Failure to solve US aviation dispute with Europe over EU ETS would pose enormous international trade and climate risks

Failure to solve US aviation dispute with Europe over EU ETS would pose enormous international trade and climate risks | Climate Advisers,GMF,S.1956

Wed 7 Nov 2012 – The United States dispute with Europe over the inclusion of its carriers in the EU ETS is a test case on a matter of truly historic importance, says a policy brief from Washington, DC-based consultancy Climate Advisers. Failure to reach a solution would pose enormous risks not only for transatlantic trade relations but also for the global climate and trade systems. Many of the perceptions over the “transatlantic turbulence” have rested on a number of myths in the US, say the authors. They warn policymakers that in their attempts to protect the nation’s airlines, the United States risks establishing a trade principle it will deeply regret later. With Europe, the US and the major emerging economies led by China far apart on when aviation emissions should be capped, there is little evidence that the 15-year stalemate at ICAO is likely to be broken in favour of a global consensus solution “any time soon”, they add, and the US and Europe should seek a bilateral agreement.

The briefing by Nigel Purvis, President of Climate Advisers, and Samuel Grausz, who leads the company’s transportation practice, was prepared for The German Marshall Fund of the United States, a nonpartisan American public policy and grant-making institution dedicated to promoting better understanding and cooperation between North America and Europe.

The authors say the aviation dispute is different and far more important than past trade “skirmishes” as what is at stake is the principle of whether nations may adopt climate laws that have impacts on foreign companies offering goods or services in their territories. The ability to regulate foreign firms competing within one’s own territory and maintain a level playing field with domestic firms is essential, they say, particularly as decades of climate diplomacy have made plain that nations have different levels of political will when it comes to adopting climate policies.

The EU ETS directive, they report, has been crafted so that EU airlines do not benefit relative to US airlines as the rules apply to all carriers equally flying a given route, regardless of national origin and may, if anything, harm EU airlines by forcing them to cover the emissions for all their flights, while non-EU airlines only have to cover flights to and from Europe.

“When the United States gets serious about climate protection, moreover, it will be the first nation to insist on a level playing field,” says the briefing. “Indeed, every major climate bill considered in Congress since 2005 contemplated fees or border measures to protect US manufacturers in energy-intensive industries from unfair competition from China and elsewhere. In protecting US airlines, the United States risks establishing a trade principle it will deeply regret later when it tries to protect US firms from unfair competition from major emerging economies.”

The main argument used against the application of the EU ETS to US carriers centres on an infringement of US sovereignty, one of seven myths the authors seek to debunk in their policy brief. Providing nations do not discriminate against foreign carriers, international rules generally allow for regulation of flights both in and out of their territory. As an example, the authors cite the example of the United States requiring all planes going to and from the US to have reinforced cockpit doors and to limit liquids and gels in carry-on luggage. It further requires foreign airports with flights to the United States to have security checkpoints that meet US standards.

Outside of the aviation sector, the US routinely adopts laws with extraterritorial implications, comment the authors, such as anti-corruption and anti-terrorism measures, and is more willing than any other country in the world to regulate foreigners for actions originating outside its territory. “What Europe is doing on aviation pollution is well within the practice pioneered by the United States,” they say.

A solution to the dispute through an ICAO global agreement is not imminent, they believe, as nations remain far apart. Europe seeks a global system that delivers emissions reductions now, whereas the US favours the industry-backed proposal to cap global emissions from 2020. China, India and other major emerging countries are unwilling to accept emissions cuts now or in 2020, preferring to rely on fuel efficiency standards and non-binding goals.

Challenging Europe over the EU ETS by bringing an Article 84 dispute procedure at ICAO may not produce an acceptable outcome to all parties, warn the authors, with the losing side possibly appealing through the dispute resolution process in the World Trade Organization (WTO). However, WTO rules are complex and also unclear on environmental measures and the United States has a history of not taking cases to the WTO unless it believes it will prevail.

“A fully-fledged legal case in ICAO or the WTO would be risky for the transatlantic allies and for the world as a whole,” judges the briefing. “Both sides could lose out and, even more importantly, the outcome could jeopardise the global trade system and the global climate.”

Instead, the authors argue the United States and Europe should take proactive steps to resolve the dispute between them.

“The US president has the authority to negotiate a truce with Europe in ICAO or bilaterally, and to implement a comparable system domestically without further Congressional approval [through the Clean Air Act]. He should use it,” they conclude. “Europe, on the other hand, while insisting on meaningful action, must engage with the United States to work out an agreement in ICAO or bilaterally that can be implemented under the existing EU law.”

Policy Brief: ‘Air Supremacy – The surprisingly important dogfight over climate pollution from international aviation’
Podcast of authors Nigel Purvis and Samuel Grausz discussing their policy brief
Climate Advisers
The German Marshall Fund of the United States



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