Controversy Over EU ETS Regarding International Flights may Find Resolution at ICAO — But the Devil is in the Details

September 23, 2013

The International Civil Aviation Organization (ICAO) is poised to adopt a resolution that could resolve the controversy over the application of the EU Emissions Trading System (ETS) to international flights by deciding to develop a global market-based measure (MBM) for aviation emissions. Even if such a resolution is adopted, the devil will be in the details of how to design the architecture of a global regime — for example, how to ensure that verifiable offsets will be available to industry at a reasonable cost. In addition, implementation of the ICAO resolution at the domestic level will be a challenge, in particular in the United States where Congress is hostile to climate-related measures. The aviation industry, ICAO member states seeking progress on this front, and other stakeholders in the debate surrounding international aviation emissions have their work cut out for them.

Reacting to severe opposition from the U.S., China, Russia, Brazil and others and the looming threat of a “trade war,” the EU agreed in November 2012 to “stop the clock” on enforcement of the ETS requirements for airline traffic to and from Europe (as explained in our November 15, 2012 alert: EU ETS Puts International Flights on Hold). The suspension of the EU ETS, which took legal effect in April 2013, was limited to one year, and conditioned on EU expectations that progress toward a substantive agreement for addressing international aviation emissions would be made during the triennial 2013 ICAO General Assembly, which is meeting in Montréal, Canada, from September 24 to October 4.

Progress at ICAO
In the past 10 months, industry representatives and government officials from the U.S., the EU and other ICAO member states have worked hard to develop a compromise solution that could be adopted by the upcoming 38th General Assembly. A September 4 special meeting of the ICAO Council resulted in a draft climate change resolution which, if adopted by the General Assembly, would lead to the development by ICAO of a global MBM to address aviation emissions. The current draft further includes language which would allow for the application of the EU ETS to aviation emissions within EU regional airspace. 

Compromise Draft Resolution
Perhaps typical for a true compromise, none of the state parties and other stakeholders involved are particularly happy with the current text. China, India, Brazil, and Russia continue to oppose the idea of applying the EU ETS to emissions by their air carriers while the development of a global MBM is pending. Similarly, U.S. airlines are opposed to an application of the ETS to portions of flights originating in or bound for the U.S. EU policymakers, in particular in the EU Parliament, which has to approve amendments to the EU ETS, have voiced concerns that the resolution as drafted may not constitute enough progress to scale back the scope of the EU ETS. The U.S. strongly supports the concept of developing a global MBM within ICAO but is nervous about potential precedential effects of a last-minute amendment to the draft framework language that would exempt certain routes to and from developing nations. Environmental NGOs have heavily criticized the EU for perceived unnecessary concessions. And the International Aviation Industry Association (IATA), whose work has been instrumental in reaching the current compromise document, would like to see a stronger commitment in the final text to develop a global MBM in time for adoption by the 2016 triennial Assembly, to take effect in 2020.

Effect on International Aviation
Governments, industry and NGOs are engaged in intensive consultations and lobbying in the run-up to the September 24 start of the ICAO General Assembly. It is unclear whether the fragile coalition supporting the compromise draft resolution will succeed in pushing through a final text adopting a decision to develop a global MBM.

The international airline industry, through IATA, has made it clear that it strongly supports an ICAO market-based offsetting mechanism, and seeks assurances that such a mechanism will be developed by 2016, to take effect in 2020. This timeline suits the industry, which has set a goal of carbon-neutral growth by 2020.

With respect to the continued application of the EU ETS to international aviation emissions, several outcomes appear possible:

  1. The EU may succeed in keeping current draft language in the text — overcoming opposition from China, India, Brazil and Russia — which would allow the application of the EU ETS to emissions within EU “regional airspace”. Assuming that the EU Parliament approves such an amendment to the EU ETS, international flights to and from Europe would be required to account and pay for carbon emissions within EU regional airspace (whether this could include portions of flights over international waters in the Mediterranean is controversial). Such a solution could be subject to additional legal challenges from U.S. airlines as well as EU low cost carriers who view a limited ETS as a competitive disadvantage with legacy airlines.

  2. Should the final text omit the language concerning the EU ETS but contain the decision to develop a global MBM, the EU will be faced with the challenge of deciding how to treat international air traffic while the development of an ICAO offsetting mechanism is pending. The inclusion of 2016 as a firm date to adopt a global MBM that would take effect in 2020 — as supported by IATA — would more easily allow EU officials to point to significant progress made and amend the ETS to exclude international air traffic. In that scenario, international flights would continue to be exempted from the EU ETS and then be covered in 2020 when the ICAO mechanism takes effect.

  3. A third and pessimistic scenario would be for ICAO to fail to adopt a resolution deciding the development of a global MBM. This would put everyone back at square one, and could prompt the EU to let the EU ETS “snap back,” covering all international air traffic.


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This article was originally published by Bingham McCutchen LLP.