After several weeks steeped in All Things Compliance related to the SEC’s Conflict Minerals Rule for manufacturers, we’ve come across yet another compliance issue between two parties – but this one is playing out in a much larger sandbox.
Specifically, we mean the aerospace industry messing with the rules-and-regulations-for-businesses behemoth that is the European Union.
With the highly controversial 8-year-old carbon trading market as the backdrop, it turns out that Air China and Air India have not been compliant with the EU’s rules for aircraft emissions, which apply pretty much to all international airline carriers, reported in the NY Times.
“The carriers are accused of not providing emissions data, as required by the European rules, and not participating in a permit system that entitles airlines to emit greenhouse gases in European airspace,” the article states. “The warning Thursday…derived from their failure to report their emissions to the national authorities and their missing of an April 30 deadline for handing over sufficient numbers of permits to the national authorities to cover their emissions last year.”
As far as (at least) China is concerned: what else is new? There seems to be a pervasive national resistance to provide, show or share any sort of verifiable data (as we in the metals industry know all too well).
It kinda makes sense that Air China and Air India are opposed to submitting their data and permits – they can see that European manufacturing, and the steel industry in particular, is flailing right now and not using nearly the number of permits it could be.
With orders and production capacity down across heavy industry, the permit ‘exchange’ is depressed. In other words, the demand for the permits is low, so theoretically, there’s more ‘room’, emissions-wise, for these international carriers to operate in the EU’s carbon capture market.
“The resistance by the Chinese and Indian airlines to even the intra-Europe part of the program highlights the fierce opposition, particularly in emerging economies, to environmental rules imposed by Europe on companies and organizations in other parts of the world,” the article states. We’ve certainly seen this before: Exhibit A may well be China’s rare earth metals mining industry and its resistance to environmental pollution standards.
But what’s stopping these emerging economy companies from simply operating elsewhere? Granted, the emissions costs and/or fines for non-compliance right now are still rather low (“the eight Chinese carriers could face fines of $3 million, and the two Indian airlines face total fines of €30,000,” according to the Times, while the price of permits are about €3.65 per ton), and air traffic will always continue between Asia and Europe.
However, I wouldn’t put it past these operators to find ways around such a region with so many regulatory thorns. This may be the unintended consequence of the rules; the corollary being US manufacturers simply cutting off DRC-based supplies of conflict minerals rather than going through with compliance.
Keeping its current recession in mind, the EU (and its economy) shouldn’t discount visitors from China, India and other emerging nations as one of the only commercial bright spots – curtailing the incentive for those nations’ airlines to travel into or within Europe may have a negative effect, however small. Still, it’s mostly just another microcosm of how emerging economies tussle with established Western regulatory environments.
Speaking of which…
China in Detroit