will find it difficult to bear the additional cost of monitoring, reporting and verifying carbon emission records and buying carbon credits from the market to avoid the penalties that, though still unspecified, may include impounding of aircraft. Moreover, such a move seems to violate international protocols on airline operations, as pointed out even by the International Air Transport Association, which represents most global airlines, and the International Civil Aviation Organisation. Fearing big losses for its national airlines, China has already reacted sharply, pointing out that the step could harm friendly trade ties between Chinese and European airlines on the one hand, and Chinese airlines and European aircraft manufacturers on the other. Surprisingly, the Indian government has yet to take a stand on this issue, though some airlines having a stake in the European market have already slammed it publicly. The issue is not whether a climate levy on the transport sector is justified or not. Perhaps there is a case for such a levy, considering that the Kyoto Protocol is silent on limiting emissions by shipping and aviation sectors, which together account for about 5 per cent of total green house gas emissions. However, fair play and internationalism demand that such a climate tax is levied through a multilateral agreement and is not imposed unilaterally by one or a group of countries.