The EU may struggle with the aviation industry, but it still holds the key to EU-Russia relations

The aviation industry is notoriously complicated, and its national regulations are often difficult to navigate. The latest example of this is the contradiction between the United Nations’ (UN) Corsia aviation emissions scheme, designed to force airlines to cap their environmental impact, and the European Union’s own emissions trading scheme (ETS).

According to a new resolution by the International Civil Aviation Organisation (Icao), Corsia is now expected to “be the only market-based measure applied to international flights.” The aim is to avoid duplicate counting of emissions, but EU countries were called on by European authorities to lodge a formal “reservation” at a meeting last Friday. Transport officials only made verbal objections.

ETS vs Corsia

EU delegates are now under fire for failing to raise “meaningful objections” to the new measure, which is expected to put a dent in the EU’s ETS. At present, the ETS includes all flights that operate within the European Economic Area, but excludes trips involving the catchment area; if Corsia is allowed to take precedent, the ETS will be rendered more or less useless.

After the assembly, a European Commission spokesperson reiterated that the EU was committed to Corsia’s implementation, but that it should co-exist with the EU’s existing policies and efforts to comply with the anti-emissions Paris Agreement. The Corsia scheme would cap aviation emissions at 2020 levels, with an initial voluntary phase from 2021 to 2027. So far 81 countries have signed up to the initiative phase, representing 77% of global aviation activity. At this stage, the ETS will only be protected if the EU “files a difference” with Icao before 1 December.

It’s clear that the EU is facing a long and complicated process to find consensus with the UN in an already difficult market – one dominated by various international legal disputes, of which the emissions cap is but the most recent one. However, not everything in the sector is bleak. Indeed, progress has been made in a vital area with a crucial partner – Russia.

Much needed progress

Russia is not the easiest country to deal with when it comes to international aviation, primarily because the country continues to impose overflight charges on European airlines flying in Siberian airspace. They were supposed to be removed in 2014 upon Moscow’s admission to the World Trade Organization, but this is yet to happen. Much to the EU’s dismay, European carriers paid some US$420 million in fees as far back as 2008, most of it directly to Russian competitor Aeroflot. Today, with the number of flights having skyrocketed since then, this amount is considerably higher.

Still, the European aviation industry is making headway on another very important front, namely “seventh freedom of international flights” in Russia. The seventh freedom right is the right of an airline to operate routes between two countries not including its own home country. The EU-US “Open Skies” agreement, for example, bestows seventh freedom rights to a number of non-EU countries to fly to the EU, meaning non-EU airlines can operate flights between a city in the US and a city in Europe.

Russia’s Pulkovo Airport in St. Petersburg recently announced to become the first Russian airport to permit such seventh freedom flights. Moreover, starting this month, tourists from 53 countries, including all EU member states except the UK, will be able to visit St. Petersburg under a simplified e-visa program.

Europe’s budget airlines, including Ireland’s Ryanair, Hungary’s Wizz Air and Britain’s EasyJet, have been the first to apply to operate direct flights to Pulkovo. The seventh freedom scheme will run for a five year trial, after which the routes could be handed to Russian airlines or “stay with the foreigners.”

Siberian development

Russia’s move is understandable, especially given that the move will be a boon to the economic development of remote regions as envisioned by president Putin. Consequently, foreign investment funds, such as Hong Kong-based Meridian Capital Limited, are pouring capital into Russian airports.

Meridian co-owns Russian airport operator Novaport, which is itself expanding its airport network in a region set for rapid growth. Novaport currently runs 16 airports country-wide and holds majority stakes in other regional airports from Murmansk in the North to Vladikavkaz in the South, along with several minor stakes. A sector once dominated by domestic funds, Russia’s airline industry is thus opening up to the world in more ways than one.

According to Yevgeniy Feld, founding principal of Meridian Capital Limited, “Novaport is a flagship investment in our global portfolio at Meridian Capital Limited. We are extremely supportive of the on-going liberalisation of Russia’s skies.  Novaport continues to devote significant resources to the modernisation of regional airport infrastructure and believes that the potential impact on economic development is enormous.”

Indeed, Siberia is of great importance to Russia’s economy. As a mineral and metal-rich province, producers of oil, diamonds, gas and coal have already come to call it home; in 2013, Moscow announced a billion-dollar investment in the region.

Siberian infrastructure, however, remains a challenge—and airports are regarded crucial to alleviate the problem. In Sochi, for example, fifth freedom air traffic rights – allowing foreign airlines to operate transit flights via the airport to third countries – saw the airport’s international passengers surge to 300,000 in 2013.

Similarly, the Open Skies Initiative and expansion of Novaport’s Kaliningrad airport for the Football World Cup in 2018, means that the airport is turning into a core element of the Russian enclave’s transport system, connecting it to the EU.

Looking ahead

If issues persist with the carbon trading scheme and the UN’s own approach, the promise of seventh freedom flights is an important one for Russia-EU relations. Already marred by mutual distrust, bringing greater number of EU visitors to Russia is a low-hanging fruit to foster mutual understanding. And as tourists begin to flood to their neighbour in the East, the resulting economic development could be a boon for both Brussels and Moscow.

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