Carbon regime

The Christmas gift American and Canadian airlines had hoped for didn't arrive.

On December 21, the European Court of Justice, the EU's highest legal body, upheld the inclusion of all flights landing or departing within the EU into its emission trading system starting January 1, 2012.

In their ruling the Luxembourg-based justices rejected the legal challenge by a group of North American airlines and declared that the ETS doesn't violate the Open Sky Agreement between Europe and North America. The court also said it doesn't violate international law that emissions that occur outside of EU airspace are included in the ETS.

The court's verdict cleared the way for the launch of ETS for the global airline industry which went into effect as planned on January 1.

But despite the legal blow out of Luxembourg, many countries and carriers outside the EU haven't thrown in the towel and are continuing their fight against inclusion into ETS

Beijing and Washington remain the most vocal opponents of Europe's carbon emission system, but Russia, India and others also object to the new rules. Their basic arguments are that the EU doesn't have the right to include non-EU carriers and that it can't incorporate emissions taking place outside EU airspace into its scheme.

Retaliatory action

After the verdict, the US State Department said it was disappointed by the decision and still has "strong legal and policy objections to the inclusion of flights by non-EU air carriers" into the ETS. Even before the ruling, the US had warned the EU commission that it would respond with "appropriate measures."

Chinese airlines meanwhile declared that despite the ruling they wouldnt take part in the ETS. "China will not cooperate with the European Union on the ETS, so Chinese airlines will not impose surcharges on customers relating to the emissions tax," the deputy secretary-general of the China Air Transport Association told Reuters. Instead, he added, Chinese carriers were mulling legal action and might also appeal to Beijing to take retaliatory measures.

But the road to topple inclusion in the ETS via legal action is rocky and long and the outcome uncertain.

"The first option which they have indicated they are considering carefully is to try to go back to court in the UK or in another country, possibly including Germany, to try to get a court to take another look at the case," says Annie Petsonk, International Counsel at the Environmental Defense Fund (EDF) in Washington, DC which is in favor of the ETS.

"I personally think that that option would be a waste of their customers and shareholders' money because the opinion of the European Court of Justice is very clear."

WTO not an option

Another possible legal avenue - bringing the conflict to the World Trade Organization (WTO) - is closed, argues Petsonk since the WTO does not apply to aviation.

Perhaps the best bet for ETS opponents is to file a claim with the International Civil Aviation Authority (ICAO). "All major countries have signed the ICAO convention and could refer the question of the validity of the ETS as it applies to international law before the council of the ICAO," explains Uwe Erling, an environmental and airline law expert with the Noerr law firm in Munich.

"The council of the ICAO then could issue a decision and this decision interestingly could be then challenged before the International Court of Justice in The Hague," says Erling who is critical of the inclusion of non-EU airlines into the ETS.

However, so far no country has officially brought the case before the ICAO and the legal process involved could drag on for years before a decision is made. What's more, the chances for success at the ICAO are all but certain. Erling gives the claim a 50-50 success rate.

US law

While the appeal process via the courts and ICAO looks murky, a more direct challenge is being considered in Washington. The US Congress is mulling a law that would make it illegal for US carriers to comply with the ETS. That would put all US airlines in the strange position of being a scofflaw because they would operate in violation of either US or European law.

Such a move would put US freight carriers Fedex and UPS under special pressure, notes Petsonk because both also operate in Europe.

Asked whether she considers a US law a real threat or mere bluff, Petsonk said, "we regard it as quite a serious possibility and we are hoping that the US carriers that would be adversely affected by that law will make their views known to Congress and urge Congress not to pass that law."

Instead of mulling legal or retaliatory measures, she adds, ETS opponents should review a new study partly paid for by the US Federal Aviation Authority that concludes that airlines very likely will not be negatively impacted by the ETS, but might actually reap large windfalls profits from it.

A good indicator of whether non-EU airlines will make good on their threats to further challenge the ETS or perhaps reverse course will be whether they decide to open registry or banking accounts in order to receive their free emission allowances in the coming months.

Author: Michael Knigge
Editor: Rob Mudge