Higher airline prices feared as EU backs pollution fee

Governments attack unilateral plan

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Defying appeals from U.S. airlines and the Obama administration, the European Union’s top court Wednesday cleared the way for a new pollution charge to be levied on all flights to the Continent, a move that could mean higher prices for trans-Atlantic fliers.

In a move hailed by environmentalist groups, the EU's Court of Justice in Luxembourg endorsed a plan to charge international carriers for their carbon emissions on flights to and from Europe, including portions of flights flown outside the region’s airspace. The decision on the “cap-and-trade” emissions scheme rejected arguments made by U.S. and international carriers that they should be exempt from the charges.

“In its judgment delivered today, the Court of Justice confirms the validity of the directive that includes aviation activities in the emissions trading scheme,” the court said.

The bloc’s 6-year-old Emissions Trading System will expand to all airlines in January. It would require the industry to cut its carbon dioxide emissions average from the 2004 to 2006 period by 3 percent in 2012 and 5 percent in 2013, with heavier polluters purchasing “credits” for the right to exceed their quotas. Carriers, which initially would receive 85 percent of their emissions certificates free of charge, would have to bid for the rest.

Airlines for America, a U.S. trade group, estimates that the rule will cost U.S. airlines $3.1 billion by 2020. Much of that cost presumably will be passed on to passengers. The International Air Transport Association estimates that the plan will cost carriers worldwide as much as $3.76 billion during the same period.

Fitch Ratings, in an industry analysis issued Wednesday, said that United, Continental, Delta and American Airlines could feel the deepest impact, earning at least a fifth of their global revenue from flights to and from Europe.

The rule could translate into higher ticket prices, although estimates of the impact vary. EU officials estimate that passengers will pay no more than an additional $15.70 for a one-way ticket between the U.S. and Europe - or an extra $125.60 for a family of four purchasing round-trip tickets - and that the market scheme will reward airlines with more energy-efficient fleets.

The airline industry vowed to keep fighting.

“Even though we got a decision from the court, I think the battle and the dispute is far from over,” Airlines for America spokesman Steve Lott said. He said U.S. airlines will “comply under protest” with the plan for now.

The United States, China and other governments also have appealed for the EU to hold off on its unilateral imposition of the pollution fees.

Secretary of State Hillary Rodham Clinton said the Obama administration “strongly objects” to the plan.

“The EU is increasingly isolated on this issue,” she wrote in a letter this month. “Our objections are shared by the international community.”

State Department spokeswoman Victoria Nuland said the U.S. government was disappointed by the decision of the EU court. She said the Europeans were effectively torpedoing efforts to obtain a global agreement through the United Nations International Civil Aviation Organization.

“We don’t think it’s very helpful to circumvent the agreed multilateral forum for addressing these issues,” Ms. Nuland said.

Congress also is looking for ways to fight back. The House already passed a bipartisan bill that would make it illegal for American carriers to participate in the plan, and the Senate is working on a similar measure.

Lawmakers on Capitol Hill said they don’t mind the EU charging emissions fees in their own airspace but objected in particular to the idea of the fee being extended to miles traveled in the U.S.

“We feel this proposal does not recognize the sovereignty of other nations,” said Justin Harclerode, a spokesman for the House Committee on Transportation and Infrastructure, which pushed the measure to prevent U.S. carriers from participating.

“Our Congress is not bound by that court decision,” he added, “and will take whatever steps it deems necessary to make its position known to the EU.”

China has threatened to block purchases from Airbus, a European airline manufacturer, to signal its unhappiness with the carbon charges. The EU plan could cost Chinese airlines $123 million in the first year, a number that will triple by 2020.

Dubai’s Emirates reports that it could cost the carrier as much as $1 billion over the next decade. Indian officials reportedly have told national carriers there not to supply carbon emissions data to the U.N. in a bid to frustrate the EU regulators.

European airlines say it’s only fair to include their international counterparts in the plan, as they face the same rules on internal European flights. But the rest of the airline industry argues that by including international carriers in the plan, the EU scheme will create an unbalanced playing field for airlines that are located in countries closer to the EU.

Perry Flint, a spokesman for the International Air Transport Association, called the EU plan an attack on U.S. airlines.

“The [Emissions Trading System] will introduce market distortions,” Mr. Flint said. “If you have a hub near Europe, you’re all-in costs will be lower than someone who has a hub further away from Europe.”

Environmental groups, including many from the U.S., applauded the move to charge airline emission fees. They say the ultimate goal is not to raise costs but to give airlines bottom-line incentives to cut their carbon emissions.

“Today’s decision, from the highest court in the European Union, makes clear Europe’s innovative law to reduce emissions from international fights is fully consistent with international law, does not infringe on the sovereignty of other nations, and is distinct from the charges and taxes subject to treaty limitations,” according to a coalition of environmental groups from the U.S. and Europe.

All money from the EU permit trading plan will go to efforts to combat climate change, European leaders say.

Martin Wagner, managing attorney at Earthjustice, which is part of the coalition, called the decision a “victory for the planet.”

The spotlight now turns to governments that are pressuring the EU to reverse its decision, according to the Airlines for American spokesman Mr. Lott.

“I think a lot of the focus going forward will come from the increasing governmental pressure,” he said. “You have seen tightening pressure from many countries.”

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