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04
dec

Newsletter December 2012: Newsletter FLO – Aviation

Arthur Flieger, Attorney at law Flieger Law Office bvba with the cooperation of Stijn Brusseleers, Attorney at law Flieger Law office bvba

EU EXEMPTS FOREIGN AIRLINES FROM ETS: A DISCRIMINATION

The European Commissioner for climate action, Connie Hedegaard, announced on November 12th, 2012 that the Commission intends to temporarily exempt non-EU flights from the EU’s Emissions Trading Scheme ( ETS ) in response to progress made in global talks. As we did advocate already in 2010, this matter should be solved through a worldwide scheme through assistance of ICAO, and in our view the European Commission is not the instrument to set up such scheme.

Following a long and drawn out battle between the EU and many countries in the world, the Commission finally decided to stop the clock on the inclusion of flights that start or end outside the EU for a period of one year. This does not apply to flights which both take off and land at aerodromes within the EU.

One could consider this just as a gesture of goodwill, though it will no doubt be claimed as a victory by those who have opposed the scheme during this bitter dispute.

Should one be pleased?
This development may now temporarily prevent a full scale trade war. And we argue that a market based global mechanism is the best way for aviation to balance its huge and social contribution with its low impact on climate change.
What one should also keep in mind is that the EU Commission didn’t have any other choice than to postpone its ETS, since on November 13th, 2012 the US House passed legislation that prohibits U.S. airlines from paying a carbon emission fee to offset their carbon emissions. For the U.S. legislation, the actual step of the EU Commission is just a temporary prise. The United States of America are more than clear in their position stating that, despite ICAO is working on the issue, ICAO does not set policy for the United States of America. The latter is a sovereign nation, and defends its position with this bill. The bill cleared the Senate in an unanimous vote in September 2012.
On November 27, 2012 the bill that requires US airlines be excluded from European carbon emissions fees has been signed into law. With this signature the United States has sent an unequivocal signal to the European Union and the world that while the (illegal and) unilaterally imposed EU ETS is the wrong way to proceed, there is a steadfast commitment to the right way, i.e. a global sectorial approach at the international level.
In practice it might be the worst possible outcome for business jet operators based in the EU, as it removes the strongest legal argument against the scheme and all but guarantees that it will not be delayed or scrapped.

The solution of the Commission is one taken without considering all the players and the smaller players on the European market.

If an airline is based in Europe, the chances are that most of the flights are within the EU, so nothing will change, except a reduced cost on the occasions when a plane leaves the EU, and you will note that Switzerland, the Isle of Man and the Channel Islands will presumably therefore fall outside the scope of the scheme. The airline will still need to prepare a report in the coming months, have it verified and crucially will still need to surrender allowances in April 2013.

A private operator based outside the EU, and fly point to point within the EU, f.i. US-UK-France-US, it will still need to go through the burdensome monitoring, reporting and verification process to cover the UK-France flight.

Non-EU operators who only fly to and from the EU ( f.i. US-UK-US ) will not have the liability for 2012. This applies to 2012 only and unless an agreement is reached in the next year, one will once again become liable for 2013.

Who benefits from Stop the Clock?
Non-EU based international airlines will benefit most from this. They will also face no emissions charges for onward travel within their home territory. This means that hub and spoke international airlines based in the EU will be the biggest losers: a passenger flying from Brussels to Philadelphia via Heathrow will still face an EU ETS charge on their flight to London. However, if they are flying to New York direct from Brussels and on to Philadelphia from there, they face no emissions charges at all. This has been the main issue during the talks and debates regarding the EU ETS’s application to non-EU member airlines.

What will happen now?
Since the EU is technically not enforcing the EU ETS, it’s the individual Member States who are responsible for ensuring the Directive is complied with. There will be a big disparity between all states. To abide, this scheme is done through national legislation, and therefore the Union has no power to exempt anybody from the scheme at this stage, and this announcement is simply an advice to the Member States. Potentially, if the legislation in any of the Member States does not allow for any discretion on the part of the regulators, it will not be impossible that they will require their assigned operators to comply fully with the scheme, and currently various regulators are assessing what impact this will have on them.

If the “advice” is universally accepted, any operator exempted by this decision will now get at least one year’s grace. We have to stress that one needs to be aware that if no permanent resolution is found, the airlines may be forced to comply in 2013, and therefore should be keeping track of their emissions throughout the next year just in case. The “advice” made by the Commissioner is too vague as such, and the question to ask is why not all airlines (EU and non-EU) are exempted as such. The more that ICAO should undertake to become the leader in this matter.

In other words an operator who is still covered by the scheme must continue to monitor the emissions, and submit a verified report to its regulator before end of March 2013.

It’s clear that the Commission has been listening to members of the business aviation community, probably under pressure of some new European States, alongside representatives from the global aviation industry, who have long argued that a comprehensive market based mechanism adopted worldwide would be much more meaningful against climate change.

We do regret that the EU Commission reasoning by which it recognises the effectiveness of multilateral solutions over unilateral solutions, did not lead to the application of the same measure to intra EU-flights. Did the EU Commission consider how this change will affect smaller European operators who bear the burden of administrative costs, as these will again augment considerably. We are convinced that the European players should now intervene to solve this discrimination, the more that the rules are there!
Action should be undertaken since it is not sure, and highly uncertain, that ICAO will actually deliver an effective international mechanism by autumn 2013.
Maybe the Commission did formulate in a friendly way that its project is buried, but such is not enough since it might get its revival, and if the European carriers are not undertaking anything right now the bill may be very high.

For further information and comment, please contact Arthur Flieger at Flieger@fliegerlaw.com, Website: www.fliegerlaw.com, telephone: +32 3 238 77 66

Copyright A. Flieger

This publication is defined to provide accurate and authoritative information in regard to the subject matter covered. It is transmitted with the understanding that the publisher is not engaged in rendering legal, or any other professional services. If legal advice or other expert assistance is required, professional services should be sought. You can always contact A. Flieger at flieger@fliegerlaw.com.