A “Trade War for Christmas” – EU High Court Rules on Airline Emissions

As expected, the European Court for Justice — the EU’s highest court — has ruled that the EU’s plan to charge foreign airlines for their emissions through purchasing carbon permits complies with international law and doesn’t threaten foreign countries’ sovereignty.

As of January, aircraft landing or taking off from EU airports will be assessed carbon emission fees. (See yesterday’s OpenMarket for more background.) The carbon trading scheme is opposed by major economies, including the U.S., Japan, India, China, Brazil, Russia, and many others.

But that didn’t deter the EU or the high court. After all, the Court noted in its opinion, airlines can choose whether to use EU airports:

It is only if the operators of such aircraft choose to operate a commercial air route arriving at or departing from an airport situated in the EU that they are subject to the emissions trading scheme.

It has been reported that Canada and other countries will continue the battle through other channels, notably the UN’s International Civil Aviation Organization in Montreal.

And, as CEI pointed out yesterday, trade retaliation is a likely outcome.  Already Fitch’s rating agency is taking a dim view of what this means for the ailing airline industry:

We believe threats of trade retaliation over the EU’s cap and trade system will pose growing threats to aviation market access in both developed and emerging markets next year. The U.S. House of Representatives has already passed a bill prohibiting compliance with the ETS by U.S. airlines, and diplomatic efforts to roll back the implementation of the scheme will likely intensify in the new year.

Retaliation may be largely rhetorical in the early stages, but an absence of progress next year may trigger protectionist responses, especially from emerging market governments. Moves to restrict market access through slot allocations and route authorities could have a material economic impact during a precarious time for the global economy, when airline revenue growth is coming under renewed pressure. . . .

We agree with the industry’s assessment that ETS [emissions trading scheme] carbon permit costs will effectively serve as a tax on the world’s airlines, raising operating costs on all European flights at a time when emissions charges are unlikely to be passed on to customers in the form of higher fares.

So, the Court is its arrogance is willing to open the gates of protectionism, tax the world’s airlines, and  further weaken the airline industry — and ultimately harm the fragile world economy. The Grinch that stole Christmas.