Why EU ETS Beneficiary India Backs Away From Responsibility

Al Jazeera this week reported on India’s plans to resile from aviation regulations imposed by the European Union, which as of January of this year extended the EU ETS to include all Indian airlines flying into and out of European airports. According to Al Jazeera, Indian officials plan to urge domestic airlines to resist complying with the carbon trading programme.

“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,” an Indian government official told Al Jazeera. He added that by imposing carbon trading on foreign airlines, Europe risks harm to its own economy and airlines.

Experts predict that India may use its purchasing power to renegotiate its inclusion in EU ETS. According to Amber Dubey, KPMG director for aviation, India is undergoing a significant increase in the size of both its civilian and military fleets. A large part of the orders for new aircraft is expected to come from European suppliers.

Dubey commented to Al Jazeera that, “The EU-ETS (emissions trading scheme) 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.”

Beyond waging a purchasing war on European aircraft suppliers, Indian authorities also threaten to forbid EU air carriers from flying over India, the Indian Ocean and the Bay of Bengal. Bypassing such a huge territory is of course not practical for commercial airliners on long-haul flights as they would need to refuel at some point on the bypass.

According to a report by Ernst & Young, India is one of the frontrunners on the recipient side of the Clean Development Mechanism (CDM) market. In fact, latest estimates of the United Nations Environmental Programme (UNEP) show that, after the leader China, India holds about 30 percent of CDM projects in Asia.

CDM is a flexibility mechanism under the Kyoto Protocol which allows industrialised countries with compliance emission reduction schemes to fully or partially fulfill their emission reduction targets by procuring Certified Emission Reductions (CERs) from greenhouse gas offset projects in developing countries. CERs are among the tradable units on the EU ETS. That means India is a direct beneficiary of European compliance regulation.

It comes as a surprise then that India would boycott that same carbon trading regime which supports its domestic market for carbon offsetting projects. Instead of resisting compliance, India should embrace the EU ETS and encourage its airlines to mitigate emissions by absorbing some of the carbon offset supply from domestic CDM projects. In addition, India can benefit from airlines based in developed countries, which are looking for ways to limit their emissions in a cost-effective way. Often times the cost of implementing environmentally friendly processes and installations in-house are too high for airline companies to take on. These costs end up trickling down to passengers, who have to pay the difference in the form of higher ticket prices and fees. So instead of resisting, India should be leveraging the potential that the EU ETS can offer.

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