Millennium Post

The carbon tax trade battle

A trade battle and an escalating diplomatic row between trading partners European Union and India is taking place caused by the EU's unilateral decision to impose carbon tax on Indian airlines. This trade battle should never have been engaged in the first place. India has on various occasions warned EU about the unilateral decision taken outside the UN Framework Convention on Climate Change under which all international climate-related compacts are to be agreed by consensus.

However, the EU is bent upon imposing a system that requires all airlines to buy permits to cover the CO2 emitted by aircraft landing and taking off from airports in the region. The EU calls it a central plank of the its environmental policy, which is focused on putting a price on carbon-dioxide emissions and capping their number. However, it has been estimated that the scheme will cost airlines from India and from many other countries a huge amount, to be calculated in millions of euros, possibly adding up to $1.5 billion per annum. The two Asian giants of India and China are among a handful of countries that have attacked the EU scheme, calling it a unilateral trade levy disguised as an attempt to fight climate change. India has suggested that the responsibility to reduce emissions from aviation too should be along the principle of 'common but differentiated responsibilities' and negotiated under the UN climate convention. There has been a very high level of compliance to the new EU norms by many airlines, but China and India among the few who have protested. India had earlier barred its airlines from complying with the EU carbon tax, joining China in resistance.  

The government has already told the Indian aviation sector not to provide data the EU had asked for as part of this new carbon tax regime, with the tax itself to be imposed from next year. Now the Indian government has begun considering proposals for counter-measures against EU including reducing the number of flights and breaking existing bilateral agreements. Earlier, in February this year, a group of 26 countries including China, US, Brazil, Russia and India had jointly agreed to a bouquet of retaliatory measures against EU. It may be best for the Indian government to take up the matter of the unfair trade levy in multilateral fora so that a negotiated settlement will allow it to be rolled back.
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