EU’s emissions challenge

So does that give the European Union the right to regulate the emissions from airlines and shippers using its ports and airports?

The answer may partly rest on a lawsuit brought by the industry group Air Transport Association of America and by three major airlines – United and Continental, which merged last year, and American.

The airlines filed their case in late 2009, at the High Court in London, against the extension of the EU Emissions Trading System to most international flights landing in and taking off from European airports. The British court then referred the case nearly a year ago to the European Court of Justice in Luxembourg for a preliminary ruling.

Any verdict in favour of the airlines, which claim that the move by the EU breaches international conventions and laws, has the potential to undermine the initiative because EU regulators and European airlines say participation by foreign carriers, is critical.

The US airlines still are waiting for a hearing date. Even so, a verdict could come before the end of this year – and before the regulation takes effect, on Jan. 1, 2012. Air China, China Southern and China Eastern have also threatened to file a lawsuit against the system, according to a report on Chinese state television.

In an emission trading system, the authorities set limits on greenhouse gases and then allow companies to buy and sell permits corresponding to their emissions. Advocates say such systems are the cheapest and most effective ways to control the gases in advanced economies and the best way to encourage innovative technologies, like cleaner engines and alternative fuels. The European system already applies to about 11,000 power plants and factories. But the system has had a rocky ride since trading began six years ago, including extreme volatility, tax fraud, the recycling of used credits and suspicions of profiteering. The European Commission, the EU executive, had to shut down part of the system in January after a series of online attacks resulting in the theft of permits worth millions of euros. Since then, more security measures have been introduced.

A more fundamental problem for the EU system is that other parts of the world are adopting formal limits on greenhouse gases far more slowly than Europe would like. That has prompted European companies to complain about stiffer international competition from foreign-based manufacturers that face fewer environmental constraints. That has also increased the pressure on the Union to find ways to share the burden of cutting emissions more widely, by making other significant polluters like airlines and shippers participate.

Within Europe, the airlines that could be affected the most are low-cost carriers, according to a report last month by the rating agency Standard & Poor’s.

Standard & Poor’s said airlines like British Airways and Lufthansa that charge premium fares should find it easier than the low-cost carriers, where price is a more sensitive factor, to pass on extra costs onto passengers in the form of slightly higher ticket prices.

The rating agency also said that airlines flying short-haul routes are less fuel-efficient than long-haul carriers because of more frequent takeoffs, when a large amount of fuel is burned, generating more emissions and demand for permits.

In some respects, international shipping raises even more vexing questions for regulators contemplating emissions trading. Ship owners could easily swap the nationalities of their vessels, potentially making it complicated to keep track of some ships, like chartered vessels, that have used EU ports. Shippers also could make the process of determining how much to charge more challenging by using polluting vessels to deposit cargoes just outside EU waters and then using much cleaner vessels or alternative modes of transport to make the journey into the Union.

Another issue bedeviling shipping regulation is that developing countries like Liberia and Panama, where many vessels are registered, oppose some of the measures that would raise costs on what they regard as an important industry.

© IHT