Who benefits from carbon taxes on travel?

As matters stand there is agreement that aviation contributes around two per cent of global carbon emissions, and maritime transport between three and four per cent. There is also a consensus that there is a need to reduce this.

What is so far missing is any agreement on how best to achieve this.

Later this year, two United Nations specialist agencies, the International Civil Aviation Authority (ICAO) and the international Maritime Organisation (IMO) will try to reach binding agreements on a global regime that will cause all carriers by sea and by air to limit their carbon emissions.

At issue, however, is whether such reductions should result from a form of taxation involving licensing with revenue flowing to governments, or whether the industries themselves should take measures to mitigate their emissions.

Up to now, when it comes to aviation, Australia, the United Kingdom, the European Union and others have been trying to achieve reductions by imposing levies on air travel in a piecemeal manner.

In the case of Europe this involved the inclusion of aviation into the EU’s wider emissions trading scheme (EU-ETS) as of January 1, 2013. Under the regulation all airlines entering EU airspace have to purchase or trade licences to emit above an agreed amount of carbon dioxide. However, so far, this has had no effect, partly because the price at which carbon is traded has collapsed, but more recently because the scheme has been suspended for a year, awaiting the outcome of ICAO’s global discussions on limiting aviation emissions.

What this now means is that in September, when ICAO’s 191 member tri-annual general assembly meets in Montreal, governments attending are expected to consider the type of mechanism that can best be applied globally to aviation.

If no decision is taken at that time and the matter is delayed until the next ICAO assembly in 2016, then an international confrontation is expected over how best to address aviation emissions. This is because the EU, having manipulated the carbon market, is likely to unilaterally reintroduce aviation into its emissions trading scheme, with nations including China and the US possibly then going as far as an action at the WTO against the EU.

That said, however, some recent developments may offer a way out of the potential for gridlock.

In June, airline members of the International Air Transport Association (IATA) meeting in Cape Town adopted a resolution at their annual general meeting on an ‘Aviation Carbon-Neutral Growth Strategy’.

This provides a set of principles that IATA hopes governments meeting at ICAO will adopt.

In outline, IATA members are proposing a scheme that will fill the gap until new technology in the form of sustainable low-carbon alternative fuels or changes in operations and aviation infrastructure come to pass. Instead of developing a global scheme like the EU-ETS that generates revenue for governments, airlines are suggesting a system that would deliver real emissions reductions post 2020, the date by which aviation globally is required to cut emissions.

All of which is breaking new ground, as aviation is, it seems, the first industry to propose a global cap on its carbon emissions. Irrespective, the idea may prove controversial with those governments who see environmental taxation as a revenue raising measure.

A similar situation is developing in respect of maritime transport which includes cruise ships.

Although the European Commission was supposed to include maritime emissions in the EU-ETS at the start of 2013, it announced last October it would give the IMO more time. But more recently, as an interim measure it has now proposed monitoring greenhouse-gas emissions from all ships calling at EU ports as a first step towards a licensing system to reduce shipping emissions.

For its part the IMO is now developing a similar approach aimed at delivering emissions reductions. However, many in the shipping industry want this linked to fuel consumption rather than a system based on emissions trading.
As for the cruise ships, they, like the airlines, are looking at ways to mitigate their emissions, not least because the US and Canada have introduced a North American Emissions Control Area, a zone extending to 200 miles offshore but much narrower where it touches the Bahamas and Cuba’s economic zones, and consequently more favourable to home porting in South Florida.

The consequence is that for the time being cruise companies are relocating as far south as possible while at the same time investigating ways of developing new sea-borne technology that aims to scrub carbon dioxide from engine exhausts.

Whatever the final solution is for aviation or maritime transport anything that makes travel from, to, or in the Caribbean more expensive should be of concern. Not only does it touch the ability of citizens to travel in and beyond the region, but it affects the competitiveness of tourism, the industry that contributes most to the region’s development.

Although the amount the new measures may increase the price tickets by may not be large, taken together with other charges levied by governments, shipping lines and cruise ship companies they combine to act as a disincentive.

Despite the growing recognition across the region about the challenge posed of adding further to the cost of Caribbean travel it is hard to identify any awareness in the region of the changes that governments may agree at ICAO or the IMO.

What this points to is the absence of any joined up Caribbean policy that links tourism, climate change, taxation, with aviation and maritime emissions; or any sense that these issues are related.

What has so far not happened – and in a different Caribbean this would be a role for CARIFORUM – is any calculation or impact study based on an in-depth locally led consultation with interested parties as to how these factors fit together and the range of likely economic outcomes.

Instead, the probability is that government, attracted by the tax revenue, will see any measure that brings fresh income as the answer, without careful thought about the likely long term impact on competitiveness or visitor arrivals, let alone the impact of Caribbean citizens’ ability to travel at low cost within their own region.

David Jessop is the Director of the Caribbean Council and can be contacted at david.jessop@stagingcaribbean.wpengage.uk