Next Battle Looms Against EU Carbon Law

October 31, 2011

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Twenty-six nations are expected to lodge a formal protest on Wednesday against a European Union law to make airlines pay for carbon emissions -- adding to transatlantic tension on an issue that has triggered a tit-for-tat bill in the US Congress.

Under EU legislation, from January 1 all flights to, from or within Europe will have to buy carbon permits to help offset their emissions under the EU Emissions Trading Scheme (EU-ETS) -- the 27-member bloc's prime tool for trying to curb the amount of carbon in the atmosphere.

Last week, in the US Congress, where environmental issues have become a flashpoint between Republicans and President Barack Obama's Democrats, the lower house passed a bill making it illegal for airlines to comply with the EU's law.

On Wednesday this week, a council meeting of the International Civil Aviation Organisation (ICAO) in Montreal is also expected to take up the airlines' cause.

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.

A copy of an ICAO council working paper seen by reporters said the EU law posed "major challenges and risks for aircraft operators".

EU Climate Commissioner Connie Hedegaard said the legislation was designed to address "the vertiginous growth in carbon emissions from aviation".

"Such growth scenarios are completely at odds with the internationally agreed objective of holding global warming below 2 degrees Celsius (3.6 Fahrenheit)," she wrote in an opinion piece.

An EU source said the most likely outcome on Wednesday was that the ICAO council would vote through a set of resolutions.

Of the 36 states on the council, 26, including the United States, China and Russia, would call on the EU and its member states to cease making flights by non-EU carriers fall under the remit of its ETS.

They would also adopt a declaration the 26 states made in New Delhi at the end of September, saying the EU plans were discriminatory and breached international laws.

LONG LEGAL BATTLE

Already the airlines have taken their opposition to European courts.

The London High Court referred the case, brought by the Air Transport Association of America, American Airlines and United Continental, to the European Court of Justice.

Earlier this month, the Advocate General at the EU's highest court in a preliminary opinion said EU plans to include airlines in its ETS were legal.

Her opinion is not final, but is a good gauge of the definitive ECJ ruling expected early next year.

While the airlines have argued the commercial cost of the EU law could be significant and they have taken separate steps to reduce their carbon impact, the European Commission's calculations are that it would be modest.

Depending on decisions by airlines on how much to pass on to customers, the Commission has calculated costs per passenger could rise by between around EUR€2 (USD$2.8) and EUR€12 -- much less than the EUR€100 per allowance penalty it would impose on airlines that do not comply.

Some analysts had suggested the airlines' claims the EU law was discriminatory could lead to a case before the WTO, but lawyers said that was the wrong forum.

"A special annex to the WTO's General Agreement on Trade in Services exempts most aspects of air services from WTO coverage," said Gabriel Sanchez, adjunct professor of law at the International Aviation Law Institute, Chicago.

That leaves ICAO, but, said Sanchez, it "does not have a good track record with respect to issuing final rulings in aviation disputes".

"It's doubtful an ICAO challenge will dissuade the EU from its current plans."

TRADE SCUFFLE

Sanchez regarded the US draft bill as a stronger rebuff, although it is unclear whether the proposal, which has not been matched by companion legislation in the US upper house, would become law.

It would put airlines in the near-impossible position of being either in breach of US law or of EU law.

"This measure effectively means that the EU will have to ban all US flights to or from the Union on the basis that they're not complying with EU law. This is the first step toward a trade war," said Sanchez.

The 26 member states expected to oppose the EU are Argentina, Brazil, Burkina Faso, Cameroon, Chile, China, Colombia, Cuba, Egypt, India, Japan, South Korea, Malaysia, Mexico, Nigeria, Paraguay, Peru, Qatar, Russia, Saudi Arabia, Singapore, South Africa, Swaziland, Uganda, the United States and the United Arab Emirates.

Of the non-EU members on the ICAO governing body, only Australia and Canada were not in agreement with the council working paper, EU sources said.

(Reuters)