EU ETS and AVIATION

1. EU ETS and AVIATION Fasten your seatbelt, turbulent times ahead Suzy Huber CLEER Workshop: EU Environmental Norms and Third Countries: The EU as Global Role Model? TMC Asser Institute, The Hague 19 April 2013

2. Content Why and how did the EU include aviation in ETS? 2. A Stormy Reception: the International Response 3. The EU Under Pressure: Stop the Clock! 4. EU as global role model?

3. 1. The path to include aviation in EU ETS

4. Steps to Aviation ETS ICAO Assembly: no new legal instrument Kyoto Protocol ICAO Assembly ICAO Assembly ICAO Assembly: opposition to ETS without “mutual agreement” (Reservation made by EU) ICAO Assembly 1997 1998 2001 2004 2007 2010 2006 2008 2009 2012 Commission proposal EU Directive agreed upon Implementation Start of first trading year

5. Reasons why the EU included aviation in ETS • Lack of action in ICAO • EU emissions from international flights are increasing fast - have doubled since 1990 • No quick and easy technical solution (efficient aircrafts, improving air traffic management, fuel taxation) • ETS = cost effective

6. Emissions Trading Scheme (Cap and Trade)

7. How is aviation included in EU ETS? • Aviation cap has potential reduction of 29-46% below BAU by 2020 • Big environmental impact! • 82% of the cap is distributed as free allowances • Modest impact on ticket price! • All aircraft operators that fly to and from EU territory must monitor and report their emissions over the whole trajectory of the flight and surrender allowances every year to cover these emissions • Non-discriminatory!

8. How is aviation included cont’d • Auction revenues for climate change action in developing countries • Common But Differentiated Responsibilities! • Exemption if third country takes equivalent measures • There is a way out!

9. Significance of the inclusion of aviation in EU ETS • Source: openflights.org • Aviation ETS covers almost 60 per cent of international aviation emissions.

10. 2. A Stormy Reception: the International Response

11. ATAA legal challenge 2010: Air Transport Association of America and others challenged the validity of the Directive 3 main arguments were put forward: 1. the EU went beyond its jurisdiction by taking into account the part of the flights outside EU airspace 2. the EU does not have the mandate,should be based on mutual agreement through ICAO 3. EU ETS amounts to a tax or charge on fuel, which is prohibited by aviation treaties

12. European Court Ruling The Court rejected all 3 arguments. • States may choose to apply standards to activities that take place on their territory • Environmental protection calls for measures that take extraterritorial events into account • ICAO does not have exclusive mandate • ETS is not a tax

13. Increasing Political and Economic Pressure China ‘blocks’ Hong Kong Airlines’ order of ten A380s from Airbus, Chinese aircraft carriers are forbidden from complying with EU ETS Russian Federation threatens to deny EU trans-Siberia route, actually denies Finnair new landing rights A bill is introduced in US Congress, that prohibits American airlines from complying with EU ETS Dec 2011: Strongly worded letter from US Secretary of State Clinton and Transportation Secretary LaHood to EU Member States. “The EU is increasingly isolated on this issue”. Threaten to “respond appropriately”

14. Coalition of the Unwilling: strange bedfellows “Coalition of the Unwilling”: United States, China, Russian Federation, Brazil, India, Japan, South Korea, Saudi Arabia, Singapore, and others Meetings in Sept 2011, February and July 2012 Declaration of Sept 2011 which condemned the EU aviation ETS as illegal under int law, was later adopted by the ICAO Council. February 2011: drafted a suite of countermeasures, but no coordinated countermeasure could be agreed upon.

15. 3. The EU Under Pressure

16. STOP THE CLOCK PROPOSAL November 2012 Due to “encouraging results” achieved by the ICAO Council: • European Commission proposed to ‘suspend’ aviation ETS on all international flights for one year • Allow for a global solution to be taken by ICAO Assembly in September 2013 (triennial meeting). • Note: the scheme still applies to INTRA-European flights to all aircraft operators

17. International reaction to ‘stop the clock’ “China welcomes the EU’s decision … but does not accept the practice of applying the system to foreign flights within Europe. China expects the EU to take a constructive attitude and work with other parties to settle differences properly.” (Chinese Foreign Ministry spokesperson) 2 weeks AFTER ‘stop the clock’ announcement, Obama signs the European Union Emissions Trading Scheme Prohibition Act

18. What will ‘stop the clock’ achieve? • Has ‘stop the clock’ had the desired/intended effect? • Pressure on the ICAO process: temporarily lifted? Or increased? • What can we expect from ICAO Assembly in September? A global scheme certainly won’t go into effect by 2014. • Even if agreement is reached within ICAO, how will the EU bridge the gap?

19. 4. EU as global role model?

20. Tension in international norms Aviation ETS exposes the tension in international norms: • Environmental efficiency versussovereignty(fear of unilateralism) • Non-discrimination in civil aviation versus Common but Differentiated Responsibilities and Respective Capabilities

21. EU’s high stakes experiment Is unilateralism justified when multilateralism fails? • Urgency • But, danger of fragmentation Has the EU’s approach been effective? • Progress in ICAO(?) • Time is running out! Look out for ICAO Assembly September 2013

23. Thank you Suzy Huber– Legal Counsel Climate Focus www.climatefocus.com s.huber@climatefocus.com