Blog Post

Sky-high protectionism?

A new controversy has emerged between the European Union and several of its main trade partners since the EU decided to include in its CO2 emission-control scheme all flights to and from its territory, including transcontinental flights. Airlines will need to acquire emission permits for their flights’ CO2 emissions. China and the United States are […]

By: Date: April 2, 2012 Topic: Digital economy and innovation

A new controversy has emerged between the European Union and several of its main trade partners since the EU decided to include in its CO2 emission-control scheme all flights to and from its territory, including transcontinental flights. Airlines will need to acquire emission permits for their flights’ CO2 emissions.

China and the United States are outraged. Chinese airlines have delayed orders to purchase European aircraft. The CEOs of aircraft manufacturer Airbus and major European airlines have urged European leaders to step in. There is talk of a new trade war.

This is an important quarrel, because it is the first real clash in the debate on climate and trade. Not only are the motivations and arguments new, but suspicions about hidden agendas matter as much as substance.

It may seem strange, but the EU sees itself as a soldier of the common good. Why is a group of countries whose share in worldwide CO2 emissions is only 12% – and set to decline fast – aspiring to global leadership on the issue, despite US inaction and emerging-market countries’ reluctance to commit to binding emission-reduction targets?

In part, the EU’s stance reflects the preferences of European public opinion. In part, it arises from internal politics: to press ahead with its agenda enables the EU to strengthen its hand vis-à-vis the member states. In part, there is the hope that by moving fast, Europe will acquire a comparative advantage in low-carbon technologies.

From a European standpoint, the reaction from trade partners is difficult to accept. After all, the measure is non-discriminatory: all airlines are treated in the same way. In its absence, the choice would have been between putting European airlines at a disadvantage and exempting a sector whose share in the EU’s total CO2 emissions has grown from 1.8% in 1990 to 3.5% in 2007. Anyone who acknowledges that global warming is a real threat must take the EU’s arguments seriously.

The EU’s trade partners make several valid arguments. One is that receipts from the sale of emission permits should not accrue to the EU for flights that take place largely outside of its borders, though this would be a relatively simple matter for negotiators to settle.

Another argument is that the EU scheme will create distortions that favor of incumbents (who will be given permits for free) and non-direct flights (because only the leg to or from the EU will be taxed). This, too, is correct, but the distortion would be eliminated, should partner countries adopt the same scheme.

Finally, opponents of the EU’s scheme contend that developing countries’ contribution to emission reductions should be less significant than that of advanced countries, since they contributed much less to the stock of existing greenhouse gases. But this issue could easily be resolved through negotiations over the allocation of permits. In fact, the EU explicitly supports a global agreement, negotiated in a multilateral framework, as the best solution.

The really important argument against Europe’s decision is the one about hidden agendas. The EU’s trade partners do not want to give ground, because they suspect that in the coming years, climate change will serve as a pretext for protectionist policies. Indeed, climate change is in many ways the perfect crutch that opponents of open trade have long sought, and there is a real risk that it will be used in a mischievous way.

So caution is fully justified. But the problems arising from the incoherence of national climate policies are real. They emerge as soon as domestic emissions are taxed in some part of the world (or, equivalently, as soon as quotas are imposed), because domestic producers then claim that they are at a disadvantage in international trade.

Moreover, rejecting Europe’s arguments out of hand, owing to a suspected protectionist agenda, is not without risk. If the controversy comes to be perceived by the European public as a conflict between free trade and the environment, free trade is likely to lose.

Europe’s partners should not assume that trade automatically takes precedence over climate concerns. Instead, they should focus public attention on valid arguments. For example, it is much easier for advanced countries to reduce emissions without any effort, simply by outsourcing the production of emission-intensive goods to emerging and developing countries. In this way, they can meet strict targets without reducing the carbon content of their consumption.

The trade vs. climate debate is fundamental for the global economy. Europe’s air-transport tax provides an opportunity to launch it in a concrete and rational way. It is an opportunity that should not be missed.

A version of this comment was also published in Project Syndicate


Republishing and referencing

Bruegel considers itself a public good and takes no institutional standpoint. Anyone is free to republish and/or quote this post without prior consent. Please provide a full reference, clearly stating Bruegel and the relevant author as the source, and include a prominent hyperlink to the original post.

Read about event
 

Past Event

Past Event

Three data realms: Managing the divergence between the EU, the US and China in the digital sphere

Major economies are addressing the challenges brought by digital trade in different ways, resulting in diverging regulatory regimes. How should we view these divergences and best deal with them?

Speakers: Susan Ariel Aaronson, Henry Gao, Esa Kaunistola and Niclas Poitiers Topic: Digital economy and innovation, Global economy and trade Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: May 19, 2022
Read about event More on this topic
 

Past Event

Past Event

Adapting to European technology regulation: A conversation with Brad Smith, President of Microsoft

Invitation-only event featuring Brad Smith, President and Vice Chair of Microsoft who will discuss regulating big tech in the context of Europe's digital transformation

Speakers: Maria Demertzis and Brad Smith Topic: Digital economy and innovation Location: Bibliothéque Solvay, Rue Belliard 137A, 1000 Bruxelles Date: May 18, 2022
Read article More on this topic More by this author
 

Opinion

Buy now, pay later: the age of digital credit

A relatively new fintech market, BNPL is currently not regulated in the EU, meaning that consumers do not have the same protection level as they do for other credit products.

By: Maria Demertzis Topic: Digital economy and innovation Date: May 17, 2022
Read about event More on this topic
 

Upcoming Event

Jun
7
10:30

Future of Work and Inclusive Growth Annual Conference

Annual Conference of the Future of Work and Inclusive Growth project

Speakers: Erik Brynjolfsson, Francis Green, Francis Hintermann, Ivailo Kalfin, Laura Nurski, J. Scott Marcus, Anoush Margaryan, Julia Nania, Poon King Wang and Fabian Stephany Topic: Digital economy and innovation Location: Bruegel, Rue de la Charité 33, 1210 Brussels
Read article More on this topic
 

Blog Post

Insights for successful enforcement of Europe’s Digital Markets Act

The European Commission will enforce digital competition rules against big tech; internally, it should ensure a dedicated process and teams; externally, it should ensure cooperation with other jurisdictions and coherence with other digital policies.

By: Christophe Carugati and Catarina Martins Topic: Digital economy and innovation Date: May 11, 2022
Read article Download PDF More by this author
 

Book/Special report

European governanceInclusive growth

Bruegel annual report 2021

The Bruegel annual report provides a broad overview of the organisation's work in the previous year.

By: Bruegel Topic: Banking and capital markets, Digital economy and innovation, European governance, Global economy and trade, Green economy, Inclusive growth, Macroeconomic policy Date: May 6, 2022
Read article More by this author
 

Podcast

Podcast

What to expect from China's innovation drive?

How much has China progressed technologically?

By: The Sound of Economics Topic: Digital economy and innovation, Global economy and trade Date: April 6, 2022
Read article More on this topic More by this author
 

Podcast

Podcast

Online labour: Can we all just move to Tahiti?

How is online labour different from remote work?

By: The Sound of Economics Topic: Digital economy and innovation Date: March 23, 2022
Read article
 

Blog Post

The decoupling of Russia: software, media and online services

Restrictions so far on software, media and online services in Russia have been imposed either voluntarily by firms, or else by Russia itself in order to restrict the flow of information.

By: J. Scott Marcus, Niclas Poitiers and Pauline Weil Topic: Digital economy and innovation, Global economy and trade Date: March 22, 2022
Read about event More on this topic
 

Past Event

Past Event

Who will enforce the Digital Markets Act?

While the Digital Markets Act entered its first trilogue, what will be the enforcement role of the Commission and the Member States?

Speakers: Christophe Carugati, Cani Fernández, Assimakis Komninos and Georgios Petropoulos Topic: Digital economy and innovation Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: March 22, 2022
Read about event More on this topic
 

Past Event

Past Event

Productivity in transformative times

This Microprod policy conference will discuss how productivity is affected by globalisation and digitisation.

Speakers: Carlo Altomonte, Ufuk Akcigit, Eric Bartelsman, Marta Bisztray, Erik Canton, Carol Corrado, Zsolt Darvas, Ronald Davies, Niklas Garnadt, Alexander Jaax, Filippo di Mauro, Marie Le Mouel, Niclas Poitiers, Giovanni Sgaravatti, Alessandro Turrini, Bart van Ark, Reinhilde Veugelers and Frederic Warzynski Topic: Digital economy and innovation Date: February 22, 2022
Read article More on this topic More by this author
 

Blog Post

The dark side of artificial intelligence: manipulation of human behaviour

Transparency over systems and algorithms, rules and public awareness are needed to address potential danger of manipulation by artificial intelligence.

By: Georgios Petropoulos Topic: Digital economy and innovation Date: February 2, 2022
Load more posts