European Union: EU Emissions Trading Scheme – The European Court Rejects The ATA Challenge

Last Updated: 9 February 2012
Article by Mark Bisset

On 21 December 2011 the Court of Justice of the European Union (CJEU) gave its much awaited judgment in the case brought by the Air Transport Association of America (ATA) and certain US airlines to challenge the validity of the European Union Emissions Trading Scheme (EU ETS). As expected, the judgment did not differ substantially from the report issued by the Advocate General at the CJEU, Professor Juliane Kokott, on 6 October 2011. The report and the judgment are very dismissive of the case brought by the ATA and do not concede any points at all to the ATA and the US airlines.

As the report itself acknowledges, the judgment is "of fundamental importance not only to the future shaping of European climate change policy but also generally to the relationship between EU and international law."

Introduction

In essence, the US airlines are challenging the Directive incorporating airlines within the EU ETS (Directive 2008/101) on three grounds:

  • they contend that the EU is exceeding its powers under international law by not confining the EU ETS to wholly intra-European flights
  • they maintain that an emissions trading scheme should be negotiated under the auspices of the ICAO
  • they are of the view that the emissions trading scheme amounts to a tax or charge prohibited by international agreements

Extraterritorial effect

In the opinion of the Advocate General, Directive 2008/101 "does not contain any extraterritorial provisions" as "it is only with regard to ... arrivals and departures that any exercise of sovereignty over the airlines occurs". Account is taken of events that take place over the high seas or in the territory of other countries, but there is no concrete rule regarding the conduct of airlines outside the EU.

The judgment affirms that "the fact that...certain matters contributing to the pollution of the air...of the Member State originate in an event which occurs outside that territory is not such as to call into question...the full applicability of European Union law in that territory."

With reference to specific international agreements, the Advocate General and the Court are both of the view that the EU ETS does not infringe the Chicago Convention (Articles 1, 11 and 12), or the Open Skies Treaty (Article 7).

Kyoto Protocol

The US airlines have also argued that Article 2(2) of the Kyoto Protocol prohibits the EU from pursuing the restriction of greenhouse gases outside the framework of the ICAO. The Advocate General finds this argument "unconvincing". In her view Article 2(2) does not give ICAO exclusive competence and, even if it did, ICAO cannot be expected to be given an unlimited period of time to address the issue. In Professor Kolkott's report, she is of the view that the Kyoto Protocol cannot anyway be relied on by individuals as the basis for bringing a claim at law, especially when the claimants are from a country that did not ratify the Kyoto Treaty. These views are substantially reiterated by the Court in the judgment.

Taxes or charges

In the view of the Advocate General no fees or charges are exacted from airlines under the EU ETS, as it is a market-based measure. "It would be unusual, to put it mildly, to describe as a charge or tax the purchase price paid for an emission allowance, which is based on supply and demand accordingly to free market forces". The judgment concurs, pointing out that the scheme "is not intended to generate revenue for the public authorities" and does not in any way enable the establishment, applying a basis of assessment and a rate defined in advance, of an amount that must be payable per tonne of fuel consumed (unlike, for example, the Swedish environmental tax discussed in the Braathens case).

The claimants take the view that the EU ETS introduces an excise duty on fuel that is prohibited under Article 11(2) (c) of the Open Skies Treaty and Article 24(a) of the Chicago Convention. The Advocate General is not persuaded. In her view Article 11 and Article 24 protect airlines from one Contracting State from having their aircraft and stores treated as "imported" when they merely land in other Contracting States.

In the view of the Advocate General, under the EU ETS there is no direct and inseverable link between fuel consumption and emissions. "Fuel consumption per se does not permit any direct inferences to be drawn as to the greenhouse gases emitted in the course of a particular flight; instead, an emissions factor must additionally be taken into account according to the fuel used... this may be zero, as in the case of biomass". The judgment concurs: "there is no direct and inseverable link between the quantity of fuel held or consumed by an aircraft and the pecuniary burden on the aircraft's operator in the context of the allowance trading scheme's operation...[indeed it may be the case that] an aircraft operator...will bear no pecuniary burden resulting from its participation in the allowance trading scheme, or will even make a profit by assigning its surplus allowance for consideration".

Applicability of international laws and treaties

There is extensive discussion in the report and the judgment as to applicability of the Chicago Convention, the Open Skies Treaty and the Kyoto Protocol. Summarising the conclusions briefly:

  • the Chicago Convention cannot be relied on in contesting the validity of EU legislation as the European Union is not a party to the Chicago Convention, although the principle that each State has sovereignty over its airspace may be relied on as a principle of international law
  • the Kyoto Protocol is not sufficiently unconditional and precise so as to confer on individuals the right to rely on it in legal proceedings
  • the Open Skies Treaty does establish certain rules designed to apply directly to airlines and therefore confers upon them rights and freedoms which are capable of being relied upon against the parties to the Treaty, for example Article 7 relating to the operation and navigation of aircraft, Article 11(1) relating to exemption of fuel from taxes and Article 15(3) relating to environmental measures

However, the Court concluded that, even to the extent consideration as to the Directive's validity was permitted, its validity was not affected by such considerations.

Conclusion

Reaction to the judgment from airlines outside the European Union has been almost universally negative, with (by way of example) the Chinese airlines threatening to refuse to comply with the scheme at all. It would appear that the ETS is now out of the legal realm and back where it started, in the world of international politics.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.