By Allison Martell
(Reuters) - Hope is fading for a global deal to regulate the airline industry's greenhouse gas emissions ahead of a fall deadline, even though failure could push the industry back to the brink of a trade war over the European Union's emissions trading system.
Last November the EU suspended its controversial scheme to force all airlines to buy carbon credits for any flight arriving in or departing from European airspace.
The scheme had pitted European states against China, the United States, India and others, who said it violated their sovereignty. The EU said it had to act, after more than a decade of inaction on the environmental impact of aviation.
European officials gave the United Nations' agency that governs aviation, the International Civil Aviation Organization (ICAO), more time to craft a compromise in the form of a global regulatory regime.
They have vowed to bring their own program back into force unless they see real progress by the ICAO assembly, which runs September 24 to October 4. The assembly, which would have to approve any global regime, meets only once every three years.
But there is still disagreement on how to charge for emissions from flights that cross borders; how to deal fairly with developing countries; and whether airlines, states or both should be subject to regulation.
All those issues have stalled efforts to reach a compromise.
"Think of aviation as a microcosm of the big geopolitical process," said Paul Steele, executive director of the industry group Air Transport Action Group and one of the technical experts who has advised ICAO on the issue.
The group, a coalition of some 50 plane makers, airlines and narrower associations like Airports Council International, wants a global emissions regime, not a messy and expensive "patchwork" of systems around the world.
Steele said lack of progress on the United Nations Framework Convention on Climate Change, the U.N.'s main climate treaty and home of the Kyoto Protocol, may be holding back talks at ICAO. That treaty and ICAO's process are legally independent, but inevitably, they are linked by politics.
Take "common but differentiated responsibilities," an argument that developed countries should shoulder most of the burden of cutting emissions. That has been a key sticking point at ICAO, as Reuters first reported last year.
Steele said some countries fear that if they compromise at ICAO, it will prejudice broader talks ahead of 2015, when climate negotiators hope to clinch a new deal to cut emissions under the U.N. Framework Convention.
And so, even as aviation industry leaders urge ICAO to hammer out a deal, talks at a high-profile ICAO committee have effectively broken down, and a key member of the agency's governing council has said a resolution may not be ready in time for the assembly.
That could escalate the conflict, especially since a U.S. law signed in November prohibits any U.S. airline from complying with the EU law. And while China partially lifted a retaliatory blockade of some $11 billion in Airbus jet orders last month, a new chapter in the conflict could put those orders at risk.
HIGH LEVEL FIZZLE
ICAO has quietly set standards and rules on everything from cargo safety to air traffic control since 1944, reaching deals between countries that may agree on very little, aside from the value of keeping planes in the sky.
But on climate change, the diplomats posted to Montreal are part of a fraught and complex geopolitical conflict that has little to do with planes. They seem to have recognized as much last fall, when talks at ICAO's governing council stalled.
Seeking to break the impasse, they convened a new group, which Kerryn Macaulay, Australia's council representative, recently said was to include "some of the decision-makers in government" who might be able to hash out compromises.
It was the creation of that "high-level group" that the EU cited when it suspended its scheme. It was just a new committee, but it was seen as a sign of good faith, and an opportunity to get a deal.
But as Macaulay told a conference hosted by the Air Transport Action Group in Montreal on May 13, the high-level group made little progress. Quite the opposite: "In some areas there has been a risk of reopening old issues that the council in fact was recently settled on."
It is not clear if the high-level group will meet again, and the ICAO governing council is now working on a draft resolution in which very little has been agreed.
"We will continue to work on that resolution, if and when necessary up to the day before the assembly," Macaulay said, adding that it still may not be ready in time.
"NOT WHAT WE EXPECTED" -EU
But even if a resolution is ready for the assembly, it may attempt to rein in the EU system, rather than establishing a global alternative, as European officials had hoped.
ICAO's process is split into two threads: looking for a global "market-based measure" to cut emissions, like a cap and trade system or carbon offsetting; and a "framework" document that lays out how market-based measures should be implemented.
Some see a "framework" only governing local or regional systems like the EU's, and not resolving any disputes on how to implement a global scheme. A draft framework proposed by the United States early this year, and obtained by Reuters, would limit the geographical reach of emissions systems.
Lourdes Maurice, executive director for environment and energy at the U.S. Federal Aviation Administration, said last week that the United States wants the framework to take a "national or regional airspace approach," where countries or blocs would only regulate emissions in their own airspace.
That would put about 80 percent of emissions from aviation out of reach of national or regional carbon taxes, Macaulay said, as many flights are over international waters.
But Elina Bardram, responsible for carbon markets in the aviation and maritime sectors for the European Commission's climate division, said a proposal that did not do anything meaningful to protect the environment is "not what we expected."
(Reporting by Allison Martell in Montreal; Additional reporting by Valerie Volcovici in Washington; Editing by Janet Guttsman and Tim Dobbyn)