How many times have you heard a friend or a coworker lament their dream of visiting Paris or London be deferred by the expense of a transatlantic flight? Well, get ready to hear a whole lot more lamenting! Earlier this fall, the European Court of Justice’s (ECJ) Judge Advocate General, Juliane Kokott issued an opinion that the EU’s decision to extend its Emissions Trading Scheme (ETS) does not offend other nation’s sovereignty or international aviation agreements. Her opinion is a hard pill to swallow for international actors like America and China who stand to be hit by fines. International actors can then either pass the cost of the fines onto their customers or alter their operations to meet the requirements and pass that cast on. That doesn’t sound very non-threatening to sovereignty, does it?
The Emissions Trading Scheme (ETS), created in 2005, limits greenhouse gases throughout Europe (specifically the European Union’s 27 member states plus Iceland, Lichtenstein and Norway), through the “cap and trade” principle. Specifically, the ETS caps the amount of greenhouse gases various industries, such as manufacturing, energy or in this case, aviation, can produce. Industries receive emissions allowances within their caps and can trade and sell with one another and across borders. However, exceeding an emissions cap results in heavy fines.
A September press release discussing the ETS’ addition of aviation within its scope states that, “The EU ETS covers any aircraft operator, whether EU or foreign-based, that chooses to operate flights on routes to, from, or between EU airports.” Unlike other ETS provisions, which only affect the 30 nations outlined above, aviations caps and restrictions will affect 62 nations total. Unsurprisingly, many of these non-European nations are not pleased.
The United States has already engaged in litigation against ETS – this is what prompted the preliminary opinion by Juliane Kokott earlier this fall. Though the opinions of the Judge Advocate General are non-binding, the ECJ has followed them 90 percent of the time. While the odds of winning litigation seem low, the United States has not stopped there. Recently the House of Representatives passed a bill (“The European Union Emissions Trading Scheme Prohibition Act of 2011”) prohibiting any “operator of a civil aircraft of the United States from participating in any emissions trading scheme unilaterally established by the European Union.” The Bill requires approval from the Senate and President Obama but at the least it has established further resentment and opposition by the United States.
The U.S. is not the only country to be displeasedwith the ETS. China has confirmed it will engage in litigation against the ETS as well. China has also threatened to cut back on manufacturing airbuses for European carriers.
As tensions rise, more and more international actors outside the European Union are speaking up. Recently, the United Nations International Civil Aviation Organization issued a declaration arguing that international actors should be exempt from the ETS. Among the nations represented in the declaration are the U.S., Russia, China, Brazil, India, and Japan. In response to the declaration, EU Climate Commissioner Connie Hedegaard issued the following statement: “[i]t is disappointing that ICAO discussions once again focus on what states should not do, instead of what they should do to curb growing aviation emissions.” “You could set a target for your aviation sector, you could make an incentive for them to improve fuel efficiency for aviation, it could be many things,” she added.
However, one thing Ms. Hedegaard has not approached is the onus international implementation the ETS will levy upon passengers. A case study by Standard and Poor’s noted that even though the initial cost of implementing ETS might be “marginal”, it would have a substantial impact on “financially weak airlines.” Speaking of financially weak airlines, American Airlines recently reported losses of $162,000,000 in the third quarter. In what is not a particularly prosperous time for most American air travel carriers, inclusion in the ETS is likely the last thing they need. The EU has attempted to reassure that impacts on prices will be minimal but its reassurance is dubious. In its own press release the EU has noted that 85 percent of aviation allowances will be issued free of charge in 2012 with 82 percent being free in following years. The EU has also noted that the change in ticket prices will be at most €2 per passenger on transatlantic and long haul flights. However, that proposition is questionable when international carriers engage in nothing but long haul and transatlantic flights to Europe. By operating numerous long haul flights in and out of Europe, international actors are hit hardest by the ETS. Commissioner Hedegaard has encouraged international actors to set carbon targets for their airlines or incentivize the development of greater fuel efficiency. Nonetheless, both of these suggestions will be expensive to implement and costs are likely to pass to passengers.
A flight to Europe has always been pricey and it only stands to get pricier if ETS remains implemented against the United States and other international actors. Hopefully, the ECJ does not rule in accordance with the Judge Advocate General’s initial ruling this fall. Contrary to the Judge Advocate General’s Ruling, an emissions scheme imposed unilaterally by an economic and political union (the EU) against other nations certainly seems to offend sovereignty. Nations must comply or face fines and fees. In turn, it is the consumers who will have the burden of these fines passed on to them through higher ticket prices. An emissions scheme that affects how nations operate their airlines and how passengers fly is clearly offensive to sovereignty.