Europe and US in legal clash over airline emissions

BRUSSELS Fri Jul 1, 2011 7:34am EDT

A Ryanair aircraft is seen flying above Ratcliffe Power Station as it comes into land at East Midlands Airport, central England in this July 1, 2008 file photograph. REUTERS/Darren Staples/Files

A Ryanair aircraft is seen flying above Ratcliffe Power Station as it comes into land at East Midlands Airport, central England in this July 1, 2008 file photograph.

Credit: Reuters/Darren Staples/Files

BRUSSELS (Reuters) - U.S. airlines will step up their campaign against European Union climate policy next week, with a legal challenge at Europe's highest court to their inclusion in the EU carbon market.

The EU aims to lead the world in fighting climate change, and says it needs to put a price on carbon dioxide emissions to guard against future climate impacts such as crop failures, droughts or flooding.

From January 2012, airlines flying to or from Europe will have to buy permits from the EU's Emissions Trading Scheme for 15 percent of the carbon emissions they produce. They join 11,000 factories and power plants already in the scheme.

Airlines warn of a looming trade war, but the EU says it will not back down. The carriers say their emissions should only be tackled in United Nations bodies, such as the International Civil Aviation Organization ICAO.L.

The U.S. government demands an exemption. And on July 5, the Air Transport Association of America ATA.L, American Airlines AMR.N and United Continental (UAL.N) will seek to overturn the EU scheme at Europe's highest court.

EU officials say the international talks at ICAO have dragged on since 1997 without bearing fruit and they can wait no longer to start dealing with airlines' emissions.

"We have been patient for many years," EU climate commissioner Connie Hedegaard told Reuters. "Global solutions? I'm all for it. The EU has been fighting for global solutions for many years -- unfortunately, without enough success."

EU lawyers will argue at the European Court of Justice in Luxembourg that the EU only included aviation in its emissions scheme after receiving implicit approval from the U.N. body.

They will also point to the fact that airlines themselves chose the scheme -- in preference to other tools such as eco-taxes or charges on jet fuel. That stance is well documented.

"Extending the EU ETS to cover aviation is probably the least-cost and most effective way of dealing with aviation's climate impacts in Europe," Brian Pearce, the chief economist of the International Air Transport Association (IATA), wrote in a paper in 2007, when the EU was preparing the move.

Economic analysis by IATA, which represents 93 percent of air traffic, concluded at the time: "The impact on airline profits would be marginal."

U.S. airlines have pursued a similar line at home, with ATA telling Congress that an emissions trading scheme would be roughly a third of the cost of taxes or fuel levies, in a letter seen by Reuters.

Hedegaard added: "The question now is: For how long can a truly global sector claim they want to contribute but not take action and deliver solutions?"

Airlines deny they have zig-zagged to avoid regulation, and say their only complaint is with the detail of the EU scheme.

"We welcome the steps the EU took in designing an ETS for aviation, because we see a global ETS-type programme as one of the options at the global level," IATA's director of environment, Paul Steele, told Reuters.

"It's not about challenging the whole ETS," he added. "It's primarily the fact the EU is trying to impose the ETS on third- country airlines for flights that largely take place outside European air space. It's the extra-territorial aspect."

Court papers show the U.S. airlines will argue that only their own government has the right to regulate them as they fly over the north American continent or the Atlantic ocean. They will also say the EU has broken aviation's main treaty, the Chicago Convention.

"We are very concerned about the prospects of a trade war," said Steele. "It's not going to solve anybody's issues, and it certainly won't reduce CO2 emissions."

(Reporting by Pete Harrison, editing by Rex Merrifield)