EXCLUSIVE - India to ask airlines to shun EU carbon law

NEW DELHI Mon Mar 19, 2012 11:47pm IST

The tailfin of a Kingfisher Airlines aircraft (R) is pictured next to the tailfins of Go Air (C) and Jet Airways aircraft as it waits at a gate before departure from Mumbai's domestic airport February 21, 2012. REUTERS/Vivek Prakash

The tailfin of a Kingfisher Airlines aircraft (R) is pictured next to the tailfins of Go Air (C) and Jet Airways aircraft as it waits at a gate before departure from Mumbai's domestic airport February 21, 2012.

Credit: Reuters/Vivek Prakash

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NEW DELHI (Reuters) - India is poised to ask airlines not to take part in the European Union Emissions Trading Scheme (ETS), a senior official said, in the latest escalation of a row over an EU law requiring all flights in and out of Europe to pay for their carbon emissions.

China in February said its airlines were barred from participating in the European scheme unless they get government approval to do so.

The official, with direct knowledge of talks between the EU and other countries on the issue, told Reuters that India would soon ask local airlines not to share emissions data with the bloc or buy any carbon credits.

If the European Commission retaliates by suspending Indian airlines from flying to Europe, India would make similar moves and consider charging an "unreasonable" amount for flying over India, the official said on Monday.

"We have lots of measures to take if the EU does not go back on its demands. We have the power of the economy; we are not bleeding as they are," the government official said, adding that Europe's position would harm its own economy and airlines.

The government is awaiting formal approval from several ministries to implement the order to airlines, which it expects soon, the official said.

"The questions is, 'Are you (EU) provoking the world into a trade war?" the official said.

Last week, China suspended the purchase of 10 more Airbus EAD.PA jets in response to the EU law.

India does not yet plan to ask airlines to cancel Airbus purchases, but that is a possibility if the dispute escalates, the Indian official said.

Amber Dubey, director for aviation at global consultancy KPMG, said India is in the midst of a huge increase in the size of both its civilian and defence fleets, with a significant share of the orders coming from European suppliers.

"The EU-ETS issue is escalating fears of a trade war between the EU and the rest of the world. There is a chance that the government may decide to use these large aircraft orders as a negotiating tool," Dubey said.

FAST-GROWING MARKET

European planemaker Airbus has a 73 percent share of the commercial plane market in India. It has orders for more than 250 planes with IndiGo, Go Air and Kingfisher Airlines (KING.NS), making fast-growing India a crucial growth market.

Foreign governments say the EU is exceeding its legal jurisdiction by charging for an entire flight, as opposed to just the part covering European air space.

But Europe's highest court ruled in December that the EU law did not breach international agreements.

India this month inadvertently delayed approval of some European summer schedules by a day, which disrupted the flight schedules of many European airlines.

The official said India may use that example to show how disruptive a dispute with the country could be.

"If things continue like this, then European airlines will be forced to avoid flying over India and go over the Indian Ocean and the Bay of Bengal," the official said. "That's not viable for them. They won't have fuel to do that."

The European Commission has said it introduced a carbon cost for all flights, because well over a decade of talks at the United Nations' International Civil Aviation Organization (ICAO) had failed to agree on a way to curb the sector's rising emissions.

The escalation of international tension over the EU's scheme has accelerated efforts at the ICAO to come up with a global plan. At a meeting last week, it directed a working group to continue studying the options and report back in June.

The European Commission has said it will modify its law if the ICAO can deliver a convincing alternative and is doing its best to help.

"The EU is working hard to achieve a global agreement. The sooner the better. And it is really encouraging how strongly the ICAO Secretariat tries to move things forward," Climate Commissioner Connie Hedegaard said in an emailed comment.

(Additional reporting by Barbara Lewis in Brussels; editing by Tony Munroe and Anthony Barker)

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