The European Court of Justice has ruled Brussels can legally compel airlines to join the European Union’s emissions trading scheme (ETS) from January 1.
All airlines operating in the EU will be required to hold carbon credits equal to their emissions and will have to buy a proportion of these - absorbing the cost or adding it to fares.
The Court of Justice rejected a legal challenge by US and Canadian carriers led by the Air Transport Association of America (ATA).
The airlines argued the scheme would break international law and contravene existing agreements - in particular, the Chicago Convention which prohibits fuel tax on international air traffic and an Open Skies Agreement between the EU and US.
But in a judgment delivered on Wednesday, the Court ruled the EU is not bound by the Chicago Convention because Brussels was not party to the convention.
It ruled emissions trading did not constitute a tax, fee or charge on fuel because there would be “no direct and inseverable link” between the costs of the scheme to a carrier and the amount of fuel used. An airline could “even make a profit” from the scheme, the Court ruled.
The Court likewise rejected the argument that the scheme would infringe the rights of carriers and states outside the EU by applying to emissions beyond Europe’s borders.
It found the scheme applied “only when aircraft are physically in the territory of a member state”, but that the EU was within its rights “to permit a commercial activity only on condition that operators comply” with the scheme.
In advance of the ruling, the US government threatened retaliatory action unless Brussels dropped the plan. US secretary of state Hilary Clinton wrote to the European Commission on December 16 to urge a halt, warning: “We will be compelled to take appropriate action.”
The British Air Transport Association (BATA), which includes all the UK scheduled and charter airlines, expressed concern about the threat of a “trade war”.
BATA chief executive Simon Buck said: “We look to the UK government to ensure UK airlines are not subject to retaliatory action from states opposed to the EU ETS.”
Airline association IATA expressed disappointment and noted "growing global opposition" to the scheme.
IATA director general Tony Tyler said: "The decision may reflect European confidence in European plans. But that confidence is by no means shared by the outside world. India is reported to have instructed its airlines not to comply. Similar legislation is moving through the US Congress. Other legal challenges are expected."
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