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Hot Air and Hot Heads: An Examination of the Legal Arguments Surrounding the Extension of the European Union's Emissions Trading Scheme to Aviation

Published online by Cambridge University Press:  29 October 2012

Steven M. DEJONG
Steven M. DEJONG*
Affiliation:
Freshfields Bruckhaus Deringer US LLP
*
smd464@nyu.edu
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Abstract

The issue of carbon emissions in international aviation has proven difficult to deal with from a regulatory standpoint. Issues of a transnational character are regulated through co-operation and compromise, but there has been a lack of political will to achieve the necessary co-operation and compromise to deal effectively with carbon emissions in international aviation. The European Union is now trying to push for development in the regulatory sphere through the unilateral extension of its Emissions Trading Scheme to international aviation. This unilateral extension conflicts with international air law, but has recently been declared valid by the Court of Justice of the European Union in Case C-366/10. This article focuses on the legal arguments raised in that case, concluding that the judgment delivered by the Court is legally questionable, but may nonetheless prove constructive, as a political instrument, in the delivery of an international solution to the regulation of aviation emissions.

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Type
Articles
Information
Asian Journal of International Law , Volume 3 , Issue 1 , January 2013, pp. 163 - 188
Copyright
Copyright © Asian Journal of International Law 2012

The phenomenon of emissions caused by trans-border aviation does not fit neatly within an international legal architecture premised on Westphalian sovereignty. As concerns over greenhouse gas emissions have increased in the international community, the problem of emissions from international aviation, which transcends territorial borders on which jurisdiction is premised, have been largely neglected. In 1997, parties to the Kyoto Protocol to the UN Framework Convention on Climate Change (Kyoto Protocol)Footnote 1 left the regulation of emissions from international aviation to the International Civil Aviation Organization (ICAO), determining that a sector-specific approach was preferable to the jurisdictional difficulties of incorporating aviation emissions into the reduction commitments of individual states.Footnote 2 Unfortunately, in the decade and a half since the signing of the Kyoto Protocol, states, working through ICAO, have failed to determine a satisfactory approach to reducing emissions from international aviation.Footnote 3 As a product of wider diplomatic paralysis, ICAO's deliberations have been largely characterized by hesitancy and lip-service. Many reports have been commissioned, but there has been no substantive action.Footnote 4

In the face of this paralysis, the European Union (EU) has decided to bite the bullet and act alone in an attempt to curb aviation emissions. On 1 January 2012, all commercial flights to and from EU airports were pulled into the EU's existing emissions trading scheme (ETS) in the hope that emissions from international flights may be reduced to ten percent of 2005 levels by 2020.Footnote 5 This is an ambitious project, and it has generated enormous controversy at both the industry and diplomatic level. Whilst it is likely that the solution to this controversy will be resolved through diplomatic, rather than legal, means,Footnote 6 the legal architecture of the ETS forms an essential backdrop to the diplomatic negotiations, and it is impossible to fully appreciate the issues at stake without an understanding of the legal context.

This article considers the substantive legal arguments against the ETS extension advanced by the Air Transport Association of America (now renamed Airlines for America), United Continental Airlines, and American Airlines, supported by the International Air Transport Association and the National Airlines Association of Canada (together, the claimants),Footnote 7 in the European Court of Justice (ECJ) in Air Transport Association of America and Ors v. UK Secretary of State for Energy and Climate Change (Case C-366/10) (on referral from the High Court of Justice of England and Wales).Footnote 8 The Court delivered its final judgment on 21 December 2011,Footnote 9 finding that the proposed extension of the ETS was fully compliant with the applicable principles of international law. Rather than putting the legal issues to rest, however, both legal and diplomatic opposition have simply increased in the aftermath of the Court's judgment, with the claimants, along with disaffected states, expressing disapprovalFootnote 10 of the judgment. They are threatening retaliatory action in the form of a trade warFootnote 11 and considering the commencement of claims in alternative fora.Footnote 12 A developing area of controversy concerns the legality of the ETS under World Trade Organization (WTO) law, with a recent declaration by twenty-three states expressly contemplating the filing of a formal application for dispute resolution with the WTO.Footnote 13 In large part, the discussion of legality under WTO law centres on the same or similar legal issues as those determined by the ECJ, including the potential for discriminatory application of the ETS on non-EU airlines, the extent to which legislation with extra-territorial effect is permissible to further environmental concerns, and whether the ETS constitutes a tax and/or charge.Footnote 14 As well as providing the contextual backdrop to the present diplomatic discussions, therefore, the legal arguments surrounding the extension of the ETS remain apposite in and of themselves, and might well resurface elsewhere. Moreover, it is immediately evident that the principles behind the arguments—jurisdictional sovereignty, unilateral regulation of multilateral concerns, and the circumvention of established multilateral fora—have significant implications beyond the confines of the EU's extension of its ETS to aviation.

Part I of this article provides a brief outline of the intended operation of the ETS scheme. Part II considers the merits of the legal arguments advanced by the claimants against the ETS and critiques the reasoning of Advocate-General Kokott in an advisory opinion to the ECJ, and the ECJ's final judgment. Where relevant to an understanding of the legal arguments, Part II departs from its legal analysis to contextualize the ETS discussion in the broader political and economic framework. Part III concludes the article by considering the future of the EU's extension of the ETS to aviation. It suggests that although the ECJ's judgment is questionable from a legal standpoint, the judgment may, by virtue of the opposition it has engendered, ultimately serve to propel multilateral discussion on aviation emissions, which is a constructive outcome. Fundamentally, the judgment confirms that the issue of aviation emissions is now out in the open, and must be addressed. Both governments and industry players can no longer keep their heads in the sand.

I. SCHEME OVERVIEW

The EU initially adopted the ETS in 2003 as a measure to help implement the EU's commitment under the Kyoto Protocol to reduce greenhouse gas emissions by eight percent from 1990 levels during the period 2008–12.Footnote 15 The decision to incorporate aviation emissions into the ETS, made in 2008 by way of an EU-wide Directive amending the initial ETS Directive,Footnote 16 represents and continues a gradual expansion of the ETS to all carbon-emitting industry sectors. So as to “avoid distortions of competition” between EU and non-EU airlines, as well as to “improve environmental effectiveness”,Footnote 17 the scheme was extended to cover, with limited exceptions, all commercial flights arriving at or departing from EU airports.Footnote 18 From 2012, airlines must obtain sufficient emissions allowances to cover all emissions generated by these flights, including emissions generated outside EU airspace.Footnote 19

In general, the ETS operates as a “cap and trade” scheme whereby a base amount of emissions allowances is allocated to an industry sector for purchase and trade by emitters within that sector. Allowances must be “surrendered” at the end of each year in return for new allowances,Footnote 20 with the aggregate allowances for each sector incrementally reduced to promote environmental efficiency. For the airline industry, the base amount of allowances in 2012 is set at ninety-seven percent of the average yearly emissions in 2004–06,Footnote 21 reducing to ninety-five percent in 2013.Footnote 22 This base amount of allowances is allocated to EU states for onward distribution to airlines, with foreign airlines assigned to a particular state for administration purposes.Footnote 23

The distribution of allowances from states to airlines is effected in three ways. In 2012, eighty-five percent of allowances are allocated free of charge to individual airlines with respect to each airline's aggregate emissions in the year 2010.Footnote 24 The remaining fifteen percent of allowances will be auctioned.Footnote 25 From 2013, three percent of allowances will be retained in a “special reserve” for free allocation to airlines commencing operations in Europe, or airlines who experience significant market growth,Footnote 26 but, in both instances, the airlines in question must not be simply filling a market gap left by the cessation of operations by a rival airline.Footnote 27

Commencing in 2013, by 30 April each year, airlines must surrender sufficient emissions allowances to cover their total emissions on ETS-captured flights during the preceding calendar year.Footnote 28 The penalty for non-compliance is €100 per tonne of CO2 emitted over an airline's allowances,Footnote 29 together with publication of the name of the offending airline.Footnote 30 In cases of persistent non-compliance, an EU Member State may request the European Commission (EC) to ban an airline from flying into EU airspace.Footnote 31

As a unilateral measure, the EU recognizes the possibility for the ETS to occasion “double regulation” where foreign airlines are made subject to additional environmental measures in their home state.Footnote 32 The EU seeks to avoid this possibility through an “equivalence provision” in Article 25a, which provides for the EC to exempt foreign airlines—in whole or in part—from the operation of the ETS where, in the Commission's discretion, environmental measures adopted by the home state of the foreign airline are substantially equivalent in effect to the intended environmental impact of the ETS.Footnote 33

II. LEGAL CHALLENGE

The claimants launched their legal challenge to the extension of the ETS in December 2009. Although implemented through an EU-wide Directive, the claimants initiated proceedings in the High Court of Justice of England and Wales against the UK's implementing legislation,Footnote 34 rather than in the ECJ against the EC Directive, due to locus standi limitations on private parties in the ECJ.Footnote 35 The case, nonetheless, found its way to the ECJ through a reference for a preliminary ruling from the UK High Court.Footnote 36

After a hearing on 5 July 2011, in which oral submissions were tendered by the claimants, several environmental groups as interveners,Footnote 37 the governments of the UK (as formal defendant), Spain, France, Poland, Sweden, Norway,Footnote 38 and the European Parliament, the Council of the European Union, and the EC (together, the defendants),Footnote 39 a non-binding, advisory opinion was delivered to the Court by Advocate-General Kokott on 6 October 2011.Footnote 40 The Court's formal judgment was delivered on 21 December 2011, which, although shorter in length, substantially mirrored the Advocate-General's advisory opinion. Given the substantial similarity between the opinion and the judgment, as well as the fact that the opinion of the Advocate-General may often, where the same decision is reached, offer a window into the reasoning of the Court,Footnote 41 this section considers the parties’ legal arguments with respect to both the Advocate-General's opinion and the Court's judgment.Footnote 42 Extra-legal considerations are identified where relevant.

As a starting point, it should be noted that both the Advocate-General and the ECJ deny the application of the fundamental convention in international air law, the Convention on International Civil Aviation (Chicago Convention),Footnote 43 to the EU. As the EU itself, apart from its Member States, is not a party to the Chicago Convention, the EU itself “does not enter into any international law commitments towards the third countries concerned”.Footnote 44 Further, the EU has not, in the Court's opinion, fully assumed the responsibilities of its Member States under the Chicago Convention, with the result that the argument of “functional succession” is unavailable to the claimants to hold the EU to the principles of the Convention.Footnote 45 Whilst interesting legal points, the focus of this section falls on the more substantive arguments raised by the claimants, rather than on the threshold question of treaty application because the claimants’ substantive arguments are those that are likely to resurface in alternative fora.Footnote 46 In addition, in many instances, the relevant provisions in the Chicago Convention are replicated in customary international law and/or the US-EU Air Transport Agreement (Open Skies Agreement),Footnote 47 to which the EU is a party; therefore, the inapplicability of the Chicago Convention is peripheral to the central arguments. Further, perhaps in the hope of further validating the EU's position,Footnote 48 the Advocate-General, despite her holding that the Convention does not bind the EU, considers the claimants’ substantive arguments against the relevant provisions of the Chicago Convention.Footnote 49 It is constructive, therefore, to identify the provisions of the Chicago Convention relied on by the claimants, and this is done in the analysis below.

Broadly, the claimants’ substantive arguments may be categorized as follows: (i) the ETS constitutes an impermissible overreach of EU sovereignty; (ii) the ETS conflicts with a fundamental legal requirement for emissions from international aviation to be dealt with multilaterally under the auspices of ICAO; and (iii) the ETS subjects airline operators to the payment of an impermissible fee and/or tax. Each of these is addressed in turn.

A. Sovereign Overreach

The claimants’ submission of sovereign overreach finds its basis in customary international law, codified in Article 1 of the Chicago Convention, that “each state has complete and exclusive sovereignty over the airspace above its territory”.Footnote 50 The claimants additionally relied on Article 11 of the Chicago Convention and Article 7 of the Open Skies Agreement, which they maintain affirm the principle of sovereignty by requiring foreign aircraft to comply with a state's rules on operation and navigation only “upon entering or departing from or while within the territory of that state”.Footnote 51 Article 12 of the Chicago Convention was also invoked as an indication of the Convention states’ intention that flights over the high seas be left to the jurisdiction of ICAO, rather than to any individual state.Footnote 52

Fundamentally, the claimants’ submission depended on the characterization of the ETS as a means of regulating the conduct of foreign aircraft. In international law, a state's law which extends in operation beyond the state's borders is not illegal per se, but will cross the threshold of legality where it impinges on a foreign state's sovereignty by seeking to regulate conduct that falls properly within the jurisdictional sphere of the foreign state.Footnote 53 Accordingly, the claimants argued that the ETS regulates the airline activity of emitting CO2 through the imposition of charges, or excess emission penalties, which can only be mitigated through reducing emissions or purchasing emissions allowances.Footnote 54 Insofar as this regulation extends beyond EU airspace, it is illegal. During the course of oral argument before the Court, Wyatt QC for the claimants submitted:

Let there be no mistake about it, ETS does and will regulate conduct outside the EU … It is astonishing that a US airline must acquire an EU licence to cover its emissions at a US airport, or in US airspace, but this is precisely what the ETS requires. This is incompatible with the exclusive jurisdiction of the United States to regulate such emissions. If exclusive jurisdiction means anything, it means – in this context – that if any authority is to require permits for emissions by US airlines at US airports or in US airspace, that authority must be a competent US authority.Footnote 55

Wyatt QC's appeal to the underlying meaning of “exclusive jurisdiction” is a fundamental strength in the claimants’ argument. The choice of adjectives “complete and exclusive” to delineate the boundaries of sovereignty in Article 1 of the Chicago Convention must be afforded weight in the characterization of the extra-territorial application of the ETS.Footnote 56 The adjectives connote a high degree of inviolability in the regulatory sphere of foreign states, irrespective of the level of impact a foreign regulation might have.Footnote 57

Sovereignty, therefore, is a foundational element on which the Chicago Convention—indeed, international air law—is premised, and it is wholly exclusive in nature and not to be interfered with lightly. An assessment of the ETS in this light suggests that its extra-territorial application to foreign airlines is unjustified. The ETS subjects foreign airlines to the threat of sanctions by imposing a charge for the practice of releasing emissions into foreign and international airspace, beyond the territorial boundaries of the EU. This, for Havel and Sanchez, “instantly falls foul of Article 1's letter and spirit”.Footnote 58 Further, to the extent that it incentivizes foreign airlines to adopt the most fuel-efficient flight path in international airspace, the ETS goes against the understanding of “transnational uniformity” in Article 12 that flight manoeuvres over the high seas is to be exclusively regulated by ICAO.Footnote 59

The defendants, however, submitted that the ETS does nothing to impinge upon the jurisdictional sovereignty of foreign states or ICAO's jurisdiction of flights over the high seas. For the defendants, far from regulating the conduct of foreign aircraft, the extra-territorial application of the ETS is confined to its use as a “calculation parameter” that takes into account the emissions of “flights which depart from or arrive in an aerodrome situated in the territory of a member state to which the treaty applies”.Footnote 60 The claimants’ arguments depend on a fundamental “mischaracterization” of the ETS,Footnote 61 it was argued, with the result that the question of sovereign overreach does not even arise for discussion. The defendants contend that the ETS is a wholly EU-based measure confined in its geographical regulation to the sovereign territory of the EU.

The Advocate-General accepted this reasoning and rejected the claimant's submission of sovereign overreach.Footnote 62 The Court's treatment of the claimant's submission is more brief, and does not specifically invoke the term “calculation parameter”, but relies substantially on the same logic; that is, that the ETS Directive does not have extra-territorial effect.Footnote 63 In reaching this conclusion, both the Court and the Advocate-General employ a number of mischaracterizations and interpretive contortions that seek to circumnavigate the fundamentality of sovereignty in international air law. These misconstructions serve to weaken the Court's analysis and, ultimately, render its judgment unpersuasive. On a fair reading of the Chicago Convention, which takes into account the fundamental significance of sovereignty both in the Convention and, more generally, international law, the Convention does not support a unilateral scheme which subjects foreign airlines to a charge for flight in foreign and international airspace.

An obvious element of misconstruction in the Advocate-General's analysis arises in her dismissal of the application of Article 12,Footnote 64 where she states that, as the ETS “does not contain any rules or limits on the emission of greenhouse gases from the engines of individual aircraft when flying to and from aerodromes in the European Union”,Footnote 65 it does not interfere with ICAO's regulation of aircraft over the high seas.Footnote 66 With respect to the Advocate-General, this portrayal of the ETS appears to be an exercise in purposive subterfuge. There are two problems with this portrayal. First, airlines face significant sanctions for failure to comply with the ETS, including fines and blacklisting, and, therefore, it is a tenuous argument that the ETS does not contain any “rules or limits” on aircraft emissions. A regulatory regime that compulsorily involves participants and penalizes them for non-compliance does not cease in character as an administrative rule by reason of its superficial presentation as an incentive, rather than rule-based, regime. Bartels suggests that “it is difficult to see how a measure that imposes fines of €100 for any allowance not obtained and ‘surrendered’ to the EU can be seen as anything but … a ‘concrete rule’”.Footnote 67 Second, it is entirely irrelevant that the ETS is not applied to “individual aircraft”. As a sector-based regulation, the ETS applies to all commercial airlines, requiring an abatement of emissions across entire fleets. Each and every flight of an affected airline, therefore, is subject to the ETS, and technical reliance on the failure of the ETS to target individual aircraft is misleading.

A further mischaracterization arises in the Advocate-General's determination that an “adequate territorial link” for the extra-territorial application of the ETS is provided by the departure or landing of a flight at an EU airport.Footnote 68 To reach this conclusion, the Advocate-General states that the scheme requires airlines to surrender emissions allowances “when departing from or arriving at a European aerodrome”.Footnote 69 Again, however, this is misleading. In fact, the ETS requires airlines to surrender allowances only once per year, on 30 April, for the emissions generated in the preceding calendar year.Footnote 70 By characterizing the scheme as requiring surrender upon each departure and landing, the Advocate-General imbues the ETS with a closer territorial association with EU airports than it has in practice. The territorial link is portrayed as direct, whereas it is, in fact, rather indirect.

The Court's discussion of the territoriality question is shorter, but suffers from similar difficulty. The Court places significant weight on the belief that non-EU airlines have a choice whether to subject themselves to the ETS, stating that:

[it is] only if the operator … has chosen to operate a commercial air route arriving at or departing from an aerodrome situated in the territory of a Member State that the operator, because its aircraft is in the territory of that Member State, will be subject to the allowance trading scheme.Footnote 71

This is really beside the point, and therefore any reliance on this argument is misplaced. First, it is not commercially realistic for international airlines to cease operations to and from EU Member States. Thus, the argument that airlines have a choice is illusory. Second, the Court's reasoning fails to address the underlying legality or otherwise of the extra-territorial application of the ETS, and might be analogized to the situation where a shopkeeper is operating outside the law by selling illegal merchandise but seeks to avoid sanctions by arguing, “if you don't like it, don't shop here”. Clearly, such arguments cannot be availed to address fundamental questions of legality.

More significantly, however, both the Court's and the Advocate-General's reasoning on the question of territoriality assumes that:

the ETS is triggered by physical contact with EU airports, so that by some almost metaphysical transformation it enters a condition of dormancy (and becomes immune from legal attack) when the aircraft is in the air over the high seas or non-EU airspace.Footnote 72

As Bartlik notes, physical contact alone is insufficient to establish the legality of a regulation with extra-territorial effect; there must be a “substantial and true link between the extraterritorial situation and the interests of the regulating state”.Footnote 73 In the present instance, “the mere fact that a flight arrives in or departs from an aerodrome in the EU cannot be sufficient to establish a substantial and true genuine link with the EU”, especially if it is a trans-Atlantic flight that spends an “insignificant” period of time in EU airspace.Footnote 74

As a safeguard against the claim of sovereign overreach, the Advocate-General points to the equivalence provision in Article 25a.Footnote 75 It is argued that even if, on the face of it, the ETS constitutes regulatory overreach, it is saved from illegality by reason of the EU's ability to exempt foreign airlines from its operation where they are subject to equivalent measures in their home state.Footnote 76 The ETS, she states, “does not, either in law or in fact, preclude third countries from bringing into effect or applying their own emissions trading schemes for aviation activities”.Footnote 77 This is true, but it fails to recognize the difficulty occasioned by the prospect of the EC's discretionary review of another state's sovereign law. For this is what Article 25a envisions: EC review, in complete discretion,Footnote 78 of the equivalence of environmental measures enacted by another state. This differentiates the equivalence provision from, for instance, a “mutual agreement procedure” under a double-tax treaty, where party states agree to reach a compromise that persons under their jurisdiction are not subject to double taxation.Footnote 79 In Article 25a, there is no requirement for agreement or even any agreement to agree in the form of a treaty.Footnote 80 The equivalence provision is a unilateral measure, which contemplates unilateral, discretionary review of another state's law.Footnote 81 Against the backdrop of “complete and exclusive sovereignty”, as stated in Article 1 of the Chicago Convention,Footnote 82 this should not be tolerated.

Finally, as a further safeguard against the claim of sovereign overreach, the Advocate-General construes Article 11 of the Chicago ConventionFootnote 83 and Article 7 of the Open Skies AgreementFootnote 84 as mere non-discrimination provisions, requiring no more than the laws of a contracting state to be applied equally to home-state and foreign aircraft.Footnote 85 In effect, the Advocate-General seeks to invoke the non-discrimination function of the articles as a jurisdictional basis for the extra-territorial application of the ETS to foreign airlines.Footnote 86 This is really to put the cart before the horse on the question of jurisdiction. As Hardeman notes, the articles require non-discrimination only within the jurisdictional confines of territorial sovereignty, and “can therefore not be used as the basis for imposing rules on operators from other states”.Footnote 87 Fundamentally, the articles must be read in line with their contextual basis of sovereignty. The Advocate-General fails to do this, suggesting that Article 11 of the Chicago Convention does not even provide an “inference” as to the validity of the extra-territorial application of the ETS.Footnote 88

Even accepting the argument of non-discrimination, however, there is doubt as to whether the extension of the ETS to foreign airlines will avoid discrimination. Both EU and non-EU airlines are concerned that the ETS's blanket formula for calculating emissions over the entirety of a flight will distort competition in favour of non-EU airlines with hub operations close to EU airspace.Footnote 89 The EU operations of these airlines, based out of their proximate hub, will be subject to fewer surrender requirements than the EU operations of airlines located further from EU airspace. A Singapore Airlines flight from Melbourne to London, for example, stopping in Singapore, will require allowances to cover 800 kg of CO2 emissions per economy passenger, whereas an Emirates flight between the same destinations, stopping in Dubai, will require allowances to cover only 415 kg.Footnote 90 Irrespective of whether airlines pass surrender costs to passengers,Footnote 91 this suggests a market distortion in favour of Emirates; where pass-through occurs, Emirates will be able to offer a cheaper ticket than Singapore Airlines; where it does not, Emirates can still absorb a lower surrender cost than Singapore Airlines.

The possibility of discrimination creates the possibility of “carbon leakage”, as airlines look to avoid the (alleged) market distortions of the ETS by “artificially” re-routing their flights to incur less costs, or bypassing EU airspace altogether. An example of re-routing might be where a Singapore Airlines flight from Singapore to Frankfurt makes an “artificial” fifth freedom stop in Zurich. Adopting the assumptions employed by Albers, Bühne, and Peters,Footnote 92 this stop would save the airline approximately €18 per passenger when compared to the direct Singapore-Frankfurt route.Footnote 93 It would not, however, produce any less emissions than the direct flight, and simply redirects them to avoid capture by the ETS. Indeed, the additional flight may even produce a higher level of emissions. This is what is meant by the term “carbon leakage”. The possibility of bypassing EU airspace arises principally in connection with flights between North America and Asia. Instead of electing to stopover in Europe, these flights may stopover in the Gulf region to avoid ETS surrender costs. Again, there is carbon leakage, with the same or higher level of emissions created but beyond capture by the ETS.

Fundamentally, the possibility of distortion and carbon leakage depends on whether the ETS will, in fact, subject airlines to economically significant charges. Albers, Bühne, and Peters forecast that the ETS will not significantly affect the growth of the airline industry or trigger reconfiguration of airline routes.Footnote 94 Anger shares this view.Footnote 95 A study by Standard & Poor's, however, contends that the ETS will cost airlines €1.1 billion in its first year of operation.Footnote 96 These disparate forecasts suggest that the true economic implications of the ETS will not be fully understood until the scheme comes into effect. In May 2011, Lufthansa Consulting Partner Thilo Schmid stated that “airlines are planning for a scenario that they cannot really price because of the many uncertainties”.Footnote 97 Yet, even where the economic effect of the ETS turns out to be benign, the very possibility of distortion, leading to the possibility of carbon leakage, underscores the importance of a global, rather than unilateral, regime to combat aviation emissions. This directs the focus to the claimants’ submission of impermissible unilateralism.

B. Impermissible Unilateralism

By acting outside the multilateral auspices of ICAO, the claimants argue, the EU is in breach of Article 2(2) of the Kyoto Protocol, which provides that all treaty parties “shall pursue limitation or reduction of emissions of greenhouse gases not controlled by the Montreal Protocol from aviation … working through ICAO”.Footnote 98 They argue that this article, in particular its use of the word “shall”,Footnote 99 establishes a binding legal commitment for Kyoto parties to pursue emissions-reduction in international aviation through multilateral discussion at ICAO.Footnote 100 Article 15(3) of the Open Skies Agreement also supports the claimants’ case for multilateralism by reason of its requirement that environmental measures established under the Agreement follow standards set by ICAO in the Chicago Convention annexes.Footnote 101

There are two weaknesses in this argument. First, irrespective of the legal status of the commitment to “work through” ICAO, it seems clear that ICAO is not the exclusive forum for the regulation of international aviation emissions. ICAO's jurisdictional claim over the issue is tenuous, based more on a permissive, de facto, rather than explicit, recognition that ICAO is the only forum capable of dealing with the jurisdictional difficulties arising from the regulation of emissions on trans-border flights.Footnote 102 Article 2(2) of the Kyoto Protocol transferred responsibility for aviation emissions to ICAO as a “convenient solution to a difficult problem”,Footnote 103 but it did not confer exclusivity on ICAO. ICAO has itself recognized this in Resolution A37-19, which urges states “to engage in constructive bilateral and/or multilateral consultations” to reach agreement on the implementation of market-based measures to combat aviation emissions.Footnote 104 The reference to bilateral consultations, in particular, suggests the possibility of negotiations outside ICAO, rendering impotent the claimants’ suggestion that Article 2(2) requires, without exception, parties to work through ICAO.Footnote 105 Second, the Chicago Convention annex on environmental standards, Annex 16, says nothing of the regulation of CO2 emissions.Footnote 106 This essentially restricts the claimants’ appeal to Article 15(3)'s express reference to the annex provisions.Footnote 107

In the end result, there appears to be a regulatory gap in the treatment of emissions from international aviation. The Kyoto Protocol directs the resolution of the issue to ICAO, but ICAO's jurisdiction is weak and non-exclusive. This is both sufficient to defeat the argument of impermissible unilateralism, but insufficient to support a unilateral approach, at least as it extends beyond the EU's borders. Simply put, there is a regulatory gap. In finding the defendants’ unilateral approach to be valid, Advocate-General Kokott appeals to the “overall context” of the United Nations Framework Convention on Climate Change Footnote 108 to fill this gap, stating that the “Framework Convention permits not just multilateral, but also national and regional policies and measures for the limitation or reduction of greenhouse gases”.Footnote 109 Similarly, for the Court, individual parties to the Kyoto Protocol each “undertook to adopt the measures necessary in order to obtain [the Protocol's] objectives”, and such undertaking could, but not of necessity, be effected through collective action.Footnote 110 In this scenario, the regulatory gap is filled by giving ICAO a “reasonable period” to reach agreement on emissions-reduction, failing which “the parties to the Kyoto Protocol must be at liberty to take the measures necessary to achieve the Kyoto objectives at national or regional level”.Footnote 111

Legally, the Court's interpretation is questionable, especially when combined with the claim of sovereign overreach. There is no question that the Kyoto Protocol allows for the adoption of national and, where negotiated, regional measures, but it does not extend so far as to permit unilateral regulation of emissions from foreign airlines in foreign or international airspace. This, in large part, was the reason for the Kyoto Protocol's deferral to ICAO in the first place.Footnote 112 ICAO has confirmed this understanding in Resolution A36-22 by endorsing “the application of emissions trading for international aviation only on the basis of mutual agreement”.Footnote 113 Whilst EU states entered a reservation to this endorsement,Footnote 114 the directional weight of both Resolution A36-22 and Resolution A37-19 suggest that the resolutions “definitively reject unilateral action” on international aviation emissions.Footnote 115 In short, both the Kyoto Protocol and the Chicago Convention permit a bilateral or multilateral emissions trading initiative in international airspace for nationals of contracting states, but not a unilateral initiative applied to foreign nationals in foreign airspace.

At a practical level, however, the Court's interpretation is attractive because it offers a path out of the diplomatic impasse that has developed in the ICAO/Kyoto Protocol regulatory gap. This impasse is the product of political tensions that inform the whole debate on climate change at a global level, with significant non-EU developed countriesFootnote 116 maintaining that progress on climate change is contingent on developing countries, especially China, Brazil, Russia, and India, accepting significant commitments to reductions in a global agreement. For their part, developing countries have resisted forceful reduction commitments under the principle of “common but differentiated responsibility” under the Kyoto Protocol, which provides for relaxed commitments to environmental standards in line with a country's level of economic development.Footnote 117 These negotiating positions, buttressed by a global financial crisis which has redirected attention towards more pressing concerns of financial stability, have resulted in well-publicized failures by the international community to adopt any firm agenda after the expiry of the Kyoto Protocol.Footnote 118

As it has recently played out in ICAO, this diplomatic impasse has resulted in a weak, aspirational Resolution A37-19 that leaves significant wiggle-room for Member States.Footnote 119 Although the Resolution has been hailed as a “breakthrough” by reason of its adoption of guiding principles for the establishment of market-based measures to combat aviation emission,Footnote 120 the core language of the Resolution is weak, legally amorphous, and will do little—in and of itself—to propel substantive action. In Paragraph 6, states are exhorted to “work together to strive to achieve a collective medium term global aspirational goal of keeping the global net carbon emissions from international aviation from 2020 at the same level”.Footnote 121 Paragraph 4 commits states to work through ICAO to achieve a two percent improvement in fuel efficiency per annum till 2020, but it is non-binding and substantially pales in comparison to both the EU's and the Kyoto Protocol's emissions targets.Footnote 122 Beyond 2020, states have only committed to an “aspirational” target of two percent reductions per annum.Footnote 123

Any path through this diplomatic paralysis, therefore, is seductively attractive, and all the more so when the ETS is presented as a helpful stepping-stone towards a binding multilateral solution to reducing international aviation emissions. Indeed, the EU regards the ETS as fundamentally consistent with multilateral reduction efforts, which can be adopted as a parallel scheme to continued talks at ICAO. The scheme is presented “as a model for the use of emissions trading worldwide”.Footnote 124 The Advocate-General states that the ETS “by no means” closes “the door to a subsequent multilateral solution”,Footnote 125 and it is clear that the Court shares this view.Footnote 126

For the airlines, however, the extension of the ETS to aviation represents a setback to the multilateral resolution of the issue of aviation emissions. They point, first, to the possibility of carbon leakage in a unilateral scheme, and second, to the possibility that ETS costs will reduce the financial capacity of airlines to upgrade their fleets to more fuel-efficient aircraft.Footnote 127 Far from achieving consistency with multilateral efforts, therefore, the airlines submit that the ETS substantially undermines those efforts.

At present, it is unclear whether the ETS will promote or hinder multilateral efforts to reduce aviation emissions. The Court's decision initially provoked a rather hostile reaction, at both the industry and state level, which would indicate that multilateral efforts have been somewhat derailed. On 6 February 2012, China banned its airlines from participating in the ETS “without the approval of relevant government departments”,Footnote 128 and reports surfaced soon after that Chinese airlines had been ordered by the government to cancel US$14 billion worth of aircraft orders from European manufacturer Airbus, triggering fears of a trade war.Footnote 129 India informally requested its airlines to refrain from complying with the ETS in March.Footnote 130 The US Senate Committee on Commerce, Science, and Transportation is currently reviewing a bill that would ban US airlines from complying with the ETS,Footnote 131 with Transportation Secretary Ray LaHood recently describing the ETS as a “very, very bad law”.Footnote 132 Russia, too, is reported to be considering a law that would ban its airlines from complying with the ETS.Footnote 133 On 22 February 2012, a coalition of twenty-three states—including Argentina, Brazil, China, India, Japan, the Republic of Korea, Mexico, Nigeria, Russia, Singapore, South Africa, and the United States—met in Moscow to sign a joint declaration outlining eight measures which each state is contemplating in its effort to further challenge the ETS,Footnote 134 to obstruct its application to their airlines, and/or to impose retaliatory measures on EU airlines.Footnote 135

Significantly, however, for all the bluster, there has to date been little retaliatory action in response to the ETS, and the measures that have been taken appear to allow for a degree of flexibility to retract from the indignant stance of some nations. With respect to China's “ban”, for instance, discretion remains in the hands of the “relevant government departments”, and the Chairman of Air China, Wang Changshun, recently declared that he had “not received any formal information” on the cancellation of Airbus orders.Footnote 136 There has also been no visible action on the US bill prohibiting compliance with the ETS since it was referred to the Senate Transportation Committee in December 2011,Footnote 137 and at the time of writing, India and Russia had yet to produce any draft legislation for formal consideration. Notably, too, the final twenty-three-state joint declaration was significantly watered down from a circulated draft,Footnote 138 which had contemplated the inclusion of a firm undertaking to pursue dispute resolution under Article 84 of the Chicago Convention, which provides for a state to file a formal complaint for resolution by the ICAO Council.Footnote 139

Although it is too early to tell, the lack of retaliatory action may indicate that states are disposed to resolve the present dispute through pursuit of a multilateral solution at ICAO, rather than formal dispute resolution or political brinkmanship.Footnote 140 One thing both sides agree on is that ICAO is the most appropriate forum through which to forge a solution,Footnote 141 and it appears as though the EU's unilateral action is serving to force ICAO's hand, rather than allow a solution to develop organically. In this setting, the fervent antagonism towards the ETS may actually prove constructive, since it serves to focus attention on how a multilateral solution to aviation emissions might be achieved. It is significant that the pace of multilateral progress has increased since the EU's announcement of its intention to extend its ETS to aviation,Footnote 142 and increased again in the few months since the ECJ's judgment.Footnote 143 ICAO now appears to accept its task to develop a global solution within the ICAO framework,Footnote 144 from the impetus provided by the ETS.Footnote 145 We shall return to this point in the “Conclusion”, following an analysis of the claimants’ third submission that the ETS constitutes an impermissible charge or tax.

C. Impermissible Charge or Tax

The claimants’ arguments concerning sovereign overreach and impermissible unilateralism seek to invalidate the ETS only as it applies to foreign airlines beyond the EU's borders.Footnote 146 The claimants’ final submission, however, sought to invalidate the entirety of the ETS, both within the EU and without, as either an impermissible “fee, due or other charge” under Article 15 of the Chicago Convention,Footnote 147 or, alternatively, an impermissible tax on the consumption of fuel under Article 24 of the Chicago ConventionFootnote 148 and Article 11(2) of the Open Skies Agreement.Footnote 149

Clearly, the ETS necessitates payments from airlines. As an immediate payment, airlines are required to bid and pay for allowances for emissions from flight activity over and above the level of freely allocated allowances. Going forward, Bartlik identifies the obligation to surrender allowances and the incentive to modernize fleets as potential “other charges” under Article 15 of the Chicago Convention.Footnote 150 The claimants argued that these payments were impermissible under Article 15 by reason of the article's prohibition of any “fee, due or other charge in respect solely of the right of transit over or entry into or exit from its territory of any aircraft of a contracting state”.Footnote 151 All the airlines may hope to gain in return for payment of the ETS costs is continued acknowledgement of the rights of entry, exit, and transit guaranteed by the Chicago Convention. There is no additional benefit or service received in return for the payments. This takes the payments outside the “long-standing ICAO practice”, as codified in Article 15, to allow levies only where they are reasonable to “cover costs of providing facilities and services, or damage remediation costs related to civil aviation”.Footnote 152

The Advocate-General rejected this submission on two grounds, of which neither is persuasive. First, she held that that the ETS is not, as the claimants argued, a fee, due, or other charge, but rather a “market-based measure” that does not subject airlines to a mandatory charge.Footnote 153 This line of reasoning followed the defendants’ suggestion that the airlines which are able to reduce their carbon emissions below the free allocation allowance of eight-five percent will not incur any costs at all,Footnote 154 and may even return a profit.Footnote 155 The fundamental difficulty with this suggestion is that it ignores the costs associated with an airline reducing its emissions below historical levels. The quickest way, of course, to reduce emissions would be for an airline to fly less, but this would create a large opportunity cost for the airline as it foregoes potential revenue. Another way to reduce emissions would be to employ low-carbon fuels, but these are still economically unattractive compared to traditional fuels, and thus they create additional costs. If it were otherwise, airlines would already be using alternative fuels. Even assuming the best-case scenario for the EU, in which airlines return a profit by reducing emissions below the free allocation allowance, the airlines are likely to incur significant costs in reducing emissions prior to the realization of profit.

Havel and Sanchez offer the EU a way out of this definitional bind, but the EU has not elected to take it. A progressive, but still “unauthorized”, interpretation of Article 15, the authors suggest, may be to recognize that “emissions-abating measures are part of the cost of providing airport and navigation services”.Footnote 156 Under this interpretation, “so long as additional charges imposed by the [market-based measure] were rationally related to the emissions-reduction actions taken by national authorities and not a disguised wealth transfer from aviation stakeholders, states would be at liberty to recover abatement costs”.Footnote 157 In essence, state-imposed fees unrelated to aircraft services are prima facie invalid, but the urgency of emissions-abatement necessitates flexibility; thus, where fees are directed towards abatement measures, they will be tolerated. ICAO adopts the same position in Resolution A37-19, which strongly recommends, as a guiding principle for the introduction of any market-based measure, that funds collected by states as environmental levies be applied to the mitigation of the environmental effects of aviation.Footnote 158 In the present instance, however, EU states are not required to direct funds from ETS auctions towards the abatement of emissions. An EC Directive issued in 2009 declares that states “should” direct at least fifty percent of funds towards environmental purposes,Footnote 159 but there is no legal requirement to do so. Accepting this “soft” obligation, the UK has indicated that it will place funds received into its Consolidated Fund.Footnote 160 The criterion, therefore, on which Havel and Sanchez offer their progressive interpretation of Article 15, remains unsatisfied as it applies to the ETS.Footnote 161

The same reasoning serves to defeat the defendants’ second argument against the claim of impermissibility, which is that, even if recognized as a fee, due, or other charge, the ETS does not offend against Article 15 because it is not imposed “solely” in respect of rights of transit, exit, and entry.Footnote 162 In fact, the ETS has nothing to do with these rights, but is directed instead to environmental measures. This line of argument looks beyond the transactional relationship between states and airlines to consider the wider environmental benefit of reducing aviation emissions, and there is certainly merit in a construction of the word “solely” that allows for consideration of externalities from an airline's exercise of transit, exit, and entry rights. The fact remains, however, that to achieve tolerability under Article 15 of the Chicago Convention, the money raised by the ETS would have to be directed by EU Member States towards measures to reduce the environmental impact of aviation, rather than placed in EU coffers, but this is not the case in the present instance.

The Advocate-General relies on the failure of the ETS to lay down a predetermined price for allowances to escape the definitional breadth of Article 15. “It would be unusual”, she states, “to describe as a charge or tax the purchase price paid for an emission allowance, which is based on supply and demand according to free market forces.”Footnote 163 The Court invokes the same reasoning when it states that:

unlike a duty, tax, fee or charge on fuel consumption, the scheme … 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 for all the flights carried out in a calendar year.Footnote 164

This obfuscates the relevant inquiry, which is not how allowances are distributed, but rather where the fees paid for them end up. The establishment of an auction process for allowance distribution is a purely administrative concern. This cannot hide the fact that airlines are required to pay money to the administering EU state for allowances, and that money is not required to be directed by the state towards emissions-reduction initiatives. At a substantive level, therefore, the requirement to pay for emissions allowances for flights over the freely allocated threshold appears to effect a transfer of funds from airlines to EU states, in return for which the airlines receive no additional rights, services, or products. This runs counter to the long-standing interpretation given to Article 15 of the Chicago Convention that fees unrelated to the provision of aircraft services are impermissible, and it fails to fall within the limited exceptional tolerance for environmental levies directed towards the reduction of environmental harm.

If not defined as a fee, due, or other charge as contemplated by Article 15, the claimants argued, the ETS must be defined as an impermissible tax on the consumption of fuel under Article 24 of the Chicago ConventionFootnote 165 and Article 11(2) of the Open Skies AgreementFootnote 166: “there is no third, amorphous category that could encompass the carbon allowance requirement and somehow make it legal.”Footnote 167 This submission sought to rely on the ECJ case of Braathens Sverige AB v. Riksskatteverket Footnote 168 to equate a tax on emissions as a tax on fuel itself. In that case, the Court held that by reason of the “direct and inseverable link between fuel consumption and the polluting substances”, a tax on the polluting substances “must be regarded as levied on consumption of the fuel itself”.Footnote 169

In rejecting the claimants’ submission, both the Advocate-General and the Court largely focused on the underlying purpose behind Article 24 of the Chicago Convention and Article 11(2) of the Open Skies Agreement. “The aims and substance of [the articles]”, writes the Advocate-General, are to “protect airlines from one contracting state from having their aircraft and stores treated as ‘imported’ when they land in other contracting states”.Footnote 170 Similarly, for the Court, while the provisions of the Open Skies Agreement “prohibit, inter alia, certain forms of import customs duties, taxes, fees and charges on fuel … the rules set out in Directive 2008/101 … pursue in particular the objective of improving environmental protection”.Footnote 171 Accordingly, the articles are of no application to the ETS, which is focused solely on environmental protection, rather than importation.

Again, this reasoning is questionable. Even assuming the legitimacy of the Court's interpretive approach,Footnote 172 a fairer reading of the purpose of Article 24 of the Chicago Convention and Article 11(2) of the Open Skies Agreement would suggest that the articles protect airlines from the imposition of unjustifiable fees on arrival in another state. Whether their aircraft and fuel are treated as imported is irrelevant; the key question is whether airlines will be made subject to payment of a fee that is unrelated to the provision of aircraft services. This is evident in Article 11(2)'s exemption of fuel from “all import restrictions, property taxes and capital levies, customs duties, excise taxes, and similar fees and charges … not based on the cost of services provided”.Footnote 173 Significantly, both “property taxes” and “capital levies” may be imposed irrespective of a subject's trans-border movement, which suggests that Article 11(2) contemplates prohibition of a wider class of tax than customs duty alone. In view of the article's scope, Macintosh determines that “it is difficult to avoid the conclusion that a tax or charge levied on fuel use would contravene the agreement”.Footnote 174

As for the claimants’ portrayal of the ETS as a tax on fuel consumption, rather than emissions, the Court felt that the claimants’ reliance on Braathens was misplaced. For the Advocate-General, Braathens turned on the existence of a “direct and inseverable link” between fuel consumption and emissions, an element which was missing in the present case for the reason that airlines can always elect to use biofuels on ETS flights, thereby reducing their emissions to zero.Footnote 175 For the Court, the “direct and inseverable link” was missing because the pecuniary burden on any particular airline is not rigidly set, but subject to external criteria such as the initial allocation of allowances to that airline and the price of carbon in the market.Footnote 176 Both of these arguments, however, fail to take appropriate account of the fact that, whatever the economic advantages obtained by switching to biofuels or by other market forces, airlines will, at some level, bear a cost—even an opportunity cost—for complying with the ETS.Footnote 177

This returns us to the argument relating to an impermissible fee, due, or other charge. If we accept that the ETS is impermissible because it imposes costs on airlines unrelated to the provision of aviation services, there arises a logical difficulty in allowing the EU to rely on the absence of any “direct and inseverable link” to defeat the claimants’ reliance on Braathens. In effect, the EU is seeking to rely on something (the absence of a link between fuel use and emissions) that it cannot itself bring into existence (because it would impose an impermissible cost). Putting it differently, the link between fuel use and emissions, or the absence of it, concerns an area—the airline's choice of fuel, or the vagaries of the market—over which the EU has no regulatory capacity, and therefore it is unfair for the EU to rely on it.Footnote 178

To be sure, this is an intricate argument that takes the discussion beyond the text of Article 24 of the Chicago Convention and Article 11(2) of the Open Skies Agreement, and it was not advanced before the ECJ. However, the claimants’ efforts to defeat the ETS by labelling it as an impermissible cost do not depend on the success of this argument. Irrespective of the severability of the link between emissions and aviation fuels, for the costs imposed by the ETS to pass muster under international air law, the EU scheme would have to be restructured to ensure that ETS funds received by EU states are purposefully directed towards emissions-reduction initiatives. Anything less than a binding obligation for states to direct funds towards emissions-reduction seems insufficient, especially in the light of the UK's declaration to place revenue from the scheme into its Consolidated Fund.

III. CONCLUSION AND FUTURE PROSPECTS

On 29 March 2012, the claimants and defendants appeared before the High Court of Justice of England and Wales for the first time since that Court's filing of a reference for a preliminary ruling with the ECJ. Despite previous statements that they would seek to challenge the ECJ's judgment on its remission to the High Court,Footnote 179 the claimants made no further motion at the remission hearing in March,Footnote 180 which allowed the High Court to enter formal judgment against them.

Whilst it is too early to determine any clear trends, the claimants’ decision not to proceed with further legal action may be indicative of two related phenomena in the evolving debate on aviation emissions. First, the battleground for this debate may have moved somewhat, from the legal to the political sphere, and concurrently from a focus on aviation law to a focus on WTO law.Footnote 181 Whilst the principal arguments addressed in this article lay the foundation for the evolving discussion on both fronts, the developments in the direction of the debate allow these arguments to be removed from the potentially monofocal framework of aviation law to address wider concerns for the environment. In the political sphere, it is widely recognized that rapidly increasing levels of carbon dioxide in the earth's atmosphere are environmentally unsustainable, and that diligent, concerted action is needed at the global level to avert environmental catastrophe. In this setting, the ETS appears less objectionable as a measure to stimulate progress beyond the ICAO stalemate on aviation emissions. Significantly, WTO law is permissive on this front, expressly recognizing the right of Member States to enact regulatory measures focused on environmental protection, even where the effect of such measures extends beyond sovereign borders.Footnote 182 It is significant that recent papers from three prominent WTO scholars all take the view that the ETS is legally justifiable to protect the environment under environmental exceptions clauses.Footnote 183 Again, therefore, the ETS appears less objectionable when considered within a wider framework. This does not suggest that the concerns over the ETS extension to aviation are misplaced, for clearly international aviation is inherently transnational in character, and requires regulation through negotiated compromise—either bilaterallyFootnote 184 or multilaterally—for its continued success. In its validation of a unilateral approach on emissions reduction, the ECJ has set a worrisome precedent, for the regulatory regime behind international aviation will quickly collapse if states look to impose unilateral solutions on multilateral issues.Footnote 185

This concern, however, must be balanced against the need for action on climate change, and it is here that a wider focus beyond aviation law is meritorious. The developments in the debate on aviation emissions in the aftermath of the ECJ's judgment suggest that states may be starting to accept, though begrudgingly, the legitimacy of the EU's attempt to tackle the issue of aviation emissions. Indeed, uniform opposition to the EU's unilateral approach may force states to the multilateral negotiating table in the hope of forging an alternative solution.Footnote 186 This push for a multilateral solution is the second phenomenon evident in the evolving debate on aviation emissions following the ECJ's judgment. In January 2012, ICAO Secretary General Raymond Benjamin noted that, “while there are clear differences among member states, we still have to come up with a global solution”.Footnote 187 If ICAO is able to lead progressive negotiations on this issue, it may be expected that the EU will suspend or halt the extension of its ETS to aviation, leaving the sector to be regulated, as it should, through multilateral negotiations. This would serve to strengthen the multilateral legal regime on which international aviation is based.

Ultimately, the initial reactions in the international community following the ECJ's judgment suggest that the judgment may serve as a stepping-stone in the development of a multilateral solution to the regulation of international aviation emissions, and in the process strengthen the multilateral platform on which international aviation is premised.

Footnotes

*

LL.M (New York University); LL.M (National University of Singapore). This article is a revised version of the paper that won the 2012 International Air Transport Association (IATA) Constance O'Keefe Legal Writing Award. I wish to thank Professor Alan Khee-Jin Tan from the National University of Singapore for encouraging me to submit this paper to the competition, and the partnership of Squire Sanders LLP for sponsoring the Constance O'Keefe Award.

1. Kyoto Protocol to the United Nations Framework Convention on Climate Change, 11 December 1997, 2303 U.N.T.S. 148 (entered into force 16 February 2005) [Kyoto Protocol].

2. MACINTOSH, Andrew, “Overcoming the Barriers to International Aviation Greenhouse Gas Emissions Abatement” (2008) 33 Air and Space Law 403 at 405

3. TRUXAL, Stephen, “The ICAO Assembly Resolutions on International Aviation and Climate Change: An Historic Agreement, a Breakthrough Deal, and the Cancun Effect” (2011) 36 Air and Space Law 217

4. See, again, Macintosh, supra note 2, who appends a chronological history of ICAO actions to his article.

5. Truxal, supra note 3 at 237.

6. HAVEL, Brian F. and MULLIGAN, John Q., “The Triumph of Politics: Reflections on the CJEU Judgment of the Court of Justice of the European Union Validating the Inclusion of Non-EU Airlines in the Emissions Trading Scheme” (2012) 37 Air and Space Law 4

7. The International Air Transport Association and the National Airline Association of Canada appeared as interveners in the case, but they are included here as claimants to avoid the difficulty of differentiating between the formal claimants and the interveners. In substance, the claimants and interveners advance the same arguments.

8. Air Transport Association of America and Ors v. UK Secretary of State for Energy and Climate Change, Judgment of the Court of Justice of the European Union (Grand Chamber) of 21 December 2011, [2011] EUECJ I-000 NYR, Case C-366/10, on referral from the High Court of Justice of England and Wales, Queen's Bench Division (Administrative Court) [ECJ Judgment].

9. Ibid.

10. See, for instance, Airlines for America (A4A) “A4A Comment on European Court of Justice Decision” (21 December 2011), online: A4A 〈http://airlines.org/Pages/news_12-21-2011.aspx〉 [A4A Comment]; “What Next in the EU Versus Airlines Dispute?” Reuters (23 December 2011).

11. “Threat of Global Trade War Over Airline Emission Charges” The Telegraph (18 May 2012).

12. On 22 February 2012, a joint declaration was signed by twenty-three states that contemplated, among other things, the filing of a formal application for dispute resolution at ICAO, and the taking of “appropriate action” in the light of an assessment of the EU ETS with respect to the EU's commitments in the World Trade Organization. See “Joint Declaration of the Moscow Meeting on Inclusion of International Civil Aviation in the EU-ETS” GreenAir (22 February 2012), online: GreenAir 〈http://www.greenaironline.com/photos/Moscow_Declaration.pdf〉 [Joint Declaration]. Tony Tyler, the Director General of the International Air Transport Association, has called for the United Nations to mediate in the dispute between China and the EU. See “Call for UN to Mediate in China-EU Aviation Row” Reuters (12 February 2012). In late 2011, an official from the China Air Transport Association also announced that China would initiate legal action against the ETS in Germany. See “China's CATA to Sue on Airline Carbon Rule” Airwise (26 December 2011), online: Airwise 〈http://news.airwise.com/story/view/1324903325.html〉.

13. See Joint Declaration, supra note 12.

14. Bartels, for instance, notes the relevance of Case C-366/10 in the determination of whether the ETS can be characterized as a fiscal measure within the meaning of Article III(2) of the General Agreement on Tariffs and Trade, 30 October 1947, 58 U.N.T.S. 187 (entered into force 1 January 1948) [GATT], and agreed with the ECJ that it should not be so characterized. See Lorand BARTELS, “The Inclusion of Aviation in the EU ETS: WTO Law Considerations” International Centre for Trade and Sustainable Development, Issue Paper, April 2012. Meltzer disagrees with Bartels on this point, but uses the ECJ's analysis in determining whether the ETS imposes a fee, duty, or other charge in his determination of whether the ETS falls within the annex on Air Transport Services to the General Agreement on Trade in Services, 15 April 1994, 1869 U.N.T.S. 183 (entered into force 1 January 1995) [GATS]. Further, Meltzer considers the key question of jurisdictional sovereignty in the light of the arguments advanced in Case C-366/10. See Joshua MELTZER, “Climate Change and Trade: The EU Aviation Directive and the WTO” (2012) 15 Journal of International Economic Law 111 at 126, 130, and 151−3.

15. Kyoto Protocol, supra note 1, art. 3(1).

16. Directive 2008/101/EC of the European Parliament and of the Council of 19 November 2008, 19 November 2008, online: EUR-Lex 〈http://eur-lex.europa.eu〉 [Directive 2008/101/EC].

17. Ibid., Preamble at para. 11.

18. Ibid., Annex at para. 1.

19. This is established by the manner of calculating emissions: fuel consumption × emissions factor, with fuel consumption including all consumption from take-off, landing, flight, and taxiing activity. See ibid., Annex at para. 2(b).

20. Directive 2003/87/EC of the European Parliament and of the Council of 13 October 2003, 13 October 2003, online: EUR-Lex 〈http://eur-lex.europa.eu〉, art. 12.

21. Directive 2008/101/EC, supra note 18, art. 1 at para. 4.

22. Ibid.

23. Commission Regulation (EC) No 748/2009 of 5 August 2009, 5 August 2009, online: EUR-Lex 〈http://eur-lex.europa.eu〉.

24. The airlines were required to record their emissions in 2010 and issue an “emissions report” to their administering Member State. The calculation employed to record the emissions may be expressed, essentially, as follows: weight of passengers and cargo × distance flown (“tonne-km data”). The aggregate tonne-km data submitted by all airlines was employed by the EU to establish a “benchmark” for the allowances to be distributed free of charge (0.6797 allowances per 1,000 tonne-kilometres in 2012). This was done by dividing the average 2004−06 total emissions by the aggregate 2010 tonne-km data. Kerry REALS, “Airlines to Receive 85% of Allowances Free in 2012” Flightglobal (26 September 2011), online: Flightglobal 〈http://www.flightglobal.com/news/articles/airlines-to-receive-85-of-eu-ets-allowances-free-in-2012-362537/〉.

25. Directive 2008/101/EC, supra note 16, art. 1 at para. 4.

26. The market growth must be of such significance that an airline's tonne-km data increases by over 18% per annum. See ibid., art. 3f.

27. Ibid.

28. Ibid., art. 12(2a).

29. Ibid., art. 16(3).

30. Ibid., art. 16(2).

31. Ibid., art. 16(5).

32. Ibid., Preamble at para. 17.

33. Ibid., art. 25a. Interestingly, the exemption of foreign aircraft from certain states only, without extension of such exemptions to aircraft from all states, may violate the most-favoured nation requirement in WTO law. Meltzer notes that “the Aviation Directive might … violate that [sic] GATT Article 1 should the EU exempt from the requirement to purchase emission allowances airlines from countries regulating CO2 emissions from their aviation sector. Where this resulted in different cargo rates for goods, the EU could be providing more favorable treatment to imports of goods from these WTO members.” See Meltzer, supra note 14 at 137, and GATT, supra note 14, art. 1.

34. Aviation Greenhouse Gas Emissions Trading Scheme Regulations (UK) 2009, S.I. 2009/2321; now supplemented by the Aviation Greenhouse Gas Emissions Trading Scheme Regulations (UK) 2010, S.I. 2010/1996. The UK is the EU Member State responsible for administering the ETS., 〈http://europa.eu/about-eu/countries/member-countries/unitedkingdom/index_en.htm〉.

35. John BALFOUR, Mark BISSET, and Georgina CROWHURST, “The ATA Case Against the EU ETS” Clyde & Co (4 October 2010), online: Clyde & Co 〈http://www.clydeco.com/knowledge/articles/the-ata-case-against-the-eu-ets〉.

36. Official Referral, 22 July 2010, reproduced in the Official Journal of the European Union: OJ 2010 C 209.

37. Aviation Environment Federation, WWF-UK, the European Federation for Transport and Environment, the Environmental Defense Fund, and Earthjustice.

38. With written submissions additionally tendered by the governments of Belgium, Germany, Italy, the Netherlands, Austria, and Iceland.

39. Formally, there is only one defendant to the proceedings, but to avoid the potential complication of differentiating between the defendant and the various interveners, this chapter adopts the plural form of defendant to cover all defending parties.

40. Air Transport Association of America and Ors v. UK Secretary of State for Energy and Climate Change, Opinion of Advocate-General Kokott delivered on 6 October 2011, [2011] EUECJ I-000 NYR, Case C-366/10 [Kokott Opinion].

41. Burrows and Greaves acknowledge that the relationship between the Advocate-General and the Court is complex, affected by a “mélange” of factors, but note that “it is certainly the case that the Advocate General can assist the Court in developing reasoning which it can follow in coming to its decision”. See Noreen BURROWS and Dora GREAVES, The Advocate General and EC Law (Oxford: Oxford University Press, 2007) at 209−13.

42. Havel and Mulligan adopt the same stance in their paper. See Havel and Mulligan, supra note 6.

43. Convention on International Civil Aviation, 7 December 1944, online: ICAO 〈http://www.icao.int/icaonet/dcs/7300.html〉 [Chicago Convention].

44. Kokott Opinion, supra note 40 at para. 57.

45. Ibid., at para. 64. See ECJ Judgment, supra note 8 at para. 71.

46. By and large, the ECJ's reasoning on the question of treaty application has a sound basis in ECJ precedent. However, see Havel and Mulligan, supra note 6 at 13−16 for a discussion of the practical difficulties the Court's approach might occasion.

47. US-EU Air Transport Agreement, 30 April 2007, online: US Department of State 〈http://www.state.gov/e/eeb/rls/othr/ata/e/eu/114768.htm〉 [Open Skies Agreement].

48. Havel and Mulligan, supra note 6 at 16.

49. The Court, in its formal judgment, does not do this.

50. Chicago Convention, supra note 43, art. 1.

51. Ibid., art. 11. In art. 7 of the Open Skies Agreement, the wording is “while within the territory of the first Party”. See Open Skies Agreement, supra note 47, art. 7.

52. Chicago Convention, supra note 43, art. 12.

53. Robert JENNINGS and Arthur WATTS, Oppenheim's International Law, 9th ed. (Oxford: Oxford University Press, 2008) at 456.

54. Air Transport Association of America and Ors v. UK Secretary of State for Energy and Climate Change, Oral Submissions on Behalf of the Air Transport Association of America (ATA), United Continued Airlines, and American Airlines, Case C-366/10 at para. 9 [Claimants’ Oral Submissions].

55. Ibid., at paras. 9 and 16.

56. Chicago Convention, supra note 43, art. 1.

57. Martin BARTLIK, “The Extension of the European Union's Emissions Trading Scheme to Aviation Activities” (2009) 34 Annals of Air and Space Law 151 at 165.

58. Brian HAVEL and Gabriel SANCHEZ, “Toward a Global Aviation Emissions Agreement” SSRN, online: SSRN 〈http://ssrn.com/abstract=1911508〉 at 20. This paper appears in a forthcoming issue of the Harvard Environmental Law Review.

59. Ibid., at 21. See Chicago Convention, supra note 43, art. 12.

60. Kokott Opinion, supra note 40 at para. 147. The term “calculation parameter” is employed by the environmental groups intervening in Case C-366/10. See Air Transport Association of America and Ors v. UK Secretary of State for Energy and Climate Change, Written Observations of the Aviation Environment Federation, WWF-UK, the European Federation for Transport and Environment, the Environmental Defense Fund, and Earthjustice, Case C-366/10 at paras. 11, 33, and 34 [Environmental Interveners’ Written Observations]. Kokott states that “the fact that the calculation of emission allowances to be surrendered is based on the whole flight in each case does not bestow upon Directive 2008/101 any extraterritorial effect”. See Kokott Opinion, supra note 40 at para. 147.

61. Environmental Interveners’ Written Observations, supra note 60, at para. 10.

62. Kokott Opinion, supra note 40 at para. 147.

63. ECJ Judgment, supra note 8 at paras. 126, 127, and 133. See also Havel and Mulligan, supra note 6 at 19 where the authors discuss this point.

64. Chicago Convention, supra note 43, art. 12. The application of art. 12 of the Chicago Convention was not directly addressed by the Court as the Court did not consider the application of individual Convention provisions following its earlier finding that the Convention does not bind the EU as a non-signatory. Nonetheless, the Court adopted an essentially similar line of argument as the Advocate-General's when it stated that the ETS does not “affect the principle of freedom to fly over the high seas since an aircraft flying over the high seas is not subject, in so far as it does so, to the allowance trading scheme”. See ECJ Judgment, supra note 8 at para. 126.

65. Kokott Opinion, supra note 40 at para. 170.

66. Ibid., at para. 169.

67. Bartels, supra note 14 at 10.

68. Kokott Opinion, supra note 40 at para. 152.

69. Ibid., at para. 153.

70. Directive 2008/101/EC, supra note 16, art. 1 at paras. 10 and 14.

71. ECJ Judgment, supra note 8 at paras. 127 and 133 (emphasis added).

72. Havel and Mulligan, supra note 6 at 19.

73. Bartlik, supra note 57 at 163.

74. Ibid., at 164. Bartlik concludes that the ETS “infringes upon the territorial principle”. See ibid., at 165.

75. Directive 2008/101/EC, supra note 16, art. 1 at para. 18. The Court does not employ the equivalence provision as a safeguard against extra-territoriality, but it nonetheless views the provision in the same light as the Advocate-General. See ECJ Judgment, supra note 8 at paras. 150 and 151.

76. Kokott Opinion, supra note 40 at paras. 156−9.

77. Ibid., at para. 156.

78. There are no public guidelines to govern the Commission's determination. See Cathy BUYCK, “Trading Places” Air Transport World (1 May 2011), online: Air Transport World 〈http://atwonline.com/eco-aviation/article/trading-places-0429〉, at 26.

79. See, for instance, Organisation for Economic Co-operation and Development, “What is Mutual Agreement Procedure (MAP)?”, online: OECD 〈http://www.oecd.org/document/51/0%2C3343%2Cen_2649_33753_36158963_1_1_1_1%2C00.html〉.

80. Directive 2008/101/EC, supra note 16, art. 1 at para. 18.

81. Failure to act transparently in this process may give rise to a claim under WTO law. Meltzer, supra note 14 at 147 notes that art. X of GATT (see GATT, supra note 14, art. X):

requires that trade measures are applied consistent with due process and procedural fairness … Currently, the EU has yet to clarify how it will assess whether regulation by another country of its aviation emissions has an equivalent environmental impact to the EU system. To be consistent with these due process norms, the regulations should be developed in a transparent manner and any mechanisms for assessing the environmental effectiveness of another country's program should provide opportunities for comment, a hearing, and reasoned decisions.

82. Chicago Convention, supra note 43, art. 1.

83. Ibid., art. 11.

84. Open Skies Agreement, supra note 47, art. 7.

85. Kokott Opinion, supra note 40 at para. 166. The Court considered only art. 7 of the Open Skies Agreement, finding it inapplicable for the reason that airlines can choose whether or not to subject themselves to the ETS. See ECJ Judgment, supra note 8 at paras. 132−5.

86. The Court employs the same reasoning in relation to art. 15(3) of the Open Skies Agreement, which also requires non-discriminatory treatment where either the EU or the US adopts environmental standards different from those recommended by ICAO in the annexes to the Chicago Convention. See ECJ Judgment, supra note 8 at paras. 98, 99, and 154, and Open Skies Agreement, supra note 47, art. 15(3). Art. 15(3) is considered below, in connection with the claimants’ submission of impermissible unilateralism.

87. Andreas HARDEMAN, “A Common Approach to Aviation Emissions Trading” (2007) 32 Air and Space Law 3 at 16.

88. Kokott Opinion, supra note 40 at para. 166.

89. Ulrich STEPPLER and Angela KLINGMÜLLER, “EU Emissions Trading Scheme and Aviation: Quo Vadis?” (2009) 34 Air and Space Law 253 at 258; Air Transport Association of America and Ors v. UK Secretary of State for Energy and Climate Change, Written Observations of the International Air Transport Association and the National Airlines Council of Canada, Case C-366/10 at paras. 188−9 [IATA Written Observations].

90. Example formulated using ICAO Carbon Emissions Calculator. See International Civil Aviation Organization, “Carbon Emissions Calculator”, online: ICAO 〈http://www2.icao.int/en/carbonoffset/Pages/default.aspx〉.

91. This issue is debated. See Sascha ALBERS, Jan-André BÜHNE, and Heiko PETERS, “Will the EU-ETS Instigate Airline Network Configurations?” (2008) Journal of Air Transport Management 1. Some airlines have recently imposed an additional cost on passengers to offset the cost of the ETS. See “Weak Carbon Price Sees Market Analysts Sharply Downgrading Forecasts of EU ETS Cost to Airlines in 2012” GreenAir (20 February 2012), online: GreenAir 〈http://www.greenaironline.com/news.php?viewStory=1425〉.

92. The central assumption is that the price of carbon remains stable at €20 per ton of CO2. See Albers, Bühne, and Peters, supra note 91, at 2.

93. Ibid., at 3−4.

94. Ibid., at 4.

95. Annela ANGER, “Including Aviation in the European Emissions Trading Scheme: Impacts on the Industry, CO2 Emissions and Macroeconomic Activity in the EU” (2010) 16 Journal of Air Transport Management 100.

96. “Clean Air Turbulence” The Economist (7 July 2011), online: The Economist 〈http://www.economist.com/node/18928660〉, citing the study.

97. Buyck, supra note 78 at 26−7.

98. Kyoto Protocol, supra note 1, art. 2(2).

99. The International Air Transport Association and National Airlines Association of Canada suggest that the word “shall” was part of a deliberate compromise to allow aviation emissions to be regulated by ICAO in return for the removal of language that would have allowed for optional taxation of fuels used in aviation. See IATA Written Observations, supra note 89 at para. 217, citing Joanna DEPLEDGE, “Tracing the Origins of the Kyoto Protocol: An Article-By-Article Textual History”, United Nations Framework Convention on Climate Change, Technical Paper, 25 November 2000 at 27.

100. Claimants’ Oral Submissions, supra note 54 at paras. 167−9; IATA Written Observations, supra note 89 at para. 219, citing Macintosh, supra note 2 at 405. Emissions occurring within the sovereign airspace of state parties to the Kyoto Protocol remain within the jurisdictional province of each state.

101. Open Skies Agreement, supra note 47, art. 15(3).

102. Havel and Sanchez, supra note 58 at 9.

103. Macintosh, supra note 2 at 405.

104. International Civil Aviation Organization, “Consolidated Statement of Continuing ICAO Policies and Practices Related to Environmental Protection-Climate Change” (October 2010), online: ICAO 〈http://legacy.icao.int/env/A37_Res19_en.pdf〉, at para. 14 [Resolution A37-19].

105. In oral arguments before the ECJ, the environmental interveners advanced that (“Sovereignty the Key Issue as Europe, US Airlines and Environmental Groups Argue Their EU ETS Cases Before the ECJ”, GreenAir (6 July 2011), online: GreenAir 〈http://www.greenaironline.com/news.php?viewStory=1284〉 (emphasis added)):

[t]he implication of [the claimants’] argument must be that not just unilateral action but even a mutual agreement between states would be prohibited. The airlines’ interpretation is contrary to the views of the ICAO parties, which unambiguously state that emission trading systems could be implemented on the basis of mutuality.

106. Chicago Convention, supra note 43, Annex 16.

107. Chicago Convention, supra note 43, art. 15(3).

108. United Nations Framework Convention on Climate Change, 9 September 1992, 1771 U.N.T.S. 107 (entered into force 21 March 1994).

109. Kokott Opinion, supra note 40 at para. 178.

110. ECJ Judgment, supra note 8 at para. 75.

111. Kokott Opinion, supra note 40 at para. 185.

112. Macintosh notes that “emissions are only attributable to a country if they result directly from activities that occur within its territory”, and, thus, emissions from international airspace were left to governance by ICAO. See Macintosh, supra note 2 at 405.

113. International Civil Aviation Organization, “Consolidated Statement of Continuing ICAO Policies and Practices Related to Environmental Protection” (December 2007), online: ICAO 〈http://www.icao.int/environmental-protection/Documents/A36_Res22_Prov.pdf〉, at Appendix L (emphasis added) [Resolution A36-22].

114. Kokott notes this in her introductory comments. See Kokott Opinion, supra note 40 at para. 31.

115. Havel and Sanchez, supra note 58 at 11−12. Hardeman reaches the same conclusion. See Hardeman, supra note 87 at 15. See Resolution A37-19, supra note 104.

116. For instance, Japan, Canada, and Australia. See Macintosh, supra note 2 at 412.

117. See, for instance, Macintosh, supra note 2 at 412; Havel and Sanchez, supra note 58 at 11. See Kyoto Protocol, supra note 1, art. 10.

118. Slobodan PERDAN and Adisa AZAPAGIC, “Carbon Trading: Current Schemes and Future Developments” (2011) 39 Energy Policy 6040 at 6051−2. Most recently, the Conference of Parties 17 failed to achieve any binding resolution for parties to adopt a post-Kyoto framework. See “Climate Talks Close with Pledges, but Little Action” International Herald Tribune (12 December 2011).

119. See Resolution A37-19, supra note 104.

120. It was the EU that described ICAO Resolution A37-19 as a “breakthrough” on the strength of the parties’ agreement that market-based measures should play an important role in combatting aviation emissions. This moved ICAO's stance beyond the stalemate evinced in Resolution A36-22, where the parties affirmed that any regulatory measures should only be taken on the basis of “mutual agreement”. See Truxal, supra note 3 at 231, and Resolution A36-22, supra note 113.

121. Resolution A37-19, supra note 104, para. 6 (emphasis added).

122. Truxal, supra note 3 at 237. See Kyoto Protocol, supra note 1.

123. Resolution A37-19, supra note 104, para. 4.

124. Directive 2008/101/EC, supra note 18, Preamble at para. 17.

125. Kokott Opinion, supra note 40 at para. 187.

126. See ECJ Judgment, supra note 8 at paras. 150−1, where the Court considers the possibility of harmonization between different state-based regulatory measures.

127. IATA Written Observations, supra note 89 at para. 198. Technological upgrades constitute a central pillar of IATA's approach to achieving carbon-neutral growth by 2020. The other pillars are to remedy inefficiencies in aircraft operations (e.g. weight-reduction measures to save fuel), to improve air traffic management and airport infrastructure, and limited market-based measures implemented at the global level. See International Air Transport Association, “A Global Approach to Reducing Aviation Emissions” (November 2009), online: IATA 〈http://www.iata.org/SiteCollectionDocuments/Documents/Global_Approach_Reducing_Emissions_251109web.pdf〉 [IATA Timeline].

128. “Airlines Told Not to Pay EU Green Tax” Xinhua (7 February 2012).

129. “US Warns Over EU Stance on Airline Emissions” Financial Times (17 April 2012).

130. “Exclusive-India to Ask Airlines to Shun EU Carbon Scheme” Reuters (19 March 2012).

131. U.S., Bill H.R. 2594, European Union Emissions Trading Scheme Prohibition Act of 2011, 112th Cong., 2011 [US EU Emissions Bill].

132. Christine BOYNTON, “LaHood: EU ETS ‘Very, Very Bad’; Europe Holds Firm” Air Transport Weekly (9 March 2012), online: Air Transport Weekly 〈http://atwonline.com/international-aviation-regulation/news/lahood-eu-ets-law-very-very-bad-0308〉.

133. “Russia Fires First Shot in EU Aviation Emissions Trade War” The Guardian (22 February 2012).

134. Joint Declaration, supra note 12.

135. See the full list of contemplated measures in Joint Declaration, ibid., Attachment A.

136. “US Airlines Give Up on Legal Case Against Inclusion into the EU ETS but Call on Their Government to Step Up Retaliatory Action” GreenAir (29 March 2012), online: GreenAir 〈http://www.greenaironline.com/news.php?viewStory=1444〉 [GreenAir (29 March 2012)].

137. US EU Emissions Bill, supra note 131.

138. “Coalition of States Comes Up with Basket of Countermeasures over EU ETS but Falls Short of a Coordinated Attack” GreenAir (23 February 2012), online: GreenAir 〈http://www.greenaironline.com/news.php?viewStory=1429〉 [GreenAir (23 February 2012)]. See Joint Declaration, supra note 12.

139. Chicago Convention, supra note 43, art. 84.

140. In response to the Joint Declaration, Annie Petsonk of the Environmental Defense Fund noted that “cooler heads may have prevailed”. See GreenAir (23 February 2012), supra note 138. See also Brian F. HAVEL, Gabriel SANCHEZ, and Michael S. JACOBS, “EU Leaders Reject Internal Criticism on ETS” Aviation Law Prof Blog (13 March 2012), online: Aviation Law Prof Blog 〈http://lawprofessors.typepad.com/aviation/2012/03/eu-leaders-face-internal-criticism-on-ets-.html〉, where the authors write that the denial of reports that China had blocked Chinese airlines’ orders with Airbus “may indicate that the opposition states are not as eager to play hardball as previously thought”.

141. “The Prospect of EU ETS Non-Compliance by Foreign Airlines Fills European Carriers with Grim Foreboding” GreenAir (17 February 2012), online: GreenAir 〈http://www.greenaironline.com/news.php?viewStory=1424〉.

142. The EU evinced a firm intention to bring international aviation into its existing ETS in December 2005, when the European Council published a response to a September 2005 report issued by the European Economic and Social Committee and the Committee of the Regions entitled “Reducing the Climate Change Impact of Aviation”. See Commission of the European Communities, “Reducing the Climate Change Impact of Aviation” (September 2005), online: EUR-Lex 〈http://eur-lex.europa.eu/LexUriServ/site/en/com/2005/com2005_0459en01.pdf〉. The European Council's response to the report is available at Council of the European Union, “Brussels European Council 15/16 December 2005: Presidency Conclusions” EC Doc 15914/1/05_rev1 (30 January 2006), online: 〈http://www.consilium.europa.eu/ueDocs/cms_Data/docs/pressData/en/ec/87642.pdf〉. Both ICAO Resolutions considering the possibility of market-based measures have been adopted since this time, in December 2007 (Resolution A36-22, supra note 113) and October 2010 (Resolution A37-19, supra note 104). For a comprehensive timeline until 2008 of ICAO's efforts to address emissions from international aviation, see Macintosh, supra note 2 at Appendix A. IATA published a roadmap to emissions reduction in November 2009. See IATA Timeline, supra note 127.

143. “UN Aviation Body Says Emissions Proposal by Year-End” Reuters (2 March 2012).

144. Ibid. See the speech delivered by Raymond Benjamin, Secretary General of ICAO, at the Washington International Aviation Club, Washington DC, in International Civil Aviation Organization, “Address by the Secretary General of ICAO Mr. Raymond Benjamin to the Washington International Aviation Club” (January 2012), online: ICAO 〈http://legacy.icao.int/icao/en/osg/2012/20120117_Washington_IAC.pdf〉 [Benjamin January 2012].

145. Mark Watson, Head of Environmental Affairs at Cathay Pacific, noted in February 2012 that (see GreenAir, “The Way Forward: Prospects for Securing a Global Agreement to Addressing Aviation's Climate Change Impact” (February 2012), online: GreenAir 〈http://legacy.icao.int/icao/en/osg/2012/20120117_Washington_IAC.pdf〉 [Watson February 2012]):

[T]he EU ETS has already given us a taste of what we may get if we fail. Climate change requires urgent action at a global scale. Given this, the only remaining question we need to ask ourselves is, can we afford to fail? And I think we all know the answer.

146. IATA Written Observations, supra note 89 at para. 208.

147. Chicago Convention, supra note 43, art. 15.

148. Ibid., art. 24.

149. Open Skies Agreement, supra note 47, art. 11(2).

150. Bartlik, supra note 57 at 166. Interestingly, the claimants themselves did not appear to argue that these subsidiary costs fall within the scope of art. 15 of the Chicago Convention.

151. Claimants’ Oral Submissions, supra note 54 at para. 181; IATA Written Observations, supra note 89 at para. 231.

152. Macintosh, supra note 2 at 413; Havel and Sanchez, supra note 58 at 12.

153. Kokott Opinion, supra note 40 at para. 215.

154. Environmental Interveners’ Written Observations, supra note 60 at para. 73.

155. Ibid., at para. 73.

156. Havel and Sanchez, supra note 58 at 13 (emphasis added).

157. Ibid., at 13.

158. Resolution A37-19, supra note 104, Annex at para. (n).

159. Directive 2009/29/EC of the European Parliament and of the Council of 23 April 2009, 23 April 2009, online: EUR-Lex 〈http://eur-lex.europa.eu〉, at para. 18.

160. UK Department of Transport, “Implementing Aviation EU-ETS in the UK: A Government Consultation”, online: YouTube 〈http://www.youtube.com/watch?v=sr4oO0tXfeQ〉, at 3:55. The Consolidated Fund is the UK Government's general bank account at the Bank of England.

161. The same reasoning may be applied to the Court's analysis of the claimants’ argument that the ETS constitutes an impermissible tax under art. 11(2) of the Open Skies Agreement, where the Court contends that the ETS is not a “duty, tax, fee or charge on fuel consumption” because, among other things, “it is not intended to generate revenue for the public authorities”. See ECJ Judgment, supra note 8 at para. 142; Open Skies Agreement, supra note 47, art. 11(2). The author submits, however, that irrespective of its intention, revenue generation is the effect of the ETS.

162. Environmental Interveners’ Written Observations, supra note 60 at paras. 76−7.

163. Kokott Opinion, supra note 40 at para. 216.

164. ECJ Judgment, supra note 8 at para. 143.

165. Chicago Convention, supra note 43, art. 24.

166. Open Skies Agreement, supra note 47, art. 11(2).

167. IATA Written Observations, supra note 89 at para. 237.

168. Braathens Sverige AB v. Riksskatteverket, Judgment of the Court of Justice of the European Union (Fifth Chamber) of 10 June 1999, [1999] ECR I-3419, Case C-346/97.

169. Ibid., at para. 23.

170. Kokott Opinion, supra note 40 at paras. 228−9.

171. ECJ Judgment, supra note 8 at paras. 137−8.

172. Lord Denning in HP Bulmer and Anor v. J Bollinger and Anor [1974] EWCA Civ 14, [1974] 3 W.L.R. 202

173. Open Skies Agreement, supra note 47, art. 11(2) (emphasis added).

174. Macintosh, supra note 2 at 414.

175. Kokott Opinion, supra note 40 at para. 233.

176. ECJ Judgment, supra note 8 at para. 142.

177. Bartlik states that “there can be no different treatment if a state directly imposes a fee, duty or other charge or if it introduces a system that results in financial burdens equal to a direct imposition of a fee, duty or other charge”. See Bartlik, supra note 57 at 166.

178. The author acknowledges, of course, that the EU does have regulatory capacity over the allocation of allowances, which is an external criterion relied on by the Court in its rejection of the claimants’ submission. For this criterion to invalidate the author's argument, however, would require EU Member States to allocate emissions in such a way as to impose no financial burden on airlines. However, this would wholly undermine the market-based operation of the ETS.

179. A4A Comment, supra note 10.

180. GreenAir (29 March 2012), supra note 136.

181. These developments are related to one another, as any action based on WTO law must be initiated by a WTO Member State, rather than a private entity.

182. See GATT, supra note 14, arts. XX(b) and XX(g); GATS, supra note 14, art. XIV.

183. HOWSE, Robert, “Commentary: The Political and Legal Underpinnings of Including Aviation in the EU ETS” in Bartels, supra note 14

184. Havel and Sanchez identify the possibility for a US-EU bilateral agreement on international aviation emissions as a stepping-stone to a multilateral agreement. See Havel and Sanchez, supra note 58.

185. LEON, Pablo Mendes DE, “Aviation Emissions-Where to Now?”, IATA 2012 Legal Symposium, 7 February 2012

Havel and Mulligan, supra note 6 at 32−3

186. Mark Watson, Head of Environmental Affairs at Cathay Pacific, to the Aviation Carbon 2012 conference in Watson February 2012, supra note 145

187. Benjamin January 2012, supra note 144.

* LL.M (New York University); LL.M (National University of Singapore). This article is a revised version of the paper that won the 2012 International Air Transport Association (IATA) Constance O'Keefe Legal Writing Award. I wish to thank Professor Alan Khee-Jin Tan from the National University of Singapore for encouraging me to submit this paper to the competition, and the partnership of Squire Sanders LLP for sponsoring the Constance O'Keefe Award.