CapitolWire December 2012 by Bertelsmann Foundation

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Inspiring People. Shaping the Future.

The Brussels Connection to Capitol Hill

WASHINGTON, DC 1101 New York Avenue, NW Suite 901 Washington, DC 20005 USA

BRUSSELS Résidence Palace Rue de la Loi 155 1040 Brussels, Belgium

Contact: Tyson Barker tyson.barker@bfna.org (+1) 202.384.1993 www.bfna.org

Contact: Thomas Fischer thomas.fischer@bertelsmann-stiftung.de (+32 2) 280.2830 www.bertelsmann-stiftung.de/brussels

In the Air: International Aviation-Emissions Regulation CapitolWire is a joint publication of the Bertelsmann Foundation offices in Washington, DC and Brussels. It connects the European Parliament to Congressional policy and politics, and contributes to a common trans-Atlantic political culture. CapitolWire is an occasional publication that highlights issues, legislation and policymakers relevant to the European Parliament’s legislative cycle. This publication also looks at the Congress from the point of view of European Parliament staffers and offers timely operational analysis.

KEY POINTS • On November 27, 2012 US President Barack Obama signed into law The European Union Emissions Trading Scheme Prohibition Act of 2011. The law grants the transportation secretary authority to prohibit US airlines from participating in the EU Emissions Trading Scheme (ETS). • The EU granted to non-EU air carriers on November 13, 2012 a nearly yearlong exemption from complying with the EU ETS due to increased pressure from the US and International Civil Aviation Organization (ICAO) members. • However, if the ICAO fails to reach an international agreement on aviation emissions in 2013, the EU maintains that it will incorporate non-EU carriers into the EU ETS. The EU introduced aviation into its emissions trading system (ETS) in 2008. It became an international point of contention in January 2012 as ETS requirements went into effect for all incoming and outgoing commercial flights at EU airports, regardless of carrier nationality and time spent in EU airspace.

The House and Senate then approved additional bipartisan bills consistent with Section 509 language. The Senate unanimously passed S. 1956 The European Union Emissions Trading Scheme Prohibition Act of 2011, sponsored by Senator John Thune, on September 22, 2012, just prior to recessing for elections. After the November ballot, the House voted on the Senate version rather than a more nationalistic version that passed the lower chamber in October 2011. S. 1956 passed the House on November 13, one day after Connie Hedegaard, EU commissioner for climate action, announced a

The Bertelsmann Foundation is a private, nonpartisan operating foundation, working to promote and strengthen trans-Atlantic cooperation. Serving as a platform for open dialogue among key stakeholders, the Foundation develops practical policy recommendations on issues central to successful development of both sides of the ocean. ©Copyright 2012, Bertelsmann Foundation. All rights reserved.

DECEMBER 2012

The global aviation industry and many governments have expressed opposition to the inclusion of non-EU air carriers. ICAO members, including the US, signed a declaration in 2011 to this effect. In February 2012, Congress passed its first legislation with

EU ETS prohibition language. Section 509 of the Federal Aviation Administration (FAA) Modernization and Reform Act of 2012 (P.L. 112-95) expressed the “sense of Congress”, a majority Congressional opinion, not public law, that implementing the international aviation provisions of the EU ETS is inconsistent with the Chicago Convention on International Civil Aviation. The legislation urged the EU to work within the ICAO to develop a consensual approach, and it directed US government officials to ensure that the ETS is not applied to US air carriers.

temporary exemption from the ETS for non-EU year exemption period—it made official the Future. airlines. She cited progress at ICAO-ledInspiring global USPeople. government’sShaping support of anthe international negotiations on the issue as the reason for the approach to reducing aviation emissions. exemption.

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The EU’s proposed freeze on the application to non-EU air carriers is set to continue until the 2013 meeting of ICAO, by which time an international agreement on aviation emissions may be achieved. Regardless of WASHINGTON, DC the temporary exemption, President Obama New York Avenue, NW signed S. 1956 into law on November 27,1101 2012. Suite 901 Though the EU’s announcement rendered the Washington, DC 20005 USA legislation irrelevant—at least for theContact: one- Tyson Barker

The Brussels Connection to Capitol Hill

Sponsor of S. 1956: Senator John Thune (R-South Dakota)

The US Argument Washington’s stance on EU ETS has been to “support the goals, but oppose the action”, as Senator John Rockefeller, chairman of the Committee on Commerce, Science and Transportation, mentioned in a June hearing on the act. Proponents of S. 1956 recognize the necessity to reduce aviation’s impact on the environment but prefer an international approach. The EU ETS includes regulation of emissions produced by carriers while operating outside EU airspace and in countries that are simply being overflown. But the global aviation industry, the US and other countries contend that mandatory participation by non-EU air carriers in the ETS is a violation of state sovereignty. The US argues that international obligations of the Chicago Convention of

BRUSSELS Résidence Palace Rue de la Loi 155 1040 Brussels, Belgium Contact: Thomas Fischer E-mail: tyson.barker@bertelsmann- E-mail: thomas.fischer@bertelsmannfoundation.org stiftung.de Tel: (+1) 202.384.1993 Tel: (+32 2) 280.2830 www.bertelsmann-foundation.org www.bertelsmann-stiftung.de/brussels

1944 negate EU jurisdiction over regulating emissions in foreign or international airspace. The EU is not a signatory to the Chicago Convention, although all EU member states are. The costs of compliance are yet another concern. Though estimated to be minimal initially, charges to airlines and passengers are expected to increase as the EU ETS cap on total carbon-dioxide emissions decreases and the EU provides fewer CO2 allowances for air carriers to purchase. Estimates vary widely, but the US aviation industry believes the levies would amount to $3.1 billion between 2012 and 2020.

Market vulnerability and the use of collected revenues are other American concerns. A Senate Committee on Commerce, Science and Transportation report cites a European Commission proposal in July 2012 to raise carbon prices as evidence of the market’s susceptibility to manipulation. The ETS also has no requirement that revenue collected under the scheme must be used in research and development or initiatives aimed at reducing aviation emissions.

S. 1956: The EU ETS Prohibition Act The EU ETS Prohibition Act permits US air carriers to refuse participating in the EU ETS and gives the transportation secretary the authority to prohibit them from doing so. The act also directs the secretary, the Federal Aviation Administration (FAA) administrator and other officials to pursue an international agreement while ensuring US airlines are not penalized under the EU ETS.

Grants the transportation secretary the authority to prohibit US aircraft operators from participating in the EU ETS if deemed to be in the public interest Directs the transportation secretary, the Federal Aviation Administration chief and other appropriate officials to enter into international negotiations on aircraft emissions Directs appropriate officials to use applicable measures under existing authorities to ensure US air carriers are exempt from the EU ETS Prohibits the use of taxpayer dollars to pay for taxes and penalties imposed on US air carriers for non-compliance with the EU ETS Allows the transportation secretary to re-assess prohibiting US air carriers from participating in EU ETS

DECEMBER 2012

Two key amendments were added to S. 1956 to protect US taxpayers and grant the secretary more flexibility in determining US air-carrier participation. The first amendment, proposed by Senator Benjamin Cardin (D-Maryland), prohibits the use of taxpayer money to cover any taxes or penalties imposed on US air carriers for non-compliance with the EU-ETS. The senator’s proposal is partly in response to a provision of the EU ETS that makes an airline’s non-compliance subject to an “excess

Key components of the EU ETS Prohibition Act of 2011

emissions penalty” equivalent to US$130 for public interest are made, and after any US People. Shaping the Future. each ton of carbon-dioxide emissionsInspiring above regulation of aviation emissions is passed. its allowance. Harsher measures may also be This amendment was key to addressing imposed, including the possibility of banning Congressional concern about a possible USan air carrier from the EU. EU trade war over the emissions issue.

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The second amendment, proposed by Senator Jeff Merkley (D-Oregon), allows the transportation secretary to re-assess prohibiting US air carriers from EU ETS WASHINGTON, DC participation. The secretary can do this at 1101an New York Avenue, NW any time but is required to do so after 901 international agreement is reached,Suite any Washington, DC 20005 USA amendments to the EU directive affecting US

The Brussels Connection to Capitol Hill

BRUSSELS Résidence Palace Rue de la Loi 155 1040 Brussels, Belgium Contact: Thomas Fischer Contact: Tyson Barker E-mail: tyson.barker@bertelsmann- E-mail: thomas.fischer@bertelsmannfoundation.org stiftung.de Tel: (+1) 202.384.1993 Tel: (+32 2) 280.2830 www.bertelsmann-foundation.org www.bertelsmann-stiftung.de/brussels

For prohibition? US Transportation Secretary Ray LaHood can stop US airlines form participating in the EU ETS.

US Efforts to Reduce Aviation Emissions Rather than regulating greenhouse-gas emissions through market-based approaches, the US government is pursuing policies to reduce emissions by developing a modernized air-traffic control system, cleaner air technology and alternative aviation fuels. The FAA released an “Aviation Greenhouse Gas Emissions Reduction Plan” in June 2012 that focused on operational and technology improvements, developing and using alternative fuels, and pushing policies and research that support these improvements. The plan estimates that improvements in technology and operations will reduce CO2 emissions by 47 million tons in 2020.

The US has already begun implementing its Next Generation Air Transport System, known as Next Gen, a satellite-based air-trafficmanagement system aimed at creating more efficient and direct airline routes. This system will reduce an estimated 1.4 billion gallons of aviation fuel and 14 million metric tons of CO2 emissions through 2020. The US has also taken steps, outlined in the presidential directive “Blueprint for A Secure Energy Future”, to reduce its foreign energy dependence. The blueprint reflects a commitment to increasing the use of alternative fuels in the aviation sector.

The European Commission and the FAA already cooperate in this area through the Atlantic Interoperability Initiative to Reduce Emissions (AIRE) program, which was launched in 2007. AIRE’s focus is to improve fuel efficiency, lower aviation emissions and reduce aircraft noise. The US participated in three AIRE demonstration projects in 2010 and 2011 that concentrated on reducing fuel burn and emissions through flightoptimization procedures.

Next Steps

25% 20% 15%

10%

5% 0% -5% -10%

09 20

08 20

07 20

06 20

05 20

04 20

03 20

02 20

01 20

00 20

99 19

-15%

Source: IEA CO2 emissions estimates

asserted that including non-EU air carriers in the EU ETS will resume if the ICAO is unable to conclude a global agreement by then. The US transportation department is optimistic that that won’t be the case.

DECEMBER 2012

For its part, the ICAO has established a highlevel group to formulate recommendations and a feasibility study for an international aviation market-based emissions measure scheme. The group will deliver its report and a measuring framework at the ICAO’s September 2013 assembly. Commissioner Hedegaard has

30%

Over the past 15 years, the ICAO has made little progress towards an international agreement on an aviation-emission-trading scheme. The slow pace has led Australia and New Zealand, like the EU, to include the aviation sector in their domestic emissions schemes. However, both countries exempted international air carriers from any levies.

Percent Changes in CO2 Emissions from International Aviation in the US and EU in millions of tons of CO2

Improvements in aviation design, air-traffic operations, and alternative fuels will create reductions in CO2 emissions. Nevertheless, an increase in fuel consumption and a more heated aviation-emissions debate are anticipated as international flight operations rise and the number of air passengers globally doubles to six billion by 2026.