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EU’s Emission’s Trading System Would Beat WTO Challenge

The European Union’s plan to impose carbon-emissions curbs on international airlines would probably stand up to any challenge at the World Trade Organization, according to a study by a University of Cambridge researcher.

Countries including the U.S., China, Russia and India have criticized the EU’s emissions trading system, which requires all aircraft landing in and departing from Europe to surrender enough carbon dioxide allowances to cover their emissions. Allowances up to a fixed overall cap are given to participants for free or must be bought at auctions or on the carbon market.

Extending the cap-and-trade plan, known as ETS, to the airline industry as of January builds on the carbon trading system the EU began in 2005 to cover greenhouse-gas emissions from power plants and manufacturers in 30 countries -- the 27 EU nations plus Iceland, Liechtenstein and Norway. Airline carbon- dioxide discharges in Europe doubled over two decades and aviation now accounts for about 3 percent of global emissions.

“It’s a bit messy, but I think at the end of the day it’s justifiable,” Lorand Bartels, a senior lecturer in WTO and international law at the university’s Trinity Hall, said in a phone interview. “On most points it’s OK in that it’s justified on environmental grounds.”

Officials from 29 countries, including the U.S., signed a declaration protesting the EU law in February and said they would consider retaliatory actions, including barring their air carriers from participating in the ETS, challenging the system at the WTO and imposing additional charges on EU carriers.

‘Notoriously Difficult’

While extending the ETS to aviation probably violates global trade rules, the WTO permits measures that are necessary “to protect human, animal or plant life or health.” A successful WTO complaint would have to show that the EU could have achieved the same goal using another means that is “both reasonably available and less trade-restrictive than the measure adopted. This is notoriously difficult to assess in the abstract,” Bartels wrote in a study that he’ll present today at a conference in Geneva.

One contradiction in the ETS, he said, is that it offers an incentive for planes to make stopovers because CO2 emissions are calculated based on the last place an aircraft lands before entering the EU. Airlines must pay for carbon emissions depending on the distance flown, meaning a flight from Los Angeles to London via New York would result in lower emission costs than a direct flight from Los Angeles to London, though it would mean higher CO2 discharges.

“It’s a perverse incentive to have a system where you actually get charged for the non-stopover flight even when the stopover flight uses more emissions overall,” said Bartels.

To contact the reporter on this story: Jennifer M. Freedman in Geneva at jfreedman@bloomberg.net.

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net.

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