US airlines failed on Wednesday to block an EU law charging airlines flying to Europe for their carbon pollution. The decision by an EU court was widely hailed by environmentalists, but the Fitch ratings agency said it raised the specter of a global trade dispute.
The European Court of Justice in Luxembourg dismissed arguments that imposing the EU’s cap-and-trade carbon credits program on flights to and from European airports infringes on national sovereignty or violates international aviation treaties. US and other non-European airlines had sued the EU, arguing that they were exempt from the law.
Environmentalists called the law a first step in controlling carbon emissions in a key economic sector and EU officials said they expected airlines to comply.
However, Fitch Ratings said the decision could deepen rather than quell the dispute, raised in a lawsuit brought by the trade organization Airlines for America and several US airlines and supported by China, India and other countries with international carriers.
“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,” Fitch said.
Retaliation could come in the form of slot allocations at airports and authorizing routes, especially in developing countries, Fitch said.
The US airlines said the regulation was tantamount to “an exorbitant tax,” but the EU said the added costs would amount to a few US dollars per ticket and would open the way for efficient airlines to make money rather than lose it.
The carbon trading program, due to go into effect on Jan. 1, is one of the widest-reaching measures adopted by any country or regional bloc to regulate emissions of greenhouse gases blamed for climate change. It aims to make airlines accountable for their carbon emissions, which contribute to global warming.
Although only 3 percent of total human-caused carbon emissions come from aircraft, aviation is the fastest-growing source of carbon pollution.
US airlines most affected are United Continental, Delta and American Airlines, all of which derive more than 20 percent of global revenues from trans-Atlantic traffic, Fitch said.
The US trade group said its members would comply with the EU directive “under protest,” while reviewing legal options.
Under the scheme, each airline will be allocated pollution permits slightly less than its average historical emissions record. If it exceeds its limit, it can buy permits from other airlines that have emitted less than allowed and have leftover permits to sell. Emissions are counted for the entire route of an aircraft that touches down in Europe.
The intention is to induce airlines to emit less carbon by upgrading their fleets or becoming more efficient.
The International Air Transport Association voiced disappointment with the ruling, saying that “unilateral, extra-territorial and market distorting initiatives” like the EU’s only make it harder to reach a deal through the International Civil Aviation Organization (ICAO), the UN regulatory agency for airlines.
However, the EU says it enacted the measure precisely because major airlines had blocked concrete steps in ICAO to rein in carbon emissions.
The EU has calculated the cost to passengers would be minimal, ranging up to 12 euro (US$15.71) on a one-way trans-Atlantic flight. For many flights it will be 1 or 2 euros.