In 2003, the European Union (EU) created an internal emissions trading scheme (ETS) to assist the European Community and its Member States in achieving their greenhouse gas emissions reduction commitments under the Kyoto Protocol in a cost-effective manner.[i] Initially the ETS did not cover greenhouse gas emission from air transportation. However, later by a Directive[ii] the aviation activities were included in the ETS with effect from 01.01.2012. The effect of this inclusion was that from 01.01.2012 onwards all airlines including airlines of countries outside the EU Member States will have to acquire and surrender emission allowances for their flights which depart from and touchdown at European airports.
This decision of inclusion of aviation activities in the ETS was recently challenged by a number of US airlines before the English Court.[iii] The main contention of the US air carriers was that by adopting the Directive 2008/101, EU was in breach of a number of principles of customary international law and various international agreements, in particular, the Chicago Convention,[iv] The Kyoto Protocol,[v] and the Open Skies Agreement.[vi]
The English Court later referred the matter to the European Court of Justice (ECJ) to determine on a preliminary ruling. The ECJ, by its judgment dated 21.12.2011,[vii] upheld the validity of inclusion of aviation activities in the ETS through the Directive 2008/101. More importantly, from aviation law point of view, the ECJ dismissed the contention that the ETS constitutes a tax or fiscal charge on fuel in breach of the Open Skies Agreement because it violates the general obligation to exclude fuel for international aviation from tax. The ECJ concluded that Directive 2008/101 does not infringe the obligation to exempt fuel from taxes, duties, fees and charges because the ETS has a completely different operational effect than a tax since, like tax, a participant in the ETS will not be under an obligation to pay a fixed and consistent amount.
Apart from the US, more than 30 other countries, including Canada, China, India, Russia and Japan, have publicly opposed the Directive 2008/101. From a cost-benefit standpoint, the ECJ judgment will have far reaching effect on the air ticket prices. Lufthansa has already told passengers to brace for higher ticket prices as it refuses to shoulder the costs of the ETS resulting from the Directive 2008/101.[viii] The Bangladeshi airlines should carefully weigh their positions before running flights in the EU regions as the ECJ decision will certainly impact their aviation operation costs
Written by Junayed Chowdhury, Managing Partner
† Disclaimer: The opinions and comments expressed in this Blawg are not to be regarded or construed as legal advice by and from Vertex Chambers or any of its members. It is highly advisable that any person should seek independent legal advice before relying on any of the contents of this Blawg.
 Directive 2003/87/EC established the EU Emissions Trading Scheme (EU ETS)
 Directive 2008/101
 R (Air Transport Association Of America Inc) v Secretary Of State For Energy And Climate Change
 Convention on International Civil Aviation concluded on 07.12.1944
 Kyoto Protocol to United Nations Framework Convention on Climate Change of 11.12.1997
 Air Transport Agreement between the US and the EU and its Member States
 Case C-366/10
 See http://news.airwise.com/story/view/1325578319.html