European Court rules aviation emissions trading plan is legal

The top advisor to the European Court of Justice ruled this morning that the EU's plans to include all flights into and out of the region in its emissions trading scheme are legal, rejecting the argument put forward by a group of US airlines.

The opinion is not binding, but significantly increases the chances that the court will reject the case when it reaches a formal decision next year. It is also expected to inform the outcome of a parallel London High Court case challenging the British government's move to transpose the EU rules into national law.

Advocate General Juliane Kokott delivered a comprehensive rejection of the airlines' argument that the EU's proposal to include flights to and from North America in the emissions trading scheme exceeded its jurisdiction and therefore represented a breach of international aviation agreements.

Kokott said that the case brought by the Air Transport Association of America, American Airlines and United Continental was "unconvincing", "untenable", "erroneous" and based on a "highly superficial reading" of the Aviation Directive.

"EU legislation does not infringe the sovereignty of other states or the freedom of the high seas guaranteed under international law, and is compatible with the relevant international agreements," she ruled.

"[It is] by no means unusual for a state or an international organisation ... to take into account in the exercise of its sovereignty circumstances that occur or have occurred outside its territorial jurisdiction."

Kokott also rejected claims by the aviation industry that the EU should wait for a global system of carbon pricing to be introduced by the International Civil Aviation Organisation (ICAO), rather than pursue a regional approach that could put airlines operating in and out of Europe at a competitive disadvantage.

"The EU institutions could not reasonably be required to give the ICAO bodies unlimited time in which to develop a multilateral solution," she stated.

The price of EU Allowances in the emissions trading scheme rose by around two per cent on the news, continuing a rally that has seen prices climb from a 31-month low of €9.82 a tonne two days ago to €10.50 this morning.

The news means that all airlines operating flights in and out of the EU will be required from next year to hold allowances to cover their greenhouse gas emissions.

Initially airlines will be handed 85 per cent of their allowances for free and will only have to buy 15 per cent, but the proportion that they have to purchase will rise over time providing airlines with a financial incentive to curb emissions.

The aviation industry has consistently complained that the scheme will impose a cost of over $10bn on the sector by 2020, leading to increased fares.

Even if the European courts reject the case, the US airlines are expected to pursue alternative avenues, most notably in the form of a new US bill that would try to force the EU to grant exemptions for US flights by levelling fines on flights to and from Europe.

However, speaking earlier this week Annie Petsonk, an international counsel at the US-based Environmental Defense Fund, said that the bill is unlikely to pass.

"It is not a bill any chief executive of an airline would want to see come in. No one wants to be in a position where they can't comply with both laws," she said.

"The diplomatic and economic ramifications would be very large [and] at the top levels of government there is no appetite for that level of dispute. I would not be surprised if the bill passes the House ... [but] the likelihood is that the Senate, with their cooler heads, will not allow it to move forward."

Green groups welcomed the ruling, predicting that it will allow the EU to go ahead with its plans to impose an effective carbon levy on flights.

"The international community, aided and abetted by the airlines, has failed to make any progress on cutting aviation emissions in 14 years, despite innumerable meetings and negotiating sessions," said Bill Hemmings, programme manager at green NGO Transport & Environment.

"So the airlines cannot be serious when they call for international action instead of European leadership. That so many major airlines have jumped on the bandwagon of criticising the EU-ETS, an extremely modest measure equivalent to 1c a litre on (untaxed) kerosene, is just opportunistic and irresponsible. The aviation industry should be tackling climate change with engineers, not lawyers."