Will the European Union Emissions Trade Scheme Fly?

By Margaret M. Welsh

On January 1, 2012, the European Union Emissions Trade Scheme (“ETS”) went into effect which requires airlines flying in and out of the European Union to buy carbon emission allowances.  Recently, the Civil Aviation Administration of China issued a directive banning all Chinese domestic airlines from complying with the European Union ETS.  China’s opposition is supported by other countries worldwide, including the United States where strong objections have come from Congress and officials in the Obama Administration.

In December, the U.S.’s Air Transport Association of America and the International Air Transport Association unsuccessfully challenged the legality of ETS in the Court of Justice of the European Union (CJEU).  In response to this failure, Congress is expected to pass a bill formally opposing this charge on aircraft carbon emissions.  In October 2011, the U.S. House of Representatives passed a billed titled, the European Union Emissions Trading Scheme Prohibition Act of 2011 (H.R. 2594) which prohibits U.S. carriers from participating in the ETS.  A compromised version of this bill will likely pass in both the House and the Senate in the next couple of weeks.  The legislation will put the EU on notice of the U.S.’s opposition to the Emissions Trading Scheme.

This legislation, banning U.S. airlines from participating in the ETS, is even more likely to pass now that China has barred its domestic fights from participating.  China is one of the biggest sources of carbon emissions worldwide and the U.S. is continually calling for China to be held accountable for its carbon emissions.[1]  International followers of the ETS are concerned that this could spiral into a global trade dispute.

[1] One of the reasons that the U.S. has long opposed the Kyoto Protocol is because the treaty would require the U.S. to set greenhouse gas emissions reduction targets, but developing countries, such as China, would not be required to set targets.


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