As 21 countries threaten retaliation, a European judge supports the EU emissions trading system
The fight between Europe and the U.S. over aircraft hushkits a decade ago is one of the epic battles in aviation regulation, but it may pale in comparison to what is about to unfold over European Union plans to include non-EU carriers in its emissions trading system.
The airline industry and governments outside the European Union have been mobilizing to stave off the inclusion of aviation in the EU ETS starting in January. A pivotal moment came last week, when a European Union judge advocate sided with the EU in a challenge brought by the U.S. Air Transport Association (ATA) over concerns the ETS legislation was extraterritorial and violated internal law.
In the non-binding ruling that the European Court of Justice (ECJ) generally follows, the judge, Juliane Kokott, argues that “the inclusion of international aviation in the EU emissions trading scheme is compatible with the provisions and principles of international law invoked.” One key passage of the ruling is her view that “the principles of customary international law and international agreements relied on do not give rise to any legal objections, not even insofar as the EU emissions trading scheme extends to sections of flights that take place outside the airspace of member states of the European Union.”
Kokott's opinion is sweeping in its rejection of the ATA case and at one point appears to call into question the entire foundation of international aviation agreements in stating that the claimant airlines and airline associations cannot, as a rule, rely on international agreements and customary international law.
Technically, the EU is not signatory to the Chicago Convention, but all its member states are. That creates the legal ambiguity that may enable the ECJ to rule that the ETS is in compliance with EU law, when it is not at member-state level.
The ATA initially filed its case with the U.K. courts, which then went to the ECJ for its view on certain elements of the case. The advocate general's opinion informs the court, which has to decide unanimously and then provides its input to the U.K. court for its verdict.
“I am glad to see that the advocate general's opinion concludes that EU directive is fully compatible with international law,” says EU Commissioner for Climate Action Connie Hedegaard. “The EU reaffirms its wish to engage constructively with third countries during the implementation of this legislation.”
The advocate's ruling will do little to quiet the controversy, though. And the ATA, in a statement following the opinion, says it is “disappointed that Advocate General Kokott does not believe that the European Union is bound by the Chicago Convention, the treaty governing aviation, and that the unilateral application of the EU ETS to international aviation otherwise does not violate law.” It is still holding out hope that the final verdict will differ, however.
Tony Tyler, director general and CEO of the, which backed the ATA case, says, “while the advocate general of the [European court] believes that Europe is within its rights to move forward with this extra-territorial measure, that opinion is not shared in the international community. . . . We support and need positive economic measures as part of our strategy to manage aviation's emissions. Emissions trading is one possibility. But it must be a global scheme under the leadership of [the International Civil Aviation Organization] ICAO. The principles for such a scheme were agreed in 2010 and ICAO is committed to delivering a global framework by 2013. Rather than risking a further escalation of tensions among states, I encourage Europe to support a successful, global and effective solution through ICAO.”
Countries outside of the EU are threatening retaliatory measures, indicating that the battle is being fought on both legal and political levels. India says it will reopen bilateral air service agreements with European countries and retaliate if the European Commission does not step back from its plans to introduce the ETS at the start of next year. “If they don't call it off, we will retaliate,” Prashant Sukul, joint secretary of India's ministry of civil aviation, tells Aviation Week.
The burden to fight the EU legislation now shifts from industry to governments, says an industry official.
Krishna R. Urs, U.S. deputy assistant secretary of state for transportation affairs, says, “We maintain our strong legal and policy objections to the inclusion of flights by non-EU carriers in the EU-ETS. . . . We, along with several other states, intend to continue to press our European partners to exclude non-EU air carriers from the EU ETS and instead work with us in the International Civil Aviation Organization to take additional positive steps to address this goal.”
Sukul asserts that “people [in other countries] have ideas about retaliatory measures and they will act their way . . . . If Russia doubles the overflight charges, European airlines will be out of business. They could no longer fly east of Europe.”
Sukul stresses that the EU ETS will create major market distortions and “penalize the consumer at the end of the day” while putting “further stress on airlines, which are an easy target.” He points out that while European officials have been trying to make their case, they have not listened to industry concerns in other regions. “But it is a different call now, having to deal with 25 countries and more coming,” he says.
China and Russia have suggested they will take unilateral actions to fight the EU policy. Echoing Sukul, the industry official notes that Russia could curtail overflight rights for European airlines flying to Asia.
On the eve of the advocate general's ruling, representatives from 21 countries from North and South America, Asia and Africa—including the U.S., Japan, India, Russia, China, Argentina and the United Arab Emirates—called on ICAO to continue its efforts to reduce airlines' greenhouse gas emissions in a joint declaration signed in New Delhi on Sept. 30. The declaration opposes the EU ETS as inconsistent with international law, including the Chicago Convention. It also urges ICAO to develop a “meaningful aircraft CO2 standard with a possible implementation date of 2013.
While the declaration acknowledges that growing aviation greenhouse gas emissions are a concern, it focuses on advances in fuel efficiency and stresses the need for comprehensive air traffic management reform along with advances in biofuels and other technological solutions. The 21 countries ask the EU to refrain from applying the ETS to non-EU carries and urge it to “work collaboratively with the rest of the international community to address aviation emissions.”
Environmental lobby groups say the ruling “is an encouraging development.”
However, the situation also is forcing EU airlines to balance their competitive concerns with fears of running afoul of their governing regulator. Ulrich Schulte-Strathaus, secretary general of the Association of European Airlines, says in a statement: “AEA supports the European Union's commitment to reduce the impact of all sectors, including air transport, on climate change. However, instead of taking the lead and paving the way toward a global solution, the European Union's environmental strategy is alienating key partners.”
Manufacturers are affected, as well. For instance, China is blocking a Hong Kong Airlinesorder as a result of the dispute.
Industry officials are also worried by negotiations between the EC environment directorate and other governments about “equivalent measures” that they fear could lead to market distortions and put European carriers at a disadvantage. Under the legislation to include aviation in the ETS, the charging system would be set aside for airlines operating out of countries that regulate the carriers' CO2 output.
India's Sukul also says that such schemes “make the whole thing even dicier” because “it is they who judge if your measure is equivalent.” That “opens up the door for more discrimination.”
Another industry official warns that if there is a patchwork of ETS-like systems, the industry will struggle to achieve its ultimate goal of a global approach to controlling CO2 output.
What will complicate issues is that there is little time for the differences to be ironed out. Schulte-Strathaus notes that “with just 87 days to go, the ETS clock is ticking very loudly and the chorus of third-country indignation is deafening. We have deep concerns that the European air transport industry will be caught in the crossfire as key trade partners retaliate against the inclusion of international aviation in the EU ETS.”
While there is not sufficient time for the EU to adapt its ETS legislation to mollify critics, industry officials are hoping the EC will set aside implementation of the rules to avoid a global battle, despite last week's court backing. This would mirror the EC's reversal earlier this year, first proposing to relax restrictions on liquids in carry-on bags and then withdrawing the proposal. The Italian government late last month advised the EU that “consideration should be given to the possibility of postponing the starting date for the system.” But it is not clear such a maneuver is possible this time.
The group of opponents plans to meet again at the end of November, most likely in Moscow, to decide on further steps, if no compromise is found by then. Those steps will almost certainly include the first concrete retaliatory measures—one month before the ETS is implemented.
Exacerbating the anxiety among European airlines is the timing of the additional costs they now face. While some allowances will come free, others have to be bought, and passing on those costs will not be easy, given the difficult economic conditions in Europe.and , for instance, are warning of weak demand as Europe's economic recovery stalls.