Sovereignty the key issue as Europe, US airlines and environmental groups argue their EU ETS cases before the ECJ
The Grand Chamber of the The Court of Justice of the European Union (ECJ)
Wed 6 July 2011 – The action brought by the Air Transport Association of America (ATA) over what it sees as the illegal inclusion of its airline members into the European Union’s Emissions Trading Scheme finally reached the Grand Chamber of the European Court of Justice (ECJ) in Luxembourg yesterday. The airlines argue that by applying the trading scheme to non-EU airlines, the EU is violating customary international law and infringes several provisions of the Chicago Convention, the treaty that binds international civil aviation. They contend that the scheme is imposing forbidden levies and attempting to regulate the conduct of airlines in countries outside the EU and over the high seas. Defending the EU scheme at the one-day hearing included legal representatives from European institutions, six EU member plus Norway and a coalition of US and European environmental NGOs. A preliminary opinion on the case is expected on October 6.
The ATA outlined how the scheme also violates the US-EU bilateral air services agreement as well as the United Nations’ climate treaty, the Kyoto Protocol, which holds that authority on establishing greenhouse gas emission reduction policy rests with the International Civil Aviation Organisation (ICAO).
In an example to the court, the ATA described the application of the EU ETS to one of its members operating a flight from San Francisco to London Heathrow. As a percentage of total emissions, 29% take place in US airspace, 37% in Canadian airspace, a further 25% over the high seas and just 9% in EU airspace. “Yet the ETS will impose a levy on this carrier, and may also impose an excess emissions penalty, based on emissions for the entire flight from start to finish,” said the ATA’s legal representative in an oral submission.
“The levy, and any excess emissions penalty, will be imposed because of conduct – releasing GHG emissions – taking place outside EU jurisdiction, and that conduct will be measured by standards imposed by EU legislation rather than by local law or international agreement. This is direct regulation of conduct of a third airline outside the jurisdiction of any EU member state, and within the jurisdiction of a third country.
“Such regulation by the EU of third country airlines in third country airspace is contrary to a fundamental principle of customary international law ... that a state has complete and exclusive sovereignty over its airspace.
“If the ETS regime implemented an international agreement agreed by third countries, as well as by the EU, we would not be here today. ATA challenges the ETS because it is a unilateral measure, which has not been agreed by countries outside the EU, yet nevertheless applies EU law to third country carriers in third country airspace.”
According to environmental NGO observers present at the hearing, EU countries including France, Spain, Sweden, Poland and Denmark, led by the UK as the defendant in the case, rejected the airlines’ contention that aviation emissions can only be addressed by ICAO and the system amounts to a unilateral tax.
During an oral submission on behalf of the NGOs, which are intervening in the case, a legal representative said that although the airlines were alleging breach of sovereignty, no sovereign nation had yet raised a legal dispute on its own behalf. He said the Open Skies agreement contemplates that the parties may in principle take GHG emission measures outside their respective airspace, as shown by a procedure to address overlap or duplication that may arise between the parties’ market-based measures (MBMs).
Similarly, he said the recent ICAO A37-19 resolution expressly provides that MBM’s should not be duplicative and international aviation emissions should be accounted for only once.
“Therefore, ICAO equally contemplates for the purpose of the Chicago Convention that emission trading schemes can, in principle, be set up that are calculated by reference to emissions which occur outside the parties’ own airspace. Otherwise, the guidance that duplication should be avoided by parties when implementing their schemes makes no sense.”
He also refuted airline claims that the EU ETS directive “regulates” parts of flights which take place outside the EU. “Nothing in its provisions either requires or prohibits airlines to act in any particular way outside the EU,” he argued.
Concerning the ATA’s contention that the scheme was a levy and therefore prohibited under Article 15 of the Chicago Convention, the NGO’s representative said ICAO defined levies or charges as being designed specifically to recover the costs of providing facilities and services for civil aviation. He argued that payments for emission allowances are not necessarily made to the state and, as a market system, airlines could purchase allowances from each other. Purchasing from the state through initial auctioning was not comparable to recovery by the state of the costs of providing facilities and services. ICAO itself, he argued, distinguished between emissions trading and emissions-related charges and taxes.
He dismissed what he described as the ATA’s contention that under the Kyoto Protocol, ICAO has exclusive responsibility for dealing with international aviation emissions. “The implication of that argument must be that not just unilateral action but even a mutual agreement between states would be prohibited. The airlines’ interpretation is contrary to the views of the ICAO parties, which unambiguously state that emission trading systems could be implemented on the basis of mutuality.
“So, according to ICAO itself, there is nothing unlawful about implementing an ETS that has not been set up by ICAO. In summary, the obligation to work through ICAO is mandatory: it is not exclusive.”
Both the ATA and the five environmental organisations intervening in the case were represented by Queen’s Counsel barristers from London.
The advocate-general appointed to the case will present her opinion on October 6 – a possible signal to the final outcome – although the ruling by the judges is not expected before the end of the year and the start of the scheme on January 1. The case would still then have to be referred back to the High Court in London, where it was first brought.
Yesterday’s hearing will be of particular interest to China, who is rumoured to have sent an observer to the proceedings. On the same day, an article appeared on the state-run news agency Xinhua saying the EU needed to listen to the concerns of the rest of the world over its emissions plan for airlines and should adopt a different policy towards developing countries, including China, which adhere to the UNFCCC principle of common but differentiated responsibilities.
The article accused the EU of benefitting financially at the expense of developing countries, “contrary to the spirit” of the Cancun climate change agreement which contained a commitment to establish the Green Climate Fund and channel finance from the developed world to developing countries to help mitigation and adaptation to climate change.
“The EU is right in addressing the issue of aviation emissions. In fact ICAO has been working on global plans to regulate airline greenhouse gas emissions since 1997. However, the EU’s attempt to force the rest of the world to conform to its own system is sure to undermine the international cooperation needed in the historic battle against climate change.”
Commenting on the ECJ case, Keith Allott, Head of Climate Change at WWF-UK, said: “The ETS is a modest but important start in reducing international aviation emissions and its benefits will be even greater if member states use the revenues to support action on climate change, as suggested under the ETS directive. The ECJ needs to back the inclusion of all flights in the ETS and the EU needs to stand firm against political pressure and industry lobbying that will take us back to square one.”