Nov. 12, 2012 at 11:40 AM ET
BRUSSELS -- The European Union will conditionally put on hold its rule that all airlines must pay for their carbon emissions for flights to and from EU airports, the EU's executive said on Monday.
The freeze follows intense pressure on the EU to scrap its law and threats of a trade war from other countries, led by the United States, China and India.
Climate Commissioner Connie Hedegaard said she had agreed "to stop the clock" to establish a positive atmosphere for international talks to hammer out an alternative global plan to tackle airline emissions.
"But let me be very clear: if this exercise does not deliver - and I hope it does - then needless to say we are back to where we are today with the EU ETS. Automatically."
Flights within the European Union will still have to pay for their carbon emissions under existing rules, and EU member states will have to endorse formally the Commission's proposed exemption.
Hedegaard said she had informed representatives of all 27 member states of the Commission's plan.
The Commission, the EU's executive, has said it will not change its rules unless the United Nations' International Civil Aviation Organization (ICAO) can reach agreement on an alternative scheme to help curb rising airline emissions.
Decade of dithering
The EU agreed on its law after more than a decade of talks at the ICAO had led nowhere.
Efforts have intensified to get a deal since the start of this year, when the EU's requirement for all airlines to buy carbon emissions began to take effect.
The law is being phased in slowly, meaning the first bills will only be dispatched in April next year following the calculation of this year's emissions.
The proposed temporary waiver gives the ICAO until its general assembly next November to reach a global solution to airline emissions.
At talks last week at the ICAO in Montreal, Hedegaard said there was good progress.
"Nobody wants an international framework on aviation more than we do," Hedegaard said. "For the first time in years a global deal should be in reach."
The cost of the EU's aviation law per passenger amounts to 1 or 2 euros, but international hostility has been furious as non-EU nations have argued it amounts to an extraterritorial tax.
The EU ETS is meant to be the cornerstone of EU climate policy.
But early this year, the value of EU carbon permits fell to a record low of 5.99 euros ($7.61) per tonne of emissions under the pressure of surplus allowances as European economic activity and industry slump.
The Commission is proposing temporarily withholding permits to bolster the scheme and is expected to announce details of that plan this week.
On Monday, carbon emission permits rose nearly 5 percent as the market looked to the prospect of action to prop it up and ignored for now the likelihood that international carriers might start selling allowances.
"It is bearish because it will reduce the short position of the aviation sector. International flights have been under-allocated (with carbon permits). If they drop out now, the overall aviation sector will be less short," Jan Frommeyer, managing director of Tschach Solutions, said.
"Airlines might not sell permits right now, but I think they will over the coming weeks."
Copyright 2013 Thomson Reuters.