ETS and the airlines: the EU’s looming enforcement nightmare

The framers of the EU’s Directive containing its Emissions Trading System (ETS) for aviation were well aware it would generate controversy. It has.

Almost every major nation has vociferously opposed it; even Russia, China and the US are for once wholeheartedly united in their opposition. China and India have banned their airlines from participating in the ETS and similar legislation has passed both houses in the USA. A 26 country “Coalition of the Unwilling” has formally agreed a series of retaliatory measures should EU states impose sanctions for non-compliance. The outcome could be bloody and very costly to airlines and economies alike, the last thing the industry needs at this time.

The real crunch comes when enforcement of the ETS is attempted. Individual EU member states must be the ones to fine and even, as directed by the Commission, suspend services by foreign airlines. This means each EU state and its airlines risks being picked off by retaliation from the offending country.

The first of a two part report, this article reviews the practical implications in implementing the EU’s penalties for non-compliance with its controversial ETS rules. Part II will look at the ironies of the EU’s focus on following the tabloid herd, while failing to get its own house in order.

Considered unilateral and discriminatory by many foreign governments and airlines alike, the EU’s controversial ETS is shaping to prove a massive headache for member governments once it comes to applying sanctions for non-compliance.

But, in Apr-2012, Connie Hedegaard, the EU’s climate action commissioner, came out fighting: “Why all the fuss about aviation? Why has Europe passed its own laws to make airlines reduce their CO2 emissions? And why don’t we have international rules for an international sector? It’s right to ask these questions.”

The answers though may be less palatable all round, once foreign states have their right of reply.

The UK is in the frontline to impose ETS penalties – and for probable retaliation
With its careless attitude towards aviation, the UK is poised to become the frontline as resistance to the EU ETS consolidates.

The way the non-compliance punishment system works is that responsibility for enforcement against individual airlines falls on the country where the particular airline has the largest number of services. For many major airlines, that means the UK.

But if the UK government is silly enough to go ahead full steam on its own, it could quickly find its own airports and airlines seriously isolated as the implementation – inevitably – provokes retaliation by disgruntled foreign governments.

As the months pass, the Apr-2013 deadline for full punitive action grows closer.

There is no shortage of recalcitrant foreign governments, so there is likely to be mounting excitement as the months pass. The EU has steadfastly (well, most of the time) maintained that it will not give an inch. But there are other immovable objects about to come into contact with that rock-like posture.

The issue is not so much about the need to reduce emissions. There are few airlines or governments who do not support this goal. The fact is that most governments consider the ETS an unacceptable unilateral imposition of EU dogma. This transcends merely the payment of emissions charges; the ETS raises dangerous issues of nationalist pride, more technically described as sovereignty.

Those are fertile breeding grounds for intransigence and conflict.

A recent paper from a leading aviation law professor at prestigious Leiden University[1] has reviewed the merits of the EU’s Directive and the mechanics and feasibility of the possible enforcement provisions where airlines fail to comply.

The paper concludes that the “legal foundations of this Directive are made on thin ice” and, if it does infringe international law, “it is difficult to see how it can be enforced.” To the extent that the Directive is perceived to infringe the rights of non-EU states, then “those non-EU States may be tempted to enforce their rights in order to remedy the perceived injustice.”

…“the number and intensity of the reactions (by the Coalition of the Unwilling) are unprecedented in the history of international civil aviation.”…
From the way things look at the moment, that temptation may become irresistible. As Professor Pablo Mendes De Leon, the author of the paper, observes, “the number and intensity of the reactions (by the Coalition of the Unwilling) are unprecedented in the history of international civil aviation.” No mere obfuscation is likely to provide a way out of this head-on collision.

ETS day is 01-Apr-2013. Who will be the April Fools?
The gloves will really come off after April Fools Day 2013, when all airlines are required to submit their final emission certificates and pay up – or else.

In the meantime, there are several monitoring milestones the airlines are expected to comply with.

In reality the process is already under way. As the first step, starting in Jan-2012, all airlines operating in EU airspace have been required to submit data on their carbon emissions occurring since the beginning of 2011. By mid-2012, there had been “systematic non-reporting” of emissions by 10 airlines based in India and China, according to the European Commission’s website on 15-May-2012. There is little likelihood that this will have changed (although things have gone quiet in the meantime).

This followed a specific announcement to the Commission by eight Chinese and two Indian airlines that they refused “to submit their traffic data to the authorities of their administering States, upon which the EU Commission has given them a leniency period until 15-Jun-2012; if not the EU Commission announced that enforcement actions would be started.”[2].

Enforcement actions may have been “started”, but so far it has only been talk.

Altogether some 26 countries, including most of the EU’s main aviation partners, have openly opposed the ETS’ imposition, some more strongly than others. But the common message is that “we will not comply”.

The UK’s regulations are the most strenuous, ready to punish all ‘offenders’
The EU’s Directive requires member states to introduce legislation with ‘effective, proportionate and dissuasive measures’[3] for recalcitrant states.

As Professor De Leon notes, “the UK…has to monitor, verify and supervise by far the largest number of operators.”

And it is the UK which ”has enacted the most stringent, detailed and schematic measures” to force unwilling airlines to comply. The following summary is adapted from his paper.
CAPA, Nov 8, 2012