On June 26, 2008, the European Parliament and EU Member State negotiators agreed to expand the EU’s Emissions Trading System (ETS) to include emissions from civil aviation as of January 1, 2012. The Proposed Directive would include all flights by any airline to and from any EU airport, with limited exceptions. Total EU-wide aviation emissions for 2012 would be capped at 97% of average emissions from 2004-2006, with the cap reduced in successive years. 15% of total aviation emissions permits would be auctioned, and 85% would be allocated for free, although this ratio could also be adjusted in the future.

Last week’s agreement is the product of a series of compromises between the European Commission, the EU Parliament, and EU environmental ministers, resulting from intra-EU negotiations over the past several years. In order to become binding law under the EU’s “Co-Decision” procedures, the Proposed Directive must be supported by the EU Parliament (scheduled to vote on July 9), as well as Member State governments. Generally, these steps are a formality.

The civil aviation industry, already struggling with sustained high fuel prices, has criticized the decision to auction 15% of emissions permits as unaffordable. A recent industry-funded study found that the EU’s plan would reduce airline profits by more than 40 billion euros over a decade. Unless the industry can persuade Member State governments or the European Parliament to veto the plan, which seems unlikely, airlines will have to rely on non-EU governments to challenge the measure under various international agreements.

U.S. officials have suggested that the EU’s decision to regulate non-EU airlines under the proposal might create a “huge problem,” and the U.S. has threatened to challenge the EU measures at the International Civil Aviation Organization as a violation of the EU’s obligations under international aviation agreements such as the 1944 Chicago Convention. The U.S. also appears to be contemplating whether the measure could be challenged as a violation of the EU’s WTO commitments. U.S. officials maintain that aviation emissions would be better addressed by improvements in the air traffic control system and investments in more environmentally-friendly aviation technology.

The agreement caused a 2% rise in the price of both UN certified emissions reduction credits for 2012 and EU CO₂ emissions allowances for December 2012.

Jonathan A. Ross contributed to the development of this article. 

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