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TO RUEHC/SECSTATE WASHDC PRIORITY 1306
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ID:190812 Cable dated:2009-02-06T13:05:00C O N F I D E N T I A L SECTION 01 OF 02 LONDON 000333NOFORNSIPDIS E.O. 12958: DECL: 02/04/2019TAGS: EAIR ECON ETRD SENV EU UK
 
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 
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¶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. 
 
TUTTLE