Isra-Mart srl: US aviation sector finally challenges EU emissions scheme

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Facing a deadline of 1-Jan-2012 when the EU emissions rules take affect, the US airline industry has finally challenged the European Union’s emissions trading scheme (ETS) filing a case yesterday before the European Court of Justice (ECJ) charging the unilateral imposition of the ETS contravenes international law. It is calling on the court to dismiss the ETS and declare it illegal.

Filed in the High Court in the UK, the case is ATA, American Airlines, Continental and United versus the Secretary of State for Energy and Climate change, because the UK was the first to impose the ETS, according to ATA. The case was referred to the ECJ in Luxembourg. ATA expects a ruling from the High Court by the end of 2011 or the beginning of 2012. ATA told Congress that an emissions trading scheme would be roughly a third of the cost of taxes or fuel levies which now total between USD16 billion-20 billion annually. The US government has demanded exemptions for US airlines.

The case hinges on procedural issues rather than the policy itself since a similar policy is under development at the International Civil Aviation Organisation but not expected to be ready for review until 2013. It would then become effective at a later date, which is part of the EU’s problem with airline entreaties to wait for the UN body to act. It has lost patience, noting ICAO deliberations began in 1997 with no action. It wasn’t until October 2010, ICAO adopted a resolution with targets and principles broadly consistent with the industry’s global sectoral approach, demonstrating that the industry and governments are coalescing around a common platform for addressing aviation CO2 emissions at the global level.

The EU has said, however, that while it will not delay ETS imposition on aviation, it will exempt airlines if their home governments show “serious measures” in reducing emissions. However, significant action by the US is unlikely to happen since Congressional efforts to pass a US ETS fell victim to the economic and political wrangling. Even so, airlines are counting on the fact that international law precludes one government from unilaterally imposing such regulations. The same rule is being used by international airlines serving the US after the US Department of Transportation unilaterally imposing its year-old tarmac rule.

“If the EU ETS regime implemented an international agreement agreed by third countries, as well as by the EU, we would not be here today,” according to testimony submitted to court yesterday. “ATA challenges EU 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.”

Airlines argue they do not need costly, punitive measures to give them the incentives to improve fuel efficiency. They have, in fact, been on a quest for fuel efficiency for forty years and have managed a 110% improvement since then which a consequent reduction in emissions.
Environmentalist miss the point

Environmentalists took the simplistic view, casting airlines as the villains in the battle to cut emissions. In discussing industry efforts a few years ago, Vice President Environmental Affairs Nancy Young recounted a litany of advances.

While environmentalists were criticising the industry, they completely ignored the fact that the 110% increase in fuel efficiency comes despite the fact US airlines are carrying far more passengers than they did four decades ago. In fact, US airlines now move passengers and cargo more than twice as far on a single gallon of fuel than in 1977, having saved as much CO2 as taking almost 19 million cars off the road in each of the intervening years. Contrast that with the US auto industry that has been focussing on trucks and SUVs instead of fuel efficiency. Indeed, increasing fuel efficiency standards for cars, trucks and SUVs only gained action by the DoT this year.

Between the 1970s and 2007, airline carbon monoxide has been reduced 50%. Unburned hydrocarbons and smoke have been reduced 90%. In the decade between 1997 and 2007, fuel efficiency has been increased 20% with winglets adding even more to efficiency in the past few years. Indeed, 5% was achieved just between 2005 and 2007 alone and that was before the run up in fuel prices in 2008 and 2011. Research is underway to increase fuel savings by another 50% along with an 80% reduction in Nitrous Oxide (NOx).

Environmentalist also chose to ignore the fact that airlines have taken a major leadership position in developing alternative fuels to the point that KLM recently declared it is tired of testing and plans to fuel passenger flights with a mixture of jet and biofuels. The industry is investing heavily in fuels made from camelina, jatropha and algae.

Environmentalist, and media reports, also chose to ignore the fact that the biggest influence on reducing emissions would come not from the airlines but from governments around the world, which have, so far lagged behind their promises to modernise their air traffic management systems. Replacing a system, which hasn’t changed much since the dawn of aviation when signal fires were lit to guide aircraft from waypoint to waypoint, with modern satellite technology would improve efficiency by 12% the US. Instead, individual airlines are developing procedures for more direct routing that is expected to achieve significant savings at Southwest alone. Meanwhile, US modernisation has consistently come under threat not just in the machinations of Congressional funding shortfalls but with the technological capability of fielding such as system by the FAA.

Finally, the US industry is now at the cusp of a massive fleet replacement that promises another 15% improvement in fuel efficiency from the Airbus new-engine-option aircraft and and 20% from Bombardier’s CSeries.

In addition to fleet replacement, airlines are not resting on their ecological laurels. The airline industry advocates for a single, global sectoral approach to be managed by ICAO, which stipulates it will achieve a 1.5% average annual improvement in carbon and fuel efficiency through 2020, carbon-neutral growth from 2020, subject to critical government infrastructure and technology investments such as air traffic control modernization, and an aspirational 50% reduction in CO2 emissions by 2050, relative to 2005 levels.
ETS counterproductive

The problem with emissions trading schemes is simple. They divert scarce capital resources from the heavy lifting represented by fleet replacement in addition to research and development for improved power plants and new technologies that reduce fuel consumption and improve aerodynamics. American Airlines, alone, is looking at a narrow-body fleet order to replace its MD80s worth between USD15-20 billion. United has yet to streamline its narrow-body fleet in the wake of its merger with Continental but is expected to require fleet replacement in the next several years. Delta is also in the throws of considering which narrow-body it will order and is expected to place an order by the end of the year.

Airlines, which contribute only 2-3% of worldwide emissions, also charge that the scheme is only being imposed to beef up cash-strapped governments. Airline also complain that there are no restrictions as to how governments can use revenue raised through ETSs.

“Countries like Britain have reserved the right to use the money how they see fit,” Ms Young told the New York Times. “Helping Europeans out of their fiscal hole is not the aviation industry’s job.”

Discussions have begun about restricting ETS revenue to climate-change efforts but that will likely be a long time coming.
The case

ATA charged that applying ETS to non-EU airlines, violates customary treaties and international law -- the Chicago Convention -- which says governments only have sovereignty over their home airlines. ATA also charged it violated US-EU bilateral air services agreement and the Kyoto Protocol, which confirms that International Civil Aviation Organization (ICAO) has the authority to establish greenhouse gas policy for international aviation.

The EU also cites ICAO, noting it concluded in 2004 that market-based mechanisms would be the most effective policy for tracking and reducing emissions. That may be why they are expected to argue that including aviation was only done after receiving permission from ICAO.

However, ATA press release said “countries have sovereignty over airlines in their own airspace” which the EU argues includes inbound airlines. ATA also noted that EU ETS governs the entire flight, not just that occurring in European airspace -- “a tiny fraction of the journey.”

“As a percentage of total emissions, 29% take place in US airspace, including those on the ground at the airport,” said of a San Francisco to London flight. “A further 37% take place in Canadian airspace, and a further 25% over the high seas. Only 9% of emissions take place 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.”

The European Commission says the ETS is in accordance with international law and expects to triumph before the European court. Airlines, however, argue that despite the growth of emissions over the past two decades, they have invested billions of dollars, using scarce resources to improve the fuel efficiency and, by extension, lessen carbon emissions during that same time. Currently, under EU law, 82% of emissions come under the quota with the rest to either be auctioned or held in reserve for new entrants and high-growth airlines.