Wednesday, March 17, 2010

Challenging the EU ETS

Last December, the Air Transport Association, along with U.S. air carriers American Airlines, Continental, and United, filed a legal challenge to the United Kingdom's Aviation Greenhouse Gas Emissions Trading Scheme.  See Press Release, ATA, Application of the EU ETS to US Airlines (Dec. 16, 2009) (available here).  The case has since been referred to the European Court of Justice for resolution. 

The U.K. law implements part of the European Union's controversial regulation which will bring all airlines flying to or from its territory under an emissions trading scheme (ETS) beginning January 1, 2012.  See Commission Decision 2009/339/EC, 2009 O.J. (L 103).  Under the ETS, airlines will have their emissions "capped" at 97% of their 2004-05 levels; the cap will be lowered to 95% in 2013; and the airlines will be forced to purchase 15% of their allowances (carbon credits) under the cap at auction.  Carriers which have experienced growth since 2004-05 will have to purchase additional allowances, either from another airline or industry which is also covered by the EU's ETS. 

U.S. airlines are understandably displeased with the ETS.  Since they will have to purchase at least 15% of their allowances from an EU Member State (the purchase percentage is subject to rise after 2013), carriers have complained that the ETS violates the Chicago Convention's restrictions on the types of fees and duties which may be imposed on international civil aviation.  See Convention on International Civil Aviation, art. 15, opened for signature Dec. 7, 1944, 61 Stat. 1180, 15 U.N.T.S. 295; see also "Guest Post: Frans Vreede on the Dutch Ticket Tax" (elaborating on the scope and applicability of Chicago Convention Article 15).  U.S. airlines have also criticized the ETS for compelling them to effectively subsidize EU Member States by forcing the carriers to purchase emissions allowances.  Nothing in the ETS mandates that the rents captured from the ETS will even be applied back to aviation. 

The extraterritorial application of the ETS raises additional issues under the Chicago Convention.  Article 1 of the Convention codifies the customary international law principle that States have exclusive sovereignty over the airspace above their territories.  Yet the ETS covers emissions which are released outside the geographical space of the EU.  As the ATA puts it:

For example, for a flight of a U.S. carrier from Dallas to London, the proposed legislation would regulate the emissions from that flight on the ground and as it takes off in Dallas, as it flies over Texas, Oklahoma, Missouri, Illinois, Indiana and Michigan, within U.S. offshore territory, over Canada and the Atlantic Ocean. Thus, the EU ETS provisions would regulate the entire flight, even though the flight would be in EU airspace for only a tiny fraction of the journey.

See Press Release, supra.

ETS coverage also extends to emissions released over international waters.  This, according to the ATA, interferes with the International Civil Aviation Organization's designated authority to regulate international aviation over the high seas. See Chicago Convention, supra, art. 12.

It will be interesting to see what (if any) limits the ECJ may place on the EU's authority to impose its ETS on non-EU carriers.  While climate change remains an important political issue in the EU, the agenda for a global solution to the problem has lost considerable steam after the failure of last December's Copenhagen Climate Conference to produce an international accord.  The 1997 Kyoto Protocol to the U.N. Framework Convention on Climate Change recognizes ICAO "as the global instrument for developed countries to pursue a limitation or reduction of greenhouse gas emissions from international civil aviation."  See Press Release, ICAO, Kyoto Protocol Emphasizes ICAO's Role in Addressing Greenhouse Gas Emissions from International Civil Aviation, PIO 25/97 (Dec. 12, 1997) (available here).  Despite this, in 2007 the EU entered a reservation to an ICAO resolution which reaffirmed the organization's singular role in finding an international response to the aviation emissions issue before proceeding to pass its aviation ETS rules.  See ICAO, Consolidated Statement of Continuing ICAO Policies and Practices Related to Environmental Protection, app. A, Assemb. Res. A36-22 (2007), compiled in Assembly Resolutions in Force, at I-54, ICAO Doc. 9902 (Sept. 28, 2007).  If the ECJ should strike down or significantly curtail to the scope of the ETS, will the EU be willing to continue cooperating with ICAO on an authentically global response?  A lot will likely depend on how quickly the ECJ acts.  With ICAO's 2010 Triennial Meeting set to take place this September, many eyes will be on the EU when the topic of climate change inevitably comes up.  A victory or loss before the ECJ could dictate the tone of the meeting.

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Such a fascinating read.

But aside from the ETS' possible violation of the Chicago Convention, do you think the UNFCCC guiding principle of "Common But Differentiated Responsibility" plays any role? I've read that Chinese organisations are looking to take action against the ETS under this head.

Posted by: Heff | Apr 12, 2010 8:36:27 AM

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