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US Nearer To Forbidding Its Airlines To Comply With EU ETS

by Leroy Baker, Tax-News.com, New York

06 August 2012


Following the passage by the United States House of Representatives in October last year of a bipartisan bill to ban US airlines from complying with the European Union’s emissions trading scheme (ETS), the Commerce Committee has now unanimously approved a similar bill in the Senate.

The EU ETS has been extended to aviation activities from or to European soil on January 1, 2012, to provide a solution to taxing aviation emissions, which were excluded from the Kyoto Protocol. Under the ETS, airlines operating into and out of the EU are required to immediately begin purchasing emissions allowances, but are only expected to remit the sums in 2013.

The US, along with the 16 other non-EU countries opposing the scheme, favours a global approach to avoid any conflict of sovereignty and to avert a potential trade war. The US government has already announced it would reject any unilateral EU ETS on airlines kicking in before 2020, and would hope that a global proposal could be discussed during the next meeting of the International Civil Aviation Organization (ICAO).

The legislation going through Congress, the European Union Emissions Trading Scheme Prohibition bill, would provide that the US Secretary of Transportation and the Administrator of the Federal Aviation Administration should “use their authority to conduct international negotiations and take other actions necessary to ensure that operators of civil aircraft of the US are held harmless from any ETS unilaterally established by the EU”.

It declares, for example, that the EU’s “extraterritorial” action is inconsistent with long-established international law and practice, including the Air Transport Agreement between the US and the EU, and directly infringes on the sovereignty of the US, and undermines on-going efforts at the ICAO to develop a unified, worldwide approach to reducing aircraft greenhouse gas emissions.

While, the bill adds, the EU ETS has generated unnecessary friction within the international civil aviation community as it endeavours to reduce such emissions, and the EU should instead work with other contracting states of the ICAO to develop such an approach, there is no assurance that ETS revenues will be used for environmental purposes by the EU member states that will collect them.

In that case, the proposed Act stipulates that “the US Secretary of Transportation shall prohibit an operator of a civil aircraft of the US from participating in any ETS unilaterally established by the EU".

Claire McCaskill (D – Missouri), co-sponsor of the bill in the Senate, said: "To subject Americans to a tax levied by the EU while they fly in US airspace is a dramatic overreach and assault on our sovereignty - especially when European countries can use that money for anything they'd like. The bottom line is that European governments have no business imposing a tax on our air travel.”

John Thune (R – South Dakota), the other co-sponsor, added that “Congress must act to protect America’s sovereignty and ensure that US operators and passengers are not penalized by this illegitimate tax. More than USD3.1bn will be wrapped up in new taxes between 2012 and 2020 that could otherwise be invested in creating jobs and stimulating economic growth in our country.”

Airlines for America, the trade organization for the leading US airlines, has commended the Committee for approving the bill. Its President and CEO Nicholas E. Calio confirmed that, as “diplomacy is not working, we encourage the administration to file a legal challenge, forcing the EU to work toward a global sectoral approach through the ICAO.”

Now that the bill has been reported by the Commerce Committee it will be placed on the legislative calendar, which will allow for full Senate consideration.

TAGS: environment | tax | business | law | aviation | legislation | carbon tax | United States | European Union (EU) | Europe

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