Friday, June 17, 2011

Opposition to EU ETS Continues

The full-court press against the European Union's plans to bring non-Union airlines under its Emissions Trading Scheme in 2012 is underway.  According to several news outlets, the United States plans to issue a formal objection to the ETS at the upcoming meeting of the Joint Committee established by the 2007 U.S./EU Air Transport Agreement.  See Daniel Michaels, Airline-Emissions Plan Draws U.S. Fire, Wall St. J., June 17, 2011 (available here).  Thus far, the EU claims it will not back down from the controversial (and possibly illegal) regulation.

A number of other States, including China and Russia, have publicly criticized the proposal and suggested that they would take retaliatory measures unless their respective airlines are exempted from the system.  Meanwhile, several U.S. airlines will have their legal challenge to the regulation heard by the European Court of Justice early next month.  While it is perilous to predict how the ECJ will rule, it's no secret that the Court has seldom curtailed the European Commission's ever-expanding custody of the Union's external aviation law and policy.  Should the ECJ let the ETS stand in its present form, the U.S. and other States could still attempt to leverage dispute settlement provisions in their respective air services agreements with the EU to win regulatory forebearance.  Alternatively, or in addition, they could bring a formal complaint before the International Civil Aviation Organization. 

Even if all of the formal challenges to the ETS fail, the EU (and its airlines) will still have to reckon with the aeropolitical costs.  Few, if any, of the objecting States are likely to welcome future EU overtures for new rounds of aviation trade talks until the ETS issue is settled.  More importantly, countries such as China and Russia, which have never been shy about threatening to erect trade barriers to win concessions on a host of geopolitical and economic issues, could use the ETS as a pretext for ratcheting back the already restrictive market access rights they provide to EU airlines.  The U.S. could follow suit, though given the fact that all of its major airlines are currently integrated into complex alliances with EU carriers, it's unlikely the U.S. would take any strong action which might jeopardize those relationships.  Still, it is not out of the question that the U.S. could target airlines or other EU industrial sectors in an effort to divert the Union from its present regulatory course.

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