US and Canadian airline companies see protest against European Emissions Trading Scheme ‘crash and burn’ at the European court of Justice in Luxemburg.

Today on December 21, 2011, the European Court of Justice in Luxemburg has pronounced judgment in a legal complaint of American Airliners versus the European Emission Trading Scheme (EU ETS): the EU Court judged against the US and Canadian complaint as it declared the EU ETS valid.

But what is this European Emission Trading Scheme? Wikipedia:

Under the EU ETS, large emitters of carbon dioxide within the EU must monitor their CO2 emissions, and annually report them, as they are obliged every year to return an amount of emission allowances to the government that is equivalent to their CO2 emissions in that year.

Until now, airliners have been excluded from the duty to trade emission rights under the EU ETS, but that will change next year. As airliners are responsible for a substantial part of the worldwide CO2 pollution, this ETS trade would bring considerable expenses for airline companies that operate in a very competitive market where extremely low margins (1-3%) are common.

European airliners already knew that they had to pay for this ETS, but airliners from countries outside Europe had massively protested against it. In most cases these protests happened through their governments.

However, a number of United States and Canadian airliners have protested by filing a legal complaint at a British Court of Law, as according to these airliners ‘the ETS would violate a number of worldwide agreements: the Chicago Convention, the Kyoto Protocol and the Open Skies Agreement’.

The British Court decided wisely to redirect the complaint to the European Court of Justice in Luxemburg and this court today reached a verdict. Here are the pertinent snips of this verdict:

The directive including aviation activities in the EU’s emissions trading scheme is valid

Application of the emissions trading scheme to aviation infringes neither the principles of customary international law at issue nor the Open Skies Agreement

In 2003, the EU decided to set up a scheme for greenhouse gas emission allowance trading, as a central element of European policy to combat climate change. Initially, the EU emissions trading scheme did not cover greenhouse gas emissions from air transport. Directive 2008/101 provides that aviation activities will be included in that scheme from 1 January 2012. Accordingly, from that date all airlines – including those of third countries – will have to acquire and surrender emission allowances for their flights which depart from and arrive at European airports.

A number of American and Canadian airlines and airline associations contested the measures transposing Directive 2008/101 in the United Kingdom. They contend that, in adopting the directive, the EU infringed a number of principles of customary international law and various international agreements.

According to them, the directive infringes, first, the Chicago Convention, the Kyoto Protocol and the Open Skies Agreement in particular because it imposes a form of tax on fuel consumption, and second, certain principles of customary international law in that it seeks to apply the allowance trading scheme beyond the European Union’s territorial jurisdiction.

In its judgment delivered today, the Court of Justice confirms the validity of the directive that includes aviation activities in the emissions trading scheme.

In particular, the Court establishes that the EU is not bound by the Chicago Convention because it is not a party to that convention and also has not hitherto assumed all the powers falling within the field of the convention. As regards the Kyoto Protocol, the Court observes that the parties to the protocol may comply with their obligations in the manner and at the speed upon which they agree and that, in particular, the obligation to pursue limitation or reduction of emissions of certain greenhouse gases from aviation fuels, working through the International Civil Aviation Organisation (ICAO), is not unconditional and sufficiently precise to be capable of being relied upon.

[The Court] observes that the directive is not intended to apply as such to aircraft flying over the high seas or over the territory of the Member States of the EU or of third States. It is only if the operators of such aircraft choose to operate a commercial air route arriving at or departing from an airport situated in the EU that they are subject to the emissions trading scheme.

In this context, application of the emissions trading scheme to aircraft operators infringes neither the principle of territoriality nor the sovereignty of third States, since the scheme is applicable to the operators only when their aircraft are physically in the territory of one of the Member States of the EU and are thus subject to the unlimited jurisdiction of the EU.

[The Court] holds that the directive does not infringe the obligation to exempt fuel from taxes, duties, fees and charges. In contrast to the defining feature of obligatory levies on the consumption of fuel, in the case of the scheme in question there is no direct and inseverable link between the quantity of fuel held or consumed by an aircraft and the pecuniary burden on the aircraft’s operator in the context of the emissions trading scheme’s operation.

The verdict of the European Court, whether you agree or disagree upon it, is very clear and well-founded in my uninitiated view. And personally I am very much in favor of this verdict. It is very strange that almost all forms of mechanical transport and all other entities that create any form of air pollution are heavily taxed and fined for this, while the airline industry – one of the most polluting industries in the world – had a ‘free ride’ for years and years. And on top of that the airliners enjoy tax-free air fuel at absolute bargain prices.

This free ride diminished the need for creating less polluting airplanes and finding more efficient ways of flying. Besides that, it led to business models for airliners that would have been impossible ‘in the real world’ where taxes ought to be paid. If an airliner goes bust on this EU ETS, it is not the EU that should be blamed for this, but the airline industry itself with its flawed business models and its minimal margins on flying.

But that is neither how the French-Dutch airliner Air France-KLM (AF) thinks about it, nor the governments from other countries outside the EU. The Dutch newspaper Telegraaf (www.telegraaf.nl) has written on this verdict in two articles:

EU-levy on CO2 exhaust is legal (link in Dutch)

The United States, but also countries like China, Russia and India have repeatedly critized the ETS CO2-levy and threatened to take countermeasures. Washington has an emergency law ´ready on the shelf´ that prohibits American airliners to take part in the European air traffic-ETS.

KLM not happy with verdict on CO2 exhaust

The KLM, a subsidiary of Air France, states that a system like the ETS is alright, but only if it would be introduced globally. The unilateral introduction in the European Union will lead to sanctions from China, Russia and the US. Besides that, airliners might want to avoid European airports as much as possible to avoid the CO2-levy.

I think that the CEO of Air France- KLM has been saying some quick prayers during the last weeks, hoping that the ETS would be rejected by the European Court of Justice. When KLM talks of ´worldwide introduction´, the company  thinks of course that this is similar to ´no introduction at all´. And they are probably right about this. Therefore I am happy that the EU stands firm.

And what is also funny, is that US airliners state that the ETS violates the Kyoto Protocol; the US never signed this protocol after all. You cannot adopt an agreement when it works in favor of your country, while rejecting it when it doesn´t work in favor of you.

Further, I´m curious how much the EU will give in to jawboning from the US, China and Russia. The US never hesitated in the past to declare some US laws applicable to citizens and companies all over the world, but now protests furiously when the EU does the same.

And Russia and China? Although these countries  show growing air traffic figures in European skies, their importance for European airports is still limited, compared to European and American airliners. Should the EU therefore give in? You bet it should not!