In this article TWC Aviation’s Carter Stewart examines some of the recent news on EU ETS (European Union Emissions Trading Scheme) and offers his perspective on some of the prominent stories of the past few weeks, and examines what may be next for the EU ETS controversy.

I feel compelled in each conversation that I have with clients, the public, or news outlets to say at the very start that I personally believe that the inclusion of Commercial Aviation into the EU ETS framework was not in the best interest of airlines, passengers, or the industry.   What is important to remember, however, is that this is now law both in the European Union and in each of its member states- including the United Kingdom.

While much noise has been made in the world media over the past few weeks about the formal introduction of aviation within the EU ETS, there appears also to be a great deal of media spin on the stories that are coming out.

Take for instance the reports that many U.S. airlines began collecting a $3.00 surcharge per passenger travelling to/from the European Union to offset the carriers EU ETS obligations.   I do not believe that this is necessarily true.   Some airlines have called this additional charge simply miscellaneous.      I believe that some carriers may well be using the revenue for the EU ETS obligations, while some others may well be using it as a form of fuel surcharge.    Spikes in Jet-A fuel prices in Q4, as well as unusually heavy west-bound Atlantic winds, have been slowly eating away at revenues.  There is also some considerable uncertainty over fuel prices and Iranian politics that are likely also influencing the various revenue teams around the world.

While it is reasonable to assume that carriers would want to offset their obligations, it is also important to point out that all carriers who had flight operations over a certain threshold have also received certain allotments of Aviation ETS credits from the E.U. nation who host the majority of their movements.    In effect, for this first year, both E.U. and foreign air carriers have been given an allotment of free credits that run into millions of Euros.   This is a fact that many trade groups, news outlets, and even foreign governments appear to leave out of their press statements. 

While the time for EU ETS political advocacy on behalf of the industry has long since passed us by, the rest of the world has seemingly only awoken up to the reality of these new laws.    While many trade groups and individual carriers had filed for hearings in the European Court of Justice, the court has made their position clear that their view is that EU ETS is not only legal, but does not violate international law.  It is at this point where I believe commercial aviation trade groups will turn their attention away from European Capital, and instead spend their valuable time and money lobbying their own legislators for a diplomatic solution.

Many other jurisdictions such the United States, China, and India take an opposite view and have begun exercising their diplomatic and legal powers in search of a remedy to this situation.

I do believe that the future of EU ETS is likely to place pressure on E.U. relations with some countries.     The United States Congress has introduced draft legislation in both the House of Representative and The Senate to propose making it illegal for a U.S. air carrier to acquire and spend E.U. ETS Credits.   India has hinted that they are to re-examine several bi-lateral agreements with E.U. nations, carefully only alluding to E.U. ETS as a primary driver.

 I personally believe that no country can afford an aviation trade war at this moment in time.     While it would appear that the European Union had not learned from British History that occasionally “taxation without representation” can create political difficulties, it does not yet appear to have successfully created a credible legal argument against the new laws that each individual member-state has passed in their own jurisdiction that make up E.U. ETS.    There is even some debate regarding which existing body is fit and proper to hear any new legal or treaty challenge. 

Having said that, U.S. Lawmakers may do well to also remember the post 9/11 TSA security fees and demands for APIS (Advanced Passenger Information) often flew in the face of other nations’ sovereignty as well.   While I am not comparing these items directly, what I would compare is the unilateral action taken by one party against another while exercising their treaty rights (i.e. operating international commercial airline flights).    

Whatever the lofty arguments for or against E.U. ETS may be, the real challenge is what individual member states will do with individual carriers who do not comply with the new emissions framework.    That is where I predict we will see the next credible legal set of arguments.