Carbon tax touted as Single European Sky finance source

The money raised by Europe’s controversial carbon trading scheme could soon be spent on overhauling its outdated air traffic system, writes Aimee Turner.
Under plans to tackle climate change, airlines touching down or taking off in the 27-nation European Union now have to account for their CO2 emissions as part of an expansion of the world´s largest carbon market.
The European Commission late last month decided on how it planned to fund the deployment of the Single European Sky air traffic research initiative called SESAR.
This would enable Europe´s air traffic system to handle a three-fold increase in current capacity while improving safety by a factor of 10, halving costs for airlines and reducing air transport’s impact on the environment by 10 per cent per flight
Brussels acknowledges that a major challenge in the deployment process is financing timely implementation. More than two thirds of SESAR costs – a massive €22 billion – will be picked up by airlines and the military for equipping their aircraft. The remaining €8 billion bill will be borne by civil and military air traffic control organisations together with airport operators, to upgrade ground equipment.
“SESAR implementation projects will require high financial risk-taking that private financial markets either price very high or would not accept at all. As a result, operators are inclined to be reactive rather than proactive,” said the Commission.
The point is that an airline investing in new avionics in the cockpit may not see any benefit before the air navigation system has made the corresponding investments on ground equipment; similarly, those in charge of air traffic control need to demonstrate thier own positive business case – and this can be achieved only once a significant number of aircraft are equipped.
Brussels therefore wants to attract the crucial private sector funds by putting up €3 billion in public money between 2014-2024.
“EU funding should support SESAR implementation by facilitating synchronisation and coordination between stakeholders for essential deployment identified in the Master plan including, as far as it is allowed by the relevant funding instruments, those involving third countries,” it said.
“Other potential sources of financing need to be explored, such as loans from the European Investment Bank, the Single European Sky Charging Regulation and the Emissions Trading Scheme,” said the Commission.
The United States, China, India and others have attacked the scheme on the grounds that it infringes their sovereignty and that the EU should not act alone and have warned of possible counter-measures.
Lufthansa, Germany´s biggest airline said this week it would add the €130 million in extra costs this year from the scheme to its existing fuel surcharge, becoming the first carrier to provide details of how it plans to cope with the additional burden.
The rules came into force on Sunday after the EU´s highest court last month rejected a challenge brought by North American carriers.