US senators urge Obama Administration to back their EU ETS airline prohibition bill and file ICAO Article 84 challenge
NBAA’s Ed Bolen, EDF’s Annie Petsonk and A4A’s Nancy Young appear before Senate committee hearing
Tue 12 June 2012 – The United States government remains strongly opposed on both legal and policy grounds to the inclusion of US airlines into the EU ETS, Transportation Secretary Ray LaHood told a Senate hearing last Wednesday. An approach from himself and State Secretary Hillary Clinton to the European Commission and EU member states over the issue had met with a disappointing response, he said. Despite the EU’s “Lone Ranger” unilateral application of a “lousy” policy, LaHood said no decisions had been made by the Administration on what to do next and rebuffed repeated attempts by senators to get him to back an Article 84 challenge at ICAO or a bipartisan bill before the Senate that would prohibit US aircraft operators from joining the EU scheme. Also appearing before the hearing was the Commission’s Climate Action Director-General, Jos Delbeke, but he failed to persuade senators that the scheme was not a tax and that revenues would be used for environmental purposes. Also providing testimony were aviation industry representatives, including A4A, and US environmental organisation EDF.
Opening the hearing, the Chairman of the Senate Committee on Commerce, Science and Transportation, John Rockefeller (D) said the EU ETS had elicited strong feelings from aviation stakeholders across the globe and it was important Congress examine its potential impact on international air travel.
He said the United States had led the world on aviation matters and implementing policies to reduce aviation greenhouse gas emissions should not be an exception. Doing nothing on the issue was not an option, he added.
“Let me be clear,” he told the well-attended hearing. “I believe that the airline industry – both in the United States and globally – needs to take steps to reduce its emissions now. I do not discount or dismiss the technical and financial challenges to this effort, but the issue is too important for any business to ignore.”
Good intentions were not enough, he told the aviation representatives participating in the hearing.
“I know that our witnesses believe that a process that is implemented with the agreement of all relevant parties will deliver a far more comprehensive system with much greater results than any plan that singles out flights operating into and out of one region of the world. However, I fear that the industry’s desire to turn this over to ICAO is not to build consensus, but to delay and defer any real action.”
However, Rockefeller had few words of comfort for the EU’s stance, saying he understood why the EU was making “bold efforts” to reduce GHG emissions but believed its unilateral action was not sustainable under international law.
“I support the goals, but I have to oppose the action,” he said. “We all need to work together to find a way to move forward on this issue that is both legally and politically sustainable.”
His comments were echoed by Secretary LaHood in his statement to the hearing. “We share the EU’s objective of reducing aviation’s impact on the environment and continue to aggressively pursue that goal both domestically and internationally,” he said. “However, including international aviation in the EU ETS is the wrong way to achieve the right objective.”
The EU had been called upon to halt the application of its scheme to non-EU airlines and re-engage with the rest of the world to find a global solution on aviation GHG emissions at ICAO, he said. “Absent such willingness on the part of the EU, we advised [the EU] that the US would be compelled to take appropriate action,” he said.
He told the committee that US officials were participating with “two dozen likeminded countries” in adopting “strong declarations opposing the EU’s policy and supporting work on global efforts at ICAO. And we continue to work actively with a range of countries to have the EU change course.”
He added: “Far from improving the environment, the EU’s go-it-alone approach is impeding international progress on a multilateral agreement for international aviation that will actually deliver on our shared goal of achieving lasting reductions in greenhouse gases.”
LaHood acknowledged the EU’s support for making progress in ICAO, but that was not enough, he said. “The EU needs to engage constructively to find a global approach that works for the rest of the world and allows it to set aside the ETS in relation to foreign carriers. We need to see real signs of flexibility from the EU. The global community needs to believe that the EU is genuinely willing to work on a global deal to help us accomplish our shared goals on the environment.”
Senator Kay Hutchison (R), a ranking member on the committee, described the EU’s aviation emissions scheme as violating US sovereignty and a tax raising initiative where there was no obligation to spend revenues on aviation measures. She said it was in no-one’s interests to have a trade war but the scheme was “black and white wrong”.
In an irritable exchange, she challenged LaHood to support the S. 1956 bill currently before the Senate that would prohibit US carriers from participating in the EU ETS. LaHood said the Administration had not yet taken a position on the bill “and we’re not going to take a position right now.”
Pressed again to support a bill Hutchison described as looking after American interests, LaHood responded: “Look, I don’t make the decisions but I will run it up the 25 flag poles that I have to.”
Concluding her questioning, she told LaHood: “I hope you will be a little more forthcoming on something that is pretty clear to all of us on what we need to do for America.”
Senator John Thune (R), who introduced the bipartisan prohibition bill, said the EU scheme was arbitrary, unfair and a violation of international law, and carried out without any guarantees of direct environmental improvements. He said he hoped that after the hearing, the Senate would agree to move forward with his legislation.
Thune asked LaHood what steps the Administration had taken in the six months since the LaHood/Clinton letter had been sent to the EU in which the US government had threatened to take “appropriate action” if Europe failed to desist on application of the ETS to its airlines.
LaHood responded that there had been a lot of debate within the Administration on what action to take and when, and high-level discussions had taken place with EU counterparts.
Thune asked whether the government had considered an Article 84 complaint procedure at ICAO or something similar with the World Trade Organization (WTO). LaHood said the WTO did not have much authority in this particular case but “lots of discussions” had taken place on an Article 84, which was the favoured route in terms of probable action.
Senator Maria Cantwell (D) said although she trusted scientific evidence of human-related global warming, she had concerns with cap-and-trade regimes that relied on trading markets that were volatile, subject to fraud or provide windfalls to polluters, and also whether EU ETS auction revenues would be used to mitigate global warming. “This makes the EU ETS look more like a tax on air transportation,” she said.
Despite the concerns, however, she added they should not be an excuse to do nothing and the United States must act and should lead the world to a cleaner world future, and that there should be a way to create a simple, market-based system. In the meantime, she advocated moves towards the more efficient air traffic NextGen system, the phasing in of newer, more efficient aircraft and increased use of domestically-sourced jet biofuels.
Co-sponsor of the Senate prohibition bill, Senator Claire McCaskill (D) said: “What is upsetting to me [about the EU ETS] is the notion that the EU would tax us on the complete route and also this money would not even need to be used to do anything impact emissions, global warming or the environment. Every dime from our domestic airline industry could go towards anything they want to spend it on.”
McCaskill told LaHood that in the view of Senator Thune and herself, the US should file an Article 84 complaint at ICAO. She added: “You have said clearly you think our legislation is important and you oppose the EU policy. It would be very helpful if the Administration could let us know what they cannot come out in favour of regarding our legislation.”
Senator Johnny Isakson (R) said the EU ETS was “a huge issue” and it was unfair that the United States should be complaining but complying with the EU ETS, while India and China had refused to do so. He said he supported the Thune-McCaskill bill and that the US should move “forthright” on an Article 84.
Senator John Kerry (D) said there was huge interest within the US aviation industry and the government over the EU ETS stalemate and tensions were high. Despite not agreeing with the EU’s go-it-alone policy, he said the United States had been one of the principal ‘foot-draggers’ and procrastinators on climate change and understood why Europe had decided to act as it had.
“The coal industry and other industries have spent huge amounts of money in preventing anything happening on a real system of emissions control in this country,” he said. “We have no regime and no effort to control carbon. Europe looks at this and says ‘what are we going to do?’.
“I have to laugh at this discussion on whose airspace is whose. The stuff that goes up there, goes to everybody’s airspace. It doesn’t stay in the United States.
“I don’t agree with what the Europeans have done and there’s a better way to do it – I agree with the statements that have been made here – but they’re trying to protect themselves.”
However, Kerry said Secretaries Clinton and LaHood had correctly stated that the application of the EU ETS had been inconsistent with the legal regime that governed international aviation. “For the EU to argue they are not bound by it is ridiculous,” he went on.
He said ICAO Secretary General Raymond Benjamin had pledged to have a global proposal by the end of this year and there were other solutions that could be reached, such as negotiating equivalency standards, before passing a new prohibition law.
“But the Europeans are right to question the motives of those who oppose their efforts, including India and China, and they’re right to question whether the United States is serious about this issue, because we haven’t been,” he added. “The only way to deal with this is through global consensus through hard outreach and I would urge our European friends to follow it, and I urge us to follow it. Global emissions belong to all of us, not to anyone’s single airspace.”
Asked by Kerry whether ICAO was going to be able to create a global emissions trading system, LaHood responded that it was “a good place to start and not by one government saying we’re going to tax you all – that’s not the way to do it.”
Pressed again by Kerry as to the reason why ICAO had not been able to reach an agreement so far, a testy LaHood said: “Quite frankly, they haven’t been pushed to do it – and we’re pushing them.”
EU commitment to ICAO process
Providing testimony to the hearing, Jos Delbeke, Director-General of the European Commission’s Climate Action Directorate, said that the EU had been seeking a global agreement on tackling aviation’s increasing contribution to greenhouse gas emissions for more than 15 years, yet remained committed to the multilateral process within ICAO.
By 2020, carbon emissions from global international aviation emissions are projected to be around 70% higher than 2005 levels and ICAO had forecast emissions could further grow by some 300% to 700% by 2050, he said.
Delbeke said both Europe and the US had clearly stated in the 2010 ICAO Assembly that they supported global goals to limit international aviation emissions at or below 2005 levels by 2020. To achieve the goals, market-based measures were needed as technical and operational means would be insufficient, he said.
“The EU recognises that the United States has strong concerns about the application of the EU ETS to aviation,” he conceded. “The EU respectfully takes a differing view, seeing the EU legislation as a potential building block for a future agreement at international level.”
He said the EU was keen to make progress on a global approach and if an agreement on a global solution could be found within ICAO, the EU was ready to review the EU ETS legislation.
However, he added, “a major obstacle to progress has been the differences of view between countries on the concept of Common but Differentiated Responsibilities and Respective Capabilities that is included in the UN Framework Convention on Climate Change and whether this concept is at all relevant in the context of international aviation emissions. Last month’s UN climate negotiation session in Bonn has shown that differences between countries’ views continue to make progress difficult. The EU is committed to work with the US and other States to make progress on this issue.”
Delbeke maintained the EU ETS was non-discriminatory and fully consistent with the Chicago Convention and bilateral air service agreements. Moreover, he said, market-based measures (MBMs), and open emissions trading in particular, had long been endorsed by ICAO as cost-effective and flexible in offsetting emissions growth.
Any global agreement at ICAO must contain three key elements if the EU was to amend its ETS legislation, said Delbeke. Firstly, MBMs agreed at ICAO should deliver environmental benefits in terms of emissions reductions “equal to or beyond those delivered from the measures currently in place in third countries and in the 30 countries applying the EU ETS.”
Secondly, whether the MBMs involved taxes, levies or emissions trading, the system adopted by ICAO or applied by States must be non-discriminatory for all airlines, as a principle of international aviation law and to avoid competitive distortions. Thirdly, said Delbeke, a robust worldwide system should contain targets and measures for ICAO member countries.
He said EU member states had agreed revenues from EU ETS auctions of aviation allowances should be used to tackle climate change in the EU and third countries, including the funding of research and development in the fields of aeronautics and air transport. The legislation also required member states to report on the use of such revenues. “No auctions of aviation allowances have yet taken place, so no revenues have yet been generated,” he said, adding that aircraft operators did not need to participate in auctions and could acquire allowances from other sources.
Should an operator want to buy allowances through an auction and be certain the revenues were being used to tackle climate change, added Delbeke, then this could be done through German auctions as national legislation required such revenues go into Germany’s Energy and Climate Fund.
Delbeke said the EU ETS legislation to include aviation had taken three years of debate and negotiation and adopted unanimously by all 27 EU states. “There is no prospect of suspending the EU legislation,” he affirmed, “but the EU is open to modifying it.”
Thinly disguised revenue tax
Also appearing before the Senate committee were Captain Sean Cassidy of the Air Line Pilots Association, Edward Bolen of the National Business Aviation Association (NBAA), Annie Petsonk of the Environmental Defense Fund (EDF) and Nancy Young of Airlines for America (A4A).
Cassidy said the EU ETS was nothing more than a thinly disguised revenue raising tax that would have a significant adverse effect on US airline industry employment and the economy.
“Allowing the EU to impose an ETS will have very little, if any, actual impact on the amount of GHGs released into the atmosphere by US airline aircraft,” he told the hearing. “However, it will take away from investments in new fuel-efficient aircraft and infrastructure while adding to an already high tax burden.”
In addition to being contrary to international collaboration, treaties and precedent, according to the NBAA’s Ed Bolen, the ETS had created onerous and costly demands on aircraft operators as well as serious privacy and business confidentiality concerns because of the amount of personal and business data required by EU authorities.
He argued that the burden on non-commercial operators was even more significant and overwhelming than for airlines.
“Under the ETS structure, non-commercial operators are singled out for discriminatory treatment because businesses that utilise general aviation are not eligible for carbon allowances,” he said. “As a result, non-commercial GA flights will not receive any allowances and must pay on every flight, while commercial operators will receive 85% of their allowance free of charge.”
Bolen said the NBAA supported the Thune-McCaskill EU ETS prohibition bill, which, he added, should ensure operators were not penalised financially or through airspace restrictions when the prohibition took place, and that the legislation extended to the registering and MRV requirements “as well as paying the ETS taxes”.
Nancy Young added A4A’s support for the bill and urged the Senate to approve the legislation. “Doing so would lend further support to the Obama Administration in its efforts to overturn the EU ETS in favour of a global framework at ICAO.
“The EU seeks to justify its unilateral approach to regulating the world’s airlines on the grounds that ICAO has not taken action on aviation and climate change,” she said. “This is ironic, given that the EU ETS itself has been a roadblock to the most recent work at ICAO, but it is also inaccurate, as ICAO has taken many steps to address the climate change impacts of international aviation.”
She told the hearing that the EU had snubbed diplomatic efforts to resolve the issue and the United States, as it had done over the EU’s aircraft hushkitting ban a decade or so ago, should file an Article 84 challenge at ICAO.
Annie Petsonk of EDF robustly defended the EU policy, arguing that the EU ETS was not an infringement of US sovereignty and far from being a cost burden, efficient US airlines could actually make money from the scheme. Market experts had assessed they could profit if passengers were charged $3 per segment, precisely the fare increase imposed by US carriers on transatlantic segments in January 2012, the start of the EU ETS.
“So, far from predictions of doom and gloom from the carrier’s participation in the ETS, the fact is that the ETS can encourage them to fly more efficiently and make money doing so,” she said.
The EU ETS, or a similar programme under ICAO auspices, would create a demand for new, more fuel efficient aircraft and engines that would help create aerospace jobs in the United States, which dominated global aviation manufacturing, argued Petsonk.
She maintained that it was no coincidence that serious discussions taking place at ICAO were occurring in tandem with the advent of the EU ETS and believed that ICAO could reach an agreement by the end of 2013 on a non-discriminatory framework of market-based measures that would achieve more emissions reductions than the EU scheme.
However, passing the proposed prohibition bill could upend progress at ICAO, she said, and warned the legislation could have unintended adverse consequences for aircraft operators and for US taxpayers.
By not being able to comply with the scheme, US carriers would find themselves financially liable for penalties from EU authorities that EDF had estimated at around $2 billion in 2012, growing to $2.8 billion in 2020, and totalling $22 billion for the 2012-2020 period.
If, as proposed by the legislation, US aircraft operators were held harmless by their prohibited non-participation in the EU ETS, the US Transportation Secretary was presented with a stark choice, she said. “If he imposes the ban, he either subjects the airlines to an unfunded mandate whose only resolution is either convincing the European Union and its member states to amend their laws or, if the Europeans are unwilling to do so, he must pass on the multibillion dollar liability to the US taxpayer, bailing the airlines out of a problem that is of their own making,” reasoned Petsonk, a legal counsel for EDF.
Moreover, she said, by enacting the bill, US corporations were being encouraged or required to violate the laws of other nations, which had implications beyond aviation.
Rather than enacting the S. 1956 prohibition bill, the best option would be for the Transportation Secretary to negotiate a strong and effective framework in ICAO, she concluded.