Bloomberg News

Retaliation on Airline Carbon May Breach Law: Researcher

August 23, 2012

Nations that retaliate against the European Union’s decision to include airlines in its carbon market from this year may fall foul of international trade rules, according to a University of Cambridge researcher.

“If a World Trade Organization member restricts EU flights over its territory, or landing slots for EU flights in its territory, it is likely to violate WTO obligations ensuring non- discriminatory treatment of trade in goods, as well as freedom of transit,” Lorand Bartels, a lecturer in WTO and international law at the U.K. university’s Trinity Hall, said Aug. 21 in a phone interview from Buenos Aires.

The U.S., China and India have criticized the EU market, which requires all aircraft landing in and departing from Europe to surrender enough carbon dioxide allowances to cover emissions. Russia, which yesterday became the 156th member of the WTO, may consider limits on European flights over Siberia, Valery Okulov, Russia’s Deputy Transportation Minister, said Feb. 22.

“Retaliation in this way would be an ironic way for Russia to begin its membership of the WTO,” Bartels said. “The multilateral trading system was designed to prevent countries from using trade restrictions for political purposes.”

Delta, American Airlines

Delta Air Lines Inc. (DAL:US) and American Airlines owner AMR Corp. (AAMRQ:US) are among U.S. carriers that oppose the European rules. United Continental Holdings Inc. (UAL:US) this year imposed a $3 one-way fee on flights from the U.S. to Europe, matching an earlier charge by Delta to help pay for the cost of EU emission permits.

The EU has already started distributing 2012 carbon allowances to airlines, 85 percent of which will be free of charge, according to figures cited by Jos Delbeke, director general of climate action at the European Commission, who spoke at a U.S. Senate hearing in June. Additional permit needs can be bought at auctions expected later this year or in traded markets.

Extending the cap-and-trade system to the airline industry as of the start of this year builds on the market began in 2005 to cover greenhouse-gas emissions from power plants and manufacturers in 30 countries; the 27 EU nations plus Iceland, Liechtenstein and Norway. Airline carbon-dioxide discharges in Europe doubled over two decades and aviation now accounts for about 3 percent of global emissions.

Nations Protest

Officials from 29 countries, including the U.S., signed a declaration protesting the EU law in February and said they would consider retaliatory actions, including barring their air carriers from participating in the market, challenging the system at the WTO and imposing additional charges on EU carriers.

While expanding the system to aviation probably violates global trade rules, the WTO permits measures that are necessary “to protect human, animal or plant life or health,” according to Bartels.

A successful WTO complaint against the market’s expansion would have to show that the EU could have achieved the same goal another way that is “both reasonably available and less trade- restrictive than the measure adopted. This is notoriously difficult to assess in the abstract,” Bartels wrote in a study for an April conference in Geneva.

The EU and other nations are pressing for a global program to cover airline emissions being considered by the International Civil Aviation Organization, Delbeke said. Such a system, if it’s “meaningful” enough, may supersede the European market, he said.

‘Under Pressure’

ICAO said in November it wants to strike a deal this year to create a global carbon system for the airline industry.

“I’m under great pressure because of the EU emissions trading system,” Raymond Benjamin, secretary general of the United Nations-overseen regulator based in Montreal, said at the time.

Some developing nations may retaliate against the EU by cutting the bloc’s access to landing slots or imposing flight curfews, he said.

WTO rules give the ICAO jurisdiction over some disputes affecting aviation, Bartels said. “They also guarantee free transit for goods exported to other countries.”

Trade disputes must be resolved using the WTO dispute- settlement system, he said. Most passenger flights also carry freight, making them subject to WTO rules, the researcher said.

To contact the reporter on this story: Mathew Carr in London at m.carr@bloomberg.net

To contact the editor responsible for this story: Lars Paulsson at lpaulsson@bloomberg.net


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