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."
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
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).
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.
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.
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