Aviation carbon taxes and SIDS

In the early part of October, governments attending the international Civil Aviation Organisation (ICAO) Assembly in Montreal reached an outline agreement on a basis on which all civil aviation emissions will be regulated in future.

The decision, which eventually may increase ticket prices, could, paradoxically, also be of benefit to the Caribbean and other small island developing states at risk from sea level change, as negotiations proceed on the detail of what is in effect an ‘agreement to reach an agreement’.

What the UN body decided on were the steps that ICAO’S members will take between now and the next such meeting in 2016. This will involve negotiating the detail of a new market mechanism to enter into force by 2020, the year in which a new UN climate convention is meant to be in place.

Although the decision marks a breakthrough, and brings to an end the view that international aviation was in some way exempt from taxation, it is not clear what shape or impact the final arrangement will have. This is because, at the last minute, opt out language was agreed to meet the concerns of developing countries, including India, China and Brazil, which suggests that there will be an exemption clause that provides a ‘fair and equitable solution’ for countries that have ‘special circumstances or with limited capabilities’.

In theory, the agreement by ICAO should bring to an end unilaterally introduced regional approaches such as the EU’s Emissions Trading System (EU ETS), which threatened to bring about a trade war. However, and controversially, the EU still intends applying its scheme to all carriers using its airspace, other than those from developing nations.

What the new approach will not do is remove measures like the UK’s Air Passenger Duty (APD) as this began life as an environmental tax, but subsequently became a general taxation measure in the form of a distance based ticket tax.

What was agreed in Montreal was that all airlines will join an emissions management scheme; that this would bring to an end nations imposing their own schemes without a global agreement; that the aviation sector will negotiate a carbon tax and market-based mechanism to limit aviation emissions of greenhouse gases; that this likely will include tradeable permits to emit carbon and carbon offsets; and that the aviation sector will seek to introduce new low carbon technology.

At the Montreal meeting, St Kitts’ Minister of Tourism, Ricky Skerritt, made a particularly strong case for the challenges facing small states and the negative impact that taxes on aviation can have on tourism and economic growth in a region that is tourism dependent.

As for Caribbean destinations that want to maximise demand and increase visitor numbers and the amount visitors spend, or the long suffering traveller who sees the price of air travel continuing ever upward, it remains to be seen how all this will impact on the cost of a ticket. Much will depend on what happens to the presently depressed market for trading carbon, how many licences are issued under any global cap and trade scheme, and in what way.

While some nations in Europe and elsewhere previously made clear that that they are committed to removing their own unilaterally introduced ticket taxes, time will tell whether existing environmental ticket taxes, once a global scheme is in place, then become parallel general revenue raising measures.

What was agreed, however, may eventually have a broader positive impact on the Caribbean.

In a side announcement, ICAO and the EC said that they will commit to a Euro 6.5m fund to mitigate the impact of climate change, initially in Africa and the Caribbean, in response to concerns expressed at the meeting about the need for technical and financial support.

In theory, the agreement could also more broadly benefit small island states at risk from sea level change.

In this context, progress is being made, albeit slowly and with difficulty, to carve out a special global space for Small Island Developing States, known as SIDS.

Next year in Apia, Samoa, the third International conference on small island developing states will focus on the challenges facing regions like the Caribbean and the Pacific which are in the process of developing a case based on their unique and particular vulnerabilities.

The conference, which takes place under UN auspices, is intended to identify sustainable development priorities for SIDS for insertion into the post-2015 UN development agenda as, in the UN Secretary General’s words, at a recent a high level meeting in New York: “the world has not paid enough attention to the issues that islanders have had to face alone”. “Many (such) countries are isolated, (their) markets too small to realise economies of scale…. (and are) …. exposed to high risks from environmental threats, especially climate change”.

In part, this process will focus on finding ways to have the international community simplify and prioritise access for SIDS to international funds, including the Global Environment fund, the Adaptation Fund and the Green Climate Fund. SIDS nations are also focussing on achieving agreement on establishing criteria, other than per capita GDP, when it comes to graduating small states from grant and concessionary funding.

All of which will be far from easy as there is a global reluctance to create new categories of state eligible, in the broadest meaning of the word, for special and differential treatment.

That said, however, the agreement at ICAO, itself a UN body, does appear to point to a grudging acceptance that developing countries, especially those that create one per cent or less of the world’s GDP require special recognition in international arrangements; especially when, as in the case of the Caribbean, it can be demonstrated that many of those most at risk are no or very low carbon emitters.

(David Jessop is the Director of the Caribbean Council and can be contacted at david.jessop@ caribbean-council.org. Previous columns can be found at www. caribbean-council.org)