Insight: Asset Finance - March 2013: High Hopes for Regulating International Aviation Emissions

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“Application of the [EU] emissions trading scheme to aviation infringes neither the principles of customary international law at issue nor the Open Skies Agreement”.

This was the judgment of the European Court of Justice (“ECJ”) in December 2012, in response to the landmark case brought by certain US airlines, the Air Transport Association of America (now, A4A) and the International Air Transport Association (“Applicants”). The Applicants challenged the validity of applying the European Union (“EU”) Emissions Trading Scheme (“EU ETS”) to non-EU airlines and aircraft. Starting on 1 January 2013, all flights into, out of, or within the EU would be required to comply with emissions monitoring and reporting obligations. Starting on 1 April 2013 those aircraft operators or owners covered by the EU ETS must surrender their allocated carbon emissions allowances (and potentially buy credits if they exceed their allocated allowances). Noncompliance with the EU ETS will result in penalties, including the ability of the designated regulators in Member States to detain and dispose of aircraft for continued non-payment of fines (similar to the approach taken with Eurocontrol charges).

As expected, the decision was not easily swallowed by the Applicants. No sooner had the ECJ ink dried, did the US propose its own decision – to craft a bill to protect its airline industry from the long arm of the EU law7 and, quite significantly, encourage US airlines to defy EU law by prohibiting operators of US civil aircraft from participating in the EU ETS.

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