The European Union has won a critical battle in its efforts to include aviation in its emissions trading system (ETS), with a judge advocate opinion roundly rejecting a challenge brought by the Air Transport Association (ATA) and backed by others.

Judge Juliane Kokott, in the non-binding ruling the court generally follows, argues that “the inclusion of international aviation in the EU emissions trading scheme is compatible with the provisions and principles of international law invoked.”

One of the key passages of the ruling is her view that “the principles of customary international law and international agreements relied on do not give rise to any legal objections, not even in so far as the EU emissions trading scheme extends to sections of flights that take place outside the air space of Member States of the European Union.”

Kokott’s opinion is sweeping in its rejection of the ATA case and at one point appears to call into question the entire foundation of international aviation agreements when she rules that the claimant airlines and airline associations cannot, as a rule, rely on the international agreements and customary international law invoked. The final ruling is due next year.

ATA expressed its disappointment in the opinion but noted that the court's decision ultimately could differ. Furthermore, ATA reiterated international opposition to the opinion. "ATA’s view that the extension of this unilateral, regional scheme to aviation violates international law is supported by more than 20 countries, (including Brazil, Russia, India, China, Japan, the United States and many others), which recently reconfirmed their opposition to the EU," said ATA VP Environmental Affairs Nancy Young.

The advocate’s ruling will do little to quiet the controversy over the international elements of ETS. U.S. legislators have already threatened to bar U.S. carriers from complying with the ETS.

Other countries are threatening their own retaliatory measures. India says it will reopen bilateral air service agreements with European countries and retaliate if the European Commission does not step back from its plans to introduce its EU ETS at the start of next year. “If they don’t call it off, we will retaliate,” Prashant Sukul, joint secretary of India’s Ministry of Civil Aviation, tells Aviation Week.

If India is serious, then flights by European airlines to India could be curtailed. But more stringent measures could follow. “People (in other countries) have ideas about retaliatory measures, and they will act their way,” Sukul says. “If Russia doubles the overflight charges, European airlines will be out of business,” he says. “They could no longer fly east of Europe.”

‘Further Stress On Airlines’

Sukul stresses that EU ETS will create major market distortions and “penalize the consumer at the end of the day,” while putting “further stress on airlines, which are an easy target.” Sukul points out that while European officials have been trying to make their case, they have not listened to the concerns of other regions. “But it is a different call now having to deal with 25 countries and more coming.”

China and Russia have suggested unilateral actions to fight the EU policy. One concern is Russia could curtail overflight rights for European airlines flying to Asia, the industry official says.

On the eve of the advocate general’s ruling, representatives from 21 countries from North and South America, Asia and Africa, including the U.S., Japan, India, Russia, China, Argentina and the UAE, called on the International Civil Aviation Organization (ICAO) to continue its efforts to reduce airlines’ greenhouse gas emissions in a joint declaration signed in New Delhi on Sept. 30. The declaration opposes the EU ETS as inconsistent with international law, including the Chicago Convention. It also urges ICAO to develop a “meaningful aircraft CO2 standard with a possible implementation date of 2013.

While the declaration acknowledges that growing aviation greenhouse gas emissions are a concern, it focuses on advances in fuel efficiency and stresses the need for comprehensive air traffic management reform along with advances in biofuels and other technological solutions to the problem. The 21 countries ask the EU to refrain from applying the ETS to non-EU carriers and urges the bloc to “work collaboratively with the rest of the international community to address aviation emissions.”

The Environmental Defense Fund, a U.S.-based environmental advocacy group that had supported the ETS, cheered the opinion. Pamela Campos, an attorney for the group, told Aviation Week that the Delhi Declaration is “premature.”

Europe's adopting of the ETS could force airframers and airlines to focus on more efficient operations, says Campos, setting the agenda for the rest of the world. And it could force ICAO to act, she adds.

The current situation also is putting EU airlines in a bind, having to balance their competitive concerns with fears of running afoul of their governing regulator. In a statement, Ulrich Schulte-Strathaus, secretary general of the Association of European Airlines (AEA) says, “AEA supports the European Union’s commitment to reduce the impact of all sectors, including air transport, on climate change. However, instead of taking the lead and paving the way towards a global solution, the European Union’s environmental strategy is alienating key partners.”

Manufacturers are also affected. For instance, China is blocking a Hong Kong Airlines Airbus A380 order as a result of the dispute.

What is also worrying industry officials is that the commission’s environment directorate is in talks with others about “equivalent measures.” Under the legislation to include aviation in the ETS, the charging system would be set aside for airlines operating out of countries where their CO2 output is regulated. But there are concerns that negotiations may lead to market distortions and place European carriers at a competitive disadvantage.

India’s Sukul also says that such systems “make the whole thing even dicier” because “it is they who judge if your measure is equivalent.” That “opens up the door for more discrimination.”

Another industry official warns that if there is a patchwork of ETS-like systems, the industry will struggle to achieve its ultimate goal of a global approach to controlling CO2 output.

What will complicate issues is that there is little time for differences to be ironed out. Schulte-Strathaus notes that “with just 87 days to go, the ETS clock is ticking very loudly, and the chorus of third-country indignation is deafening. We have deep concerns that the European air transport industry will be caught in the crossfire as key trade partners retaliate against the inclusion of international aviation in the EU ETS.”