UK VIEWS ON AVIATION EMISSIONS TRADING AND OPEN SKIES STAGE II

C O N F I D E N T I A L SECTION 01 OF 02 LONDON 000333



NOFORN

SIPDIS



E.O. 12958: DECL: 02/04/2019

TAGS: EAIR, ECON, ETRD, SENV, EU, UK

SUBJECT: UK VIEWS ON AVIATION EMISSIONS TRADING AND OPEN

SKIES STAGE II



REF: STATE 1023



Classified By: ECON COUNSELOR KATHLEEN DOHERTY FOR REASONS 1.4 b & d



1. (C/NF) Summary/Comment: The UK will present in late

February a draft regulation for implementation of the EU's

Aviation Emissions Trading Scheme (ETS),required to be part

of their domestic legislation by January 2010. HMG supports

ETS and its goals, with Secretary of State Hoon saying it is

an important tool for engaging the U.S. in a global approach.

Hoon encouraged the U.S. to look at a regional emissions

program, following the Australian model, which would be

compatible with the EU's ETS. The UK is eager to engage with

the new Administration on Stage II of Open Skies

negotiations, and again mentioned domestic pressure to invoke

the clawback passage of the agreement if momentum is not

achieved this year. We explained the U.S. position on both

issues, and highlighted bipartisan opposition to the

unilateral ETS plan. The British are not backing down on

either their ETS or Opens Skies goals. They eagerly await

signals from the new team at the Departments of

Transportation and State on where we will engage, and to what

extent. Hoon is known as pro-American and pragmatic, but

will be under pressure from domestic constituencies to not

roll back on UK/EU goals in either realm. End Summary



2. (U) The following information stems from recent meetings

with British Department for Transportation (DfT) officials;

including Secretary of State Geoff Hoon in a meeting with

Ambassador Tuttle, and Phil Dykins, Head of Bilateral

Relations and Martin Capstick, Head of Aviation Environmental

Division.



EU Emissions Trading Scheme

--------------



3. (C/NF) During a farewell call by Ambassador Tuttle,

Secretary Hoon pointed out how UK support for the EU's

Aviation ETS and its goals of a 20% reduction of carbon

emissions by 2020 allowed him to stand up in the House of

Commons and push for a third runway at Heathrow. Hoon said

he understood U.S. concerns about the extra-territorial

application of ETS, and sees the ETS proposal as step one in

a two-step process to get the USG more actively involved in a

global approach to resolving emissions issues. Hoon admitted

the EU needs to look closely at both the Chicago Convention

and the U.S.-EU Open Skies agreement to ensure it does not

conflict with legal obligations, but that the overall goal

was to get the U.S. included in either ETS or an equivalent

scheme. Hoon said the EU needs to go into negotiations with

the U.S. with a degree of flexibility; a goal of "let's do

this together". ETS allows for regional approaches that are

equivalent to ETS, Hoon explained, and pointed to Australia

and New Zealand's regional models. He speculated whether the

U.S./North American could adopt a similar scheme. Addressing

the larger climate change issue, Hoon said that having the

U.S. involved in the process would help greatly, because now

China and India are hiding behind U.S. delays.



4. (C/NF) The British fully support the EU's Emissions

Trading Scheme, Martin Capstick, Head of Aviation

Environmental Division at the DfT, told us, but also

understand some countries' concerns about sovereignty in

relation to its application. Capstick said as a financial

issue, ETS should be a small and diminishing concern for

airlines because oil prices in the long run will force

airlines to become more fuel efficient. Despite the low cost

of oil now, Capstick said it was only a matter of time before

prices rose again. He also explained that the ETS is

relatively less expensive than auctioning emissions credits.

The UK will transpose the EU directive into UK law by January

2010, and its draft regulation will come out in late

February. The USG is welcome to participate in the

consultation process at that point. We explained the

bipartisan nature of U.S. opposition to an EU-imposed scheme,

and pressed our view that emissions measures would be better

done through the International Civil Aviation Organization

(ICAO). Capstick replied that although parties, including

the UK, are working hard in ICAO's Group on International

Aviation and Climate Change (GIACC),the EU and Member States

believe they need to go forward with ETS unless and until a

global agreement can be achieved.



5. (C/NF) We questioned how the UK could pursue both the Air

Passenger Duty (APD) and ETS, noting both the imposition of

hefty costs on airlines during difficult times, and their

purported shared aims of addressing similar environmental

concerns. Capstick told us the U.S. would be free to

challenge the APD if/when the EU's ETS comes on line. He



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continued that some in the UK public feel there is too much

reliance on air travel, so imposition of costs through APD or

ETS would force individuals to non-aviation modes of travel.

Capstick acknowledged this argument works better in densely

populated Europe than it would in a country with a large

geographic area such as the U.S.



Open Skies Stage II

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6. (C/NF) On next steps for Open Skies Stage II negotiations,

Phil Dykins, Head of Bilateral Relations at DfT, told us the

UK position was fully in line with the EU's implementation

schedule, and the UK was waiting for a signal from the USG

that we were ready to begin the next round. DfT officials

asked whether the Open Skies agreement was a priority for the

Obama Administration and how it intended to push the deal in

Congress. The UK officials said they would be concerned if

there was no movement in the near future. Dykins invoked the

specter of the British government succumbing to pressure from

some of its commercial carriers to implement the clawback

language if progress was not achieved. He said the external

pressure on HMG would be particularly acute if British

Airway's anti-trust agreement with American Airlines was not

approved. We informed DfT that the new team was not yet

fully in place in Washington, however, there was a commitment

from USG aviation officials to tackle Stage II negotiations

soon.



7. (C/NF) Secretary of State Hoon, who took over in the fall

from Ruth Kelly, plans to continue his predecessor's policies

of actively pursuing UK/EU goals of greater foreign ownership

of U.S. airlines, cabotage, and a repeal of the Fly America

Act. In his meeting with Ambassador Tuttle, Secretary Hoon

displayed a keen understanding of the political dynamic the

new Administration faced on Open Skies, and opined that the

new Democratic-controlled congress was likely to be more

protectionist than the last one.



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