The movement to cap emissions of greenhouse gases may have had a head start in Europe, but the debate is now shifting to Washington, where two powerful lawmakers are aiming to fast-track legislation that could have a costly price tag for the airline industry.

Reps. Henry A. Waxman (D-Calif.), chairman of the House Energy and Commerce Committee, and Edward J. Markey (D-Mass.), chairman of the Select Committee on Energy Independence and Global Warming, have drafted a bill that would cap greenhouse gas emissions and require polluters that exceed those limits to buy tradable permits at auctions, where prices would be determined by market demand. While their initial 648-page draft is deliberately vague on how emission allowances would be set and distributed, the airline industry is bracing to be hit with yet another government levy, albeit one aimed at saving the Earth's environment.

The proposal is expected to be formally introduced shortly and marked up by Waxman's committee in May. More specific details on how the system would work will be hashed out during markup, according to a source close to Waxman.

Similar legislation fizzled in the Senate last year after a veto threat from then-President George W. Bush. But President Barack Obama is a strong supporter of cap-and-trade as a way to limit emissions of greenhouse gasses. "We are moving toward the idea of putting a price on carbon dioxide," says Adam Sieminski, chief energy economist for Deutsche Bank. "There is mounting scientific evidence that [carbon dioxide] is a problem, and there is building political consensus that we have to do something about it." Nevertheless, Senate hurdles remain; lawmakers have already blocked a measure that would have eased passage of cap-and-trade legislation.

The 27-nation European Union first imposed a cap-and-trade system in 2005, and last year the European Commission and European Parliament voted to explicitly include airlines in the system beginning in 2012 (AW&ST June 9, 2008, p. 24). The Waxman-Markey proposal does not specifically include aviation, but would make oil companies responsible for the emissions created by the transportation fuels they produce. Those costs presumably would be passed down to airlines when they buy jet fuel (see graphic).

The proposal is causing "significant concern" in the airline industry because it would essentially impose a carbon tax on jet fuel, says Douglas Lavin, the International Air Transport Assn.'s (IATA) regional vice president for North America. He maintains that it would take money away from airlines that could be spent on modernizing their fleets with more efficient aircraft.

Airline industry advocates also argue that taxing fuel used on international flights would violate International Civil Aviation (ICAO) rules and could contravene bilateral air services agreements the U.S. has with foreign countries.

But there is a growing realization in the airline industry that some sort of cap-and-trade system is inevitable. While the U.S. Air Transport Assn. (ATA) opposes market-based emissions mechanisms, "at a certain point we're realists and we want to work with Congress and the Obama administration to productively shape" the system, says Nancy Young, the trade group's vice president for environmental affairs.

If a cap-and-trade system is imposed, ATA and IATA would like to see money paid by airlines funneled back into the aviation system, where it could be used to modernize air traffic control and fund research into alternative fuels and next-generation engines that would help airlines reach emissions targets.

And airlines on both sides of the Atlantic worry that because the U.S. proposal focuses on charging through fuel while the European emissions trading system (ETS) is focused on CO2 output of aircraft, they could end up paying twice for emissions. A U.S. airline official notes that there is no apparent provision within the Waxman-Markey bill to de-conflict with other nations' cap-and-trade systems.

The European law, by contrast, provides a framework from excluding flights from its ETS if the CO2 emissions are covered by another country. However, that will require Europe to make a judgment about the U.S. approach, which could be complicated by the fact it is so different from the EU system.

Whereas U.S. carriers still remain standoffish to cap-and-trade, public pressure in Europe to address aviation's role in climate change has driven some airlines there to be far more proactive in trying to set the agenda. In that vein, a group of European and Asian airlines last week put forward its own proposal for how to address aviation's CO2 problem. The Aviation Global Deal is calling for aviation to be treated as a separate sector, rather than have airline emissions fall under national CO2 allocations.

Under the proposal, the industry as a whole would be given CO2 targets, with airlines able to access global carbon markets either to sell permits they may not need or buy them as necessary. Rather than measuring just fuel burn, the plan calls for the cap-and-trade system to focus on the actual carbon content of the fuel, thereby encouraging the use of cleaner biofuels, says Mark Kenber, The Climate Group's policy director.

The system would be administrated by an international body such as ICAO, with all revenue from CO2 allowance auctions earmarked for climate change mitigation efforts in the developing world, or to support research for improving aviation's environmental footprint.

The costs of the industry proposal are not fully defined yet, and a government sponsor to put the plan before the U.N. climate change conference is still being sought. Those issues are to be addressed by June, when the agenda for Copenhagen is set.