The battle over clean European skies
In early July, attorneys representing the interests of three U.S. carriers and the U.S. Air Transport Association flew to England to appear before the European Court of Justice. This wasn’t a house call; the attorneys were there to tell the judges that the EU’s emissions trading scheme — a cap-and-trade policy originally introduced in 2001 that will be applied to the aviation industry starting in January — is illegal when applied to airlines.
On Jan. 1, 2005, the ETS came into effect in Europe, providing guidelines for the emissions of factories and other land-based facilities. The European Commission decided three years later to apply their new rules to the aviation industry and set the 2012 start date. Carriers that fly into or out of Europe next year will have to keep track of their emissions and buy carbon allowances if the flight’s carbon footprint exceeds a pre-determined limit. Airline officials must keep track of emissions on the entire leg routing into or out of Europe.
Attorney Derrick Wyatt laid out a scenario for the European judges. Suppose, he told them, that a plane takes off from San Francisco on its way to London Heathrow. Emissions for the trip would occur in U.S. airspace (about 29 percent of the entire trip, he estimated), Canadian airspace (37 percent) and international airspace over the ocean (25 percent). He calculated that only 9 percent of emissions would occur in EU airspace, but the carrier would have to pay the EU for emissions from the entire flight.
“It is astonishing that a U.S. airline must acquire an EU license to cover its emissions at a U.S. airport or in U.S. airspace, but that is precisely what the ETS requires,” he concluded in oral arguments before the court. “This is incompatible with the exclusive jurisdiction of the United States to regulate such emissions.” Therefore, it’s illegal.
A preliminary ruling on the case is due this month. A full decision isn’t expected until next year, but foreign carriers should have a pretty good idea of the result soon.
To ease the airlines into this change in environmental guidelines, the European Commission has decided to give carriers a break next year. According to a report by Thomson Reuters Point Carbon and RDC Aviation, scheduled carriers will get anywhere from 20 percent to 100 percent all of the allowances they’d need to offset their 2012 carbon footprint as a gift from the European government. The firm found that the EU carriers will get an average of 61 percent of their needed allowances, with Lufthansa and other long-haul carriers getting an average of 81 percent of their needed allowances. The largest Asian carriers, the firm predicts, will receive an average of 63 percent of their needed allowances. The most notable U.S. carriers will receive an average of 64 percent.
“The biggest unknown now is the treatment of dedicated freight carriers — UPS, DHL and so on,” says the firm’s Andreas Arvanitakis. “The specific data needed does not exist for them, and the leasing and other commercial arrangements muddy the waters further still, but we estimate their free allocation to be on average 52 percent of what they need in 2012.”
The official government carbon calculations were to be published at the end of last month, and the firm expects the commission to issue 176 million free carbon allowances in 2012, a gift worth about €2.1 billion at the current carbon price of €12. Even with this head start, the firm projects that airlines will buy an additional 88 million allowances next year. In 2013, the costs to airlines will certainly rise.
“From 2012, airlines in the scheme will have to surrender one allowance for every tonne of CO2 they emit,” the firm found. “With this baseline, they have to buy about a third of what they will need at market prices.” Offsets built into the Kyoto Protocol — the Clean Development Mechanism and Emission Reduction Units, for example — could help reduce the cost to airlines.