European regulations on GHG emissions confront US policy.

A trade war may be about to start between the US and the European Union.  The casus belli, or cause of this war, is the European Union’s efforts to rein in Greenhouse Gas (GHG) emissions, the principal factor in global warming.  We know from the EU’s efforts at Durban that Europe is serious in fighting climate change.  European nations have made sacrifices to reduce emissions while the emissions from the US have been increasing.  So it is not likely that Europe will slacken its efforts.

The focus of the dispute is the EU Emissions Trading Scheme Directive (2003/87/EC), or ETS, that established a scheme for carbon trading within the European Union. In broad outline, the ETS mandates EU countries to establish Emission Targets for national companies above a certain size. Companies that do not meet these targets must acquire further carbon allocations, either from companies whose emissions are within their cap, or through the Emissions Trading Market.

In 2008 the European Parliament and the European Council adopted the EU Aviation Emissions Trading Scheme Directive (2008/101/EC). This directive extended the ETS to international flights that arrive at or depart from an airport within the EU (EU flights). This Directive, which will apply as of January 1 2012, will impose a cap on carbon dioxide emissions by airlines operating EU flights.  As is the case with other industries, airlines that exceed this cap will be required to purchase more carbon dioxide allocations under the Scheme.

US Airlines challenged this Directive in the courts on the ground that it applied to emissions that took place outside of Europe, particularly in international air space. Quite recently the European Court of Justice decided that the Directive did not offend international law. That means full speed ahead on implementation of the Directive in January 2012.

There are many critics of the ETS. Underlying the numerous objections is a concern that many industries can’t afford the addition costs that the ETS will impose. That is probably the motivating factor of the airlines court challenge.  Few airlines have made a profit since the 2008 recession, and the Directive will cost them plenty.  American Airlines, one of the court challengers, is in Title 11, or bankruptcy restructuring. That is why the US State Department is prepared to go to some length to force an exemption in favour of US carriers.  If  the EU makes that concession, there are many other countries who have already lined up to make the same request. Official Chinese press releases already refer to “hitting back” at the European Union.

So it looks like international air travel will remain the Wild West of GHG emissions.  No laws and no restraint on emissions.