Ethical Performance
inside intelligence for responsible business


Lawsuit and trade war beckons over air quotas

December 2011

The US and China are set to embark on a trade war and legal battle with the European Union over its expansion of the Emission Trading Scheme (ETS), to include the aviation industry.

From 2012, airlines using European airspace will be given ‘carbon quotas’, with those exceeding their quota being forced to pay for extra permits. A group of non-EU countries have filed a formal complaint to the International Civil Aviation Organization, but China and the US have taken a much more aggressive stance that includes legal action and economic retaliation.

The aviation industry, which emits 3% of total global emissions, a figure likely to increase significantly in the coming years, has been desperately trying to get the legislation thrown out. Despite an industry pledge to cut its carbon emissions in half by 2050 back in 2009, the sector is resistant to compulsory action on climate change, and says the compliance with the scheme will cost e1bn per year over the next decade.

In the US, carriers have already brought a case to the European Court of Justice over the move, and a bill recently passed by the House of Representatives, though unlikely to be passed into law by the Senate, would ban carriers from complying with EU carbon emissions legislation.

The Chinese government, meanwhile, has said its own legal action will be taken by the end of the year. It has also blocked the sale of ten European-manufactured Airbus planes to Hong Kong airlines.

Chinese airlines say the law hurts developing countries disproportionately and is an extension of European power to foreign jurisdictions (permits apply to flights from, but also carbon emitted from outside the EU).

However, Jiang Kejun, head of energy research at China’s economic planning commission, said: “It’s natural that China’s airlines will object to paying charges, but I don’t think there’s any need for China to make too much of a fuss. The inclusion of aviation in the ETS will have a greater impact on European airlines, as they have more European routes.

“Also, there are advantages for China. First, the higher costs for European airlines will result in a relative increase in the competitiveness of Chinese firms. Second, it will promote low-carbon development for China’s airlines. China’s late-starter advantage means its firms are very likely to lead others in emissions reductions.”

The US legal action, brought by the Air Transport Association of America and others, is likely to fail following a statement from the European Court of Justice that the scheme is compatible with international law, making it difficult to see what form legal action from China could take.

EU | Global | Climate change

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