* EU law to impose carbon cost on all airlines from Jan. 1
* Airlines say EU regulation unfair, unilateral
* EU climate commissioner hails ruling as crystal clear
* U.S. Secretary of State Hillary Clinton wrote to EU
By Michele Sinner and Barbara Lewis
LUXEMBOURG/BRUSSELS, Dec 21 Europe's
highest court gave unreserved backing on Wednesday to an EU law
to charge airlines for carbon emissions on flights to and from
Europe, a decision likely to escalate tension with trading
partners, especially the United States.
Under the law, all airlines flying to and from European
Union airports will have to buy permits under the EU's emissions
trading scheme from Jan. 1.
The initial cost is expected to be minimal but would rise to
an estimated 9 billion euros ($11.8 billion) by the end of 2020.
"Application of the emissions trading scheme to aviation
infringes neither the principles of customary international law
at issue, nor the open-skies agreement," the European Court of
Justice (ECJ) said.
Wednesday's ruling was in line with expectations after a
senior adviser to the court issued a preliminary opinion in
October that found the EU legislation did not infringe other
states' sovereignty and was compatible with international
EU Climate Commissioner Connie Hedegaard, for whom the
carbon trading scheme is one of the main weapons to combat
climate change, was among the first to welcome the decision.
"After a crystal-clear ruling today, the EU now expects U.S.
airlines to respect EU law as the EU respects U.S. law," she
said in a Twitter posting.
"We reaffirm our wish to engage constructively with everyone
during the implementation of our legislation," she added in a
Airline associations were also swift to react.
U.S. airline industry body Airlines for America said it was
reviewing its legal options, but meanwhile would "comply under
"The U.S. government and dozens of others around the world
are increasing pressure on the EU to come back to the table to
consider a global sectoral approach," it said in a statement.
A case against the EU was initially brought to the London
High Court of Justice by the Air Transport Association of
America, American Airlines and United Continental
, but the London court referred it to the ECJ in
Critics of the EU rules, agreed in June 2008, have argued
that under the 1997 Kyoto climate pact, countries pledged to
address aviation emissions jointly through the U.N.'s aviation
body, the International Civil Aviation Organization (ICAO).
More than a decade on, talks at ICAO have not yielded
significant progress, and the ECJ said the EU was within its
rights to take unilateral action.
But the United States, where environmental legislation has
become a focus of disagreement between Democrats and
Republicans, has angrily rejected the EU plan.
Draft law in the U.S. Congress, if passed, would make it
illegal to comply with the EU legislation.
In a letter sent to EU officials last week, U.S. Secretary
of State Hillary Clinton and U.S. Secretary of Transportation
Raymond LaHood urged the EU "to reconsider this current course"
and re-engage with the rest of the world.
"Absent such willingness on the part of the EU, we will be
compelled to take appropriate action," they said in the letter.
INTERNATIONAL CIVIL AVIATION ORGANIZATION
Lawyers and some environmentalists said the next logical
step would be for ICAO to come up with a global solution soon.
"The EU's leadership is really significant. This is a first
step. What we need now is a broad-based system from ICAO,"
Pamela Campos, an attorney at U.S. lobby group the Environmental
Defense Fund, said.
The ruling by the ECJ, Europe's highest court, is final,
although there is some flexibility in how the regulation may be
The EU law allows for "equivalent measures", meaning that
incoming flights to Europe would be exempt if the nation from
whence they came had measures in place to offset the
Airlines initially would be required to pay for only 15
percent of the carbon they emit and would be allocated free
allowances to cover the other 85 percent.
From 2013 to 2020, airlines are expected to buy around 700
million permits, according to Thomson Reuters Point Carbon data.
"We expect the aviation sector's burden in the EU's
emissions trading scheme for 2012 to be close to 500 million
euros, based on our current price forecasts for 2012," Andreas
Arvanitakis, associate director, Thomson Reuters Point Carbon,
said in a statement.
"The sector will face a shortfall of around 60 million
tonnes (of carbon). The cost rises to 9 billion euros total by
the end of 2020."
The EU carbon market pared losses immediately after the
ruling but stayed negative. Analysts said the decision
had been widely anticipated but could provide support for the
longer term as airlines stock up on permits.
Already, the EU sets a cap on the level of emissions allowed
from factories and power plants. Emitters exceeding their quotas
must buy carbon permits, while those within their limits can
sell any unused allowances.
Emissions from most other sectors have fallen, but those
from airlines have doubled since 1990 and could triple by 2020,
Commission figures show.
DIFFERING COST ASSESSMENTS
Depending on airlines' decisions on how much to pass on, the
European Commission has calculated costs per passenger could
rise by 2 to 12 euros, much less than the 100 euro per allowance
penalty it would impose on airlines that do not comply.
Airlines, which have given much higher assessments of the
cost, have called for a global, rather than a piecemeal
approach. The EU has said it fully agrees with that but has run
out of patience with efforts to find a worldwide solution.
"This decision represents a green light towards an emerging
patchwork of complex, bureaucratic and punitive regional
schemes, which will ultimately have no impact on improving the
environment and will hit passengers," Carolyn Leung, a
spokeswoman of Cathay Pacific Airways Ltd, said.
Singapore Airlines said the EU was being unfair.
"It could also cripple competitiveness as it offers carriers
operating through hubs closer to Europe an unfair advantage,"
spokesman Nicholas Ionides said.
Qantas said the "patchwork approach" was flawed,
but its policy was to comply with carbon law wherever it
operated. A spokesman said it was still finalising policy, but
anticipated costs would be passed on to passengers.