United Continental, American Airlines Fight EU Over Airline Carbon Curbs

United Continental Holdings Inc. (UAL), AMR Corp. (AMR)’s American Airlines and the Air Transport Association of America will challenge the European Union’s plans for emission curbs on aviation.

In a hearing at the region’s highest court tomorrow, they will dispute a law expanding the EU carbon market to encompass flights that depart from or arrive at an EU airport.

The EU system “as applied to international aviation violates international law and is bad policy,” Steve Lott, a spokesman for the ATA, said in an e-mail. “It also clearly stands in the way of an appropriate and effective global solution.”

The EU’s first attempt to extend the world’s largest carbon cap-and-trade program beyond its borders sparked international opposition. China’s airline association said the measures, which start next year, are “unreasonable and illegal” and warned of a potential trade conflict. Willie Walsh, the head of British Airways parent International Consolidated Airlines Group SA, said last month “we fully expect” other states to retaliate.

The move, which follows a doubling of airline discharges in Europe over two decades, is a “practical example” of necessary action to prevent global warming, EU Climate Commissioner Connie Hedegaard said last month.

“This legislation is fully consistent with international law and we’re confident that the court will side with us and understand our arguments,” said Isaac Valero-Ladron, a spokesman for Hedegaard at the European Commission, the 27- nation EU’s executive agency. “We don’t intend to withdraw or amend the law at all.”

Pay a Fine

The Emissions Trading System, started in 2005, covers more than 11,000 utilities and manufacturers and is the cornerstone of the EU’s climate plan. It requires companies that exceed their carbon dioxide emissions quotas to pay a fine or buy spare permits from businesses that emit less.

The U.S. carriers claim the plan violates international law, the Kyoto Protocol, an EU-U.S. aviation accord and the Convention on International Civil Aviation, the so-called Chicago Convention.

“Airlines should be racing to comply with this law and deliver cleaner low-carbon travel to the flying public, instead of racing to the courthouse to try to block a reasonable and well-designed law,” Annie Petsonk, international counsel at the Environmental Defense Fund, a New-York-based climate campaign group, said in an e-mail.

‘Moderate’ Reductions

The required reductions “are moderate, and the directive provides carbon market mechanisms to ease airlines’ transition to low-carbon growth,” said Petsonk.

Airlines would be the second-largest sector in the system, after power generators. Under the legislation, 82 percent of the emission allowances making up the airline-industry cap would be allocated for free and 15 percent would be auctioned. The remaining 3 percent would be put into a special reserve for later distribution to fast-growing airlines and new entrants.

Emissions from international aviation account for 2-3 percent of global greenhouse gas discharges and their share is expected to rise in the coming decades as the industry grows, according to the EU.

The EU system is the region’s main tool to reach its target to reduce carbon dioxide by 20 percent in 2020 compared with 1990 levels.

U.K. High Court

The High Court in London referred the case to the EU Court of Justice in Luxembourg last year to clarify the legality of the emissions curbs.

The ATA, the largest U.S. airline trade group, has said it was “compelled” to file its lawsuit in the U.K. because the country was the first to implement the EU law into its national rules and there were “looming” deadlines to take action.

While the European legislation offers an option to exclude incoming flights from a non-EU country if the nation implements “equivalent” measures to cut airplane pollution, the U.S. contends the ETS doesn’t apply to its airlines, a government official said after a meeting with the commission last month.

Equivalent measures are “the only avenue” that the EU will explore when considering an exemption, Valero-Ladron said.

He refuted arguments by the U.S. airlines that the unilateral imposition of carbon emission limits on aviation violated international accords.

The International Civil Aviation Organization “concluded in 2004 that market-based mechanisms are the most effective economic policy instrument for tackling aviation emission and last year it recognized the EU emissions trading system,” Valero-Ladron said.

In October, the ICAO reached an agreement to restrict global aircraft discharges of greenhouse gases from 2020, breaking almost a decade-long deadlock at the organization. The deal will cover more than 90 percent of worldwide air traffic.

The case is: C-366/10, The Air Transport Association of America, American Airlines, Inc., Continental Airlines, Inc., United Airlines, Inc. v. The Secretary of State for Energy and Climate Change

To contact the reporters on this story: Stephanie Bodoni in Luxembourg at sbodoni@bloomberg.net; Ewa Krukowska in Brussels at ekrukowska@bloomberg.net.

To contact the editors responsible for this story: Anthony Aarons at aaarons@bloomberg.net; Stephen Voss at sev@bloomberg.net;

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