26 counties, including the United States, lodged a formal protest today against a European Union law to tax all airlines travelling to and from Europe for their carbon emissions.
HOW LONG HAS THE DEBATE RAGED?
In 1997, the Kyoto Protocol on tackling climate change asked developed countries to work with ICAO [the International Civil Aviation Organization] to reduce aviation greenhouse gas emissions…
Frustrated by the lack of progress, the EU…in 2005 concluded that bringing aviation into the EU ETS would be the most cost-efficient and environmentally effective option for controlling aviation emissions.
In protest at the EU law, the Air Transport Association of America, American Airlines and United Continental took their case to the High Court in London, which referred it to the European Court of Justice ECJ.L last year…In October, the advocate general in a preliminary opinion said the EU was acting within the law. Her opinion is not binding, but is a good gauge of the ECJ’s final ruling expected early next year.
WHAT DIFFERENCE WOULD A FORMAL PROTEST AT ICAO MAKE?
EU lawyers have said any decision by the ICAO council would not be legally binding, but could be a step towards a formal dispute procedure, in which the president of ICAO would mediate.
ICAO…does not have a good track record with respect to issuing final rulings in aviation disputes.
HAVE THE AIRLINES CHANGED THEIR STANCE?
“Our views have not changed. The 2007 paper analysed a different scheme design to what the EU delivered,” IATA Chief Economist Brian Pearce told Reuters.
“IATA supports emissions trading in principle, but only if it does not distort competition or be imposed extra-territorially. The design of the current EU ETS does both of these.
“Airlines in practice will not be able to raise fares to reflect ETS costs, because of unequal competitive impacts between EU and other airlines. So the ETS will adversely impact airline profits.”
A report last week said the scheme could cost airlines around 2 billion euros by 2020.
WHAT IS HAPPENING IN CONGRESS?
Last week, the U.S. House of Representatives approved legislation to make it illegal for U.S. passenger and cargo airlines to comply with the EU law.
There has not yet been companion legislation in the U.S. Senate, but Washington and EU sources said a proposal was expected in the coming weeks.
WHAT HAPPENS IF PROPOSED U.S. LEGISLATION IS SIGNED INTO LAW?
Lawyers said that if the U.S. draft legislation became law, airlines could find themselves unable to fly into Europe for fear of breaking either U.S. law or the EU law.
COULD THERE BE EXEMPTIONS?
The EU Commission has repeatedly said it will not back down.
However, it told the China Air Transport Association in June there were provisions in ETS rules to exempt airlines of countries taking equivalent steps to cut emissions from aviation.
WHAT WILL BE THE IMPACT ON THE MARKET?
Opinion is divided on the impact of the row on the carbon market.
Exempting U.S., Chinese and Indian airlines from the ETS would reduce the aviation sector’s total demand for carbon permits by nearly 12 percent next year, according to researchers RepuTex.
Under current rules airlines will need to buy an estimated 47 million carbon units next year but this could shrink to 41.5 million if the EU Commission exempts airlines from the three main countries opposed to the targets.
However this turns out, it is going to be messy. Stay tuned for updates on this story as well as analysis on how an airline would deal with the very real possibility that by complying with ETS it would be breaking U.S. law and by not complying it would be breaking EU law.