The article that I read was Aviation bodies hail agreement to curb carbon emissions. This article discusses that an agreement among 191 countries at the International Civil Aviation Organization (ICAO) had decided to curb carbon emissions. Because of this the EU abandoned their plans to impose a "carbon tax" on all flights over the EU skyways. The EU had suspended its carbon dioxide Emissions Trading Scheme for all flights, after facing large amounts of criticism. This regulation would have made it required to buy pollution credits to cover 15% of emissions for the entire flight of planes flying over EU airspace, no mater where this flight originated. This could have potentially lead to a trade war amongst EU and non-EU countries.
From what we discussed in class we could see how the original plan proposed by the EU could have lead to a trade war. This would have lead to tariffs going back and forth among the EU and non-EU nations attempting to have the highest optimal tariff, causing all nations involved to end up at autarky levels. We discussed how this scenario is almost like a prisoner's dilemma. The countries involved would choose the best case scenario in each case of a tariff. In this case that would be to tariff back. This would cause the downward spiral to the autarky level. The World Trade Organization is in place to help stop things like that to happen, and actually work to create a scenario that works in the opposite direction with trade talks.
I feel the proposition by the EU could start interesting discussions however. If the EU creates an "air pollution tax" what would this do to other nations. Would other countries fall in line and start creating a new tax based planes flight patterns, pr would they impose tariffs on other areas instead.
I think the first part is right, but I like what you said about the WTO and I think that they would step in and make sure that a full fledged trade war does not happen. They can bring in the the two parties and discuss what they can do to make sure that this trade war does not happen.
ReplyDeleteThe problems behind the carbon tax issues proposed by the EU that you have brought up are intriguing. As you bring up, with the WTO present the countries would not actually spiral into autarky.
ReplyDeleteI would like to consider two scenarios. First, is the EU carbon tax their way of trying to extract funds from other nations or are they truly trying to be environmentally conscious? Although I find it hard to give politically motivated governments credit, assume that the EU is trying to be environmentally conscious and this is their only motivation. Therefore, their proposition has worked; carbon emissions around the world are being curbed because of it.
On the other hand, assuming that these carbon emissions are politically motivated to extract funds from other countries, I believe that the other countries would end up proposing their own carbon emissions. Furthermore, a tariff war would be brought to a premature ending as the WTO would relieve some of the tensions and work to reverse the actions.
If the EU did start a carbon tax on airways I think we would see tourism go down. Prices for airline tickets would go up because Airlines would have to make back the money they are losing in tax. If we see an increase in airline costs then the demand will be reduced because no one will want to pay the high prices. We would see a substitution effect where travelers would pick non European countries to travel to. This would be a substantial loss of revenue for Europe and could possibly be worse than what they max in the emission tax. I do not think we would have a seen a trade war yet rather countries would have fought to entice airlines to lower prices through other means to offset the tax. Allowing airline travel to be cheaper thus bringing in more tourism again.
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