Monday, October 24, 2011
Today we address the Advocate General's dismissal of the third and final argument levied by the international carriers against the legality of the EU's proposed emissions scheme - that the ETS constitutes a tax or fee in violation of Articles 15 and 24 of the Chicago Convention. The relevant portion of Article 15 is as follows, "No fees, dues or other charges shall be imposed by any contracting state in respect solely of the right of transit over or entry into or exit from its territory of any aircraft of a contracting State or persons or property theron." Additionally, Article 24 states, "Aircraft on a flight to, from or across the territory of another contracting State shall be admitted temporarily free of duty, subject to the customs regulations of the State." Article 24 makes it clear that this includes duties on fuel. As discussed in a prior post, the Advocate General maintains that the EU is not bound by the Chicago Convention but considers these two Articles applicable by reference through Articles 3(4) and 15(3) of the EU/US Open Skies Agreement.
The opinion contends that the cap-and-trade scheme, requiring carriers to surrender emissions allowances that they have either been granted free-of-charge or have purchased on the free market, does not equate to a fee, due, charge or duty under the meaning of Articles 15 and 24. In support of this contention the opinion asserts that taxes and charges are, by definition, fixed in advance, and that because the price of the emissions allowances is market-dependent, requiring payment of emissions allowances cannot be considered a tax or charge. It is difficult to read this argument as anything other than a semantic dodge. If carriers were required to hand over actual euro each time one of their aircraft landed at an EU airport it would surely be considered a tax or charge, regardless of whether the amount to be surrendered was undetermined prior to landing and ultimately chosen through some market-based mechanism or even arbitrarily. The fact that the emissions allowances aren't euro shouldn't alter that analysis, as the emissions allowances unquestionably have value, especially because they can be bought and sold on a market which prices them in actual euro. Requiring carriers to surrender something of value upon landing or taking off from an EU airport is clearly a charge by any sensible definition of the word. For support, the AG claims ICAO has in the past distinguished between environmental charges and emissions trading schemes. However, for a contrary reading of ICAO pronouncements blog readers are invited to look at pages 12-14 of Toward A Global Aviation Emissions Agreement, where authors Brian F. Havel and Gabriel S. Sanchez conclude that ICAO has found market-based-mechanisms to be a charge in violation of the Chicago Convention (available here). The AG also notes that the need to harmonize competing emissions schemes is contemplated in Article 15(7) of the 2010 amendment to the US/EU Open Skies agreement. The article says nothing, however, about one State applying emissions schemes to foreign carriers on the basis of landing or departing from domestic airports. For Article 15(7) to be read to contradict explicit prohibitions in the Chicago Convention, one should reasonably expect more specific language than can be found in that article.
Additionally, the AG is forced to grapple with the prohibition against excise duties on fuel in Article 24 of the Convention because the amount of emissions allowances charged under the ETS is calculated by measuring the amount of fuel consumed on a given flight. For this reason, the American carriers argued that the charged emissions allowances should be considered a duty on fuel, citing in support Braathens, a 1999 case in which the European Court held that an emissions tax calculated by measuring fuel consumption equated to an excise duty on fuel, for support. See Case C‑346/97 Braathens  ECR I‑3419 (available here). The AG attempts to distinguish the Braathens opinion by claiming that under the ETS there isn't a direct link between emissions and fuel consumption because carriers could use biofuels, which are considered emissions-free under the plan. However, there is no legally significant distinction between the case at hand and Braathens, other than the factual issue that biofuels were not in the contemplation of the earlier court. Additionally, the AG's opinion does not explain how the ETS ceases to be a fuel excise tax simply by virtue of not being applied to all fuels.
Ultimately, the Advocate General's answer to this third and final argument appears to rest largely on the notion that because the ETS is intended to be an environmental regulation, it should not be viewed as a tax, charge or duty of the type the Chicago Convention intended to prohibit. To its discredit, this line of reasoning ignores the reality that a tax or charge is part of the mechanism by which the ETS aims to discourage environmentally destructive behavior. However noble the EU's intentions may be, the unilateral imposition of its rules on foreign carriers appears to put it at odds with international law.