How airlines are fighting carbon trading

How airlines are fighting carbon trading

After losing a court case in 2011, U.S. airlines are working on another way around joining the European Union’s carbon trading scheme: domestic legislation that would prohibit them from participating.

The Thune bill will come up for a vote in the Senate later this year (likely in September), and a similar measure has already passed the House. Despite protests from environmental groups, the legislation has broad bi-partisan support.

It would legally prohibit U.S. airlines from participating in the EU’s emissions trading system (ETS), thereby weakening the EU’s push to regulate aviation-related carbon emissions, and potentially dragging the issue back into court should U.S. airlines refuse to pay fines incurred for flouting the ETS requirements.

“The ETS has provoked a great deal of controversy because of its sweeping extraterritorial impact,” says Anita Mosner, an aviation law expert and partner in the Washington, D.C.-based law firm Holland and Knight.

The largest problem -- not only for U.S. airlines, but also for the airline industries in most non-EU countries -- is that of sovereignty. The EU doesn’t just want to regulate carbon emitted within its regional borders, but on flights that reach far beyond them as well.

 “The world’s carriers would not necessarily oppose the application of ETS solely within European airspace, or for portions of international flights operated within European airspace," said Mosner. "The real sticking point is that under ETS, the Europeans would impose their tax on flight operations quite distant from European airspace.  For example, on a Doha-London flight, the EU would tax the entire journey, whereas only a small portion of the total elapsed time for such a flight might be within European airspace.”

Non-EU airlines have been pushing instead for application of the ETS only on flights within the EU, but so far that proposal has been rejected by European legislators.

In the lead-up to April 2013, when the European law requiring airlines to participate in the ETS goes into effect, we may either see the EU bend its requirements, or non-EU airlines come up with a solution that works for all involved.

To that end, the U.S. State Department and Department of Transportation recently conducted a two-day meeting of countries opposed to inclusion in the EU ETS. The conclave was aimed at drafting some sort of a solution that would work for all parties.

“It behooves every airline and nation to figure out, if we are going to be regulated under a carbon scheme, which approach is best for me?” says Bob Nicksin, a lawyer and aviation law expert with O'Melveny & Myers in Los Angeles.

Moreover, none of the airlines want to see the situation devolve into a trade war, Mosner said. “Both U.S. and European carriers are taking a multi-pronged approach: investing in new, fuel efficient equipment, exploring and using biofuels, and encouraging the pursuit of industry-wide initiatives to reduce the industry’s carbon footprint,” she added. “Airlines on both sides of the Atlantic have been pressing for a global solution to environmental challenges.”

Unfortunately, no alternative solution emerged from the recent meeting, and Nicksin said there are differences emerging between how the developed nations want to handle emissions and how the developing countries want to handle them.

Most of the global solutions that have been discussed postpone any major action until 2020, a date that is unacceptably far off for environmentalists.  In the meantime, China has already prohibited its airlines from participating in the ETS, and Russia is likely to do the same, along with the United States

“If this bill passes there will be pressure on the President from environmental groups, but also from those who are concerned about the economy,” Nicksin says. “This is one of the few bills that has bipartisan support, so it will be interesting to see whether opposition from environmentalists is enough to sway the President.”