Background Decision Comment

Background

In its 2013 'stop the clock' decision, the European Commission suspended the requirement to surrender emissions allowances imposed by its aviation emission trading scheme (ETS) in respect of flights between member states of the European Economic Area (EEA) (ie, EU member states plus Norway, Iceland and Liechtenstein) and third countries (ie, states not members of the EEA).

The stated purpose of the moratorium was to allow the International Civil Aviation Organisation (ICAO) to broker a global agreement addressing aviation emissions.

The only flights to or from third countries that were excluded from the European Commission's 'stop the clock' decision were those to and from Switzerland or Croatia. Following Croatia's accession to the European Union, Switzerland became the only third country excluded from the moratorium.

Accordingly, Swiss International Air Lines AG – an airline licensed in Switzerland – was required to purchase emission allowances under the ETS.

Swiss Airlines brought an application before the High Court of England and Wales, seeking the annulment of the national regulations implementing the 'stop the clock' decision. The reason why Swiss Airlines brought proceedings in the United Kingdom was because the United Kingdom is Swiss Airlines' administering member state under the ETS.

Swiss Airlines argued that the moratorium breached the principle of equal treatment by singling out Switzerland for special treatment, but the High Court disagreed and dismissed the application.

Swiss Airlines appealed before the Court of Appeal of England and Wales (for further details please see "Swiss International Air Lines challenges 'stop the clock' decision"). The Court of Appeal referred the following key questions to the European Court of Justice (ECJ) for a preliminary ruling:

  • Does the 'stop the clock' decision infringe the general EU principle of equal treatment insofar as it establishes a moratorium on the requirements to surrender emissions allowances in respect of flights between EEA states and non-EEA states, but does not extend that moratorium to flights between EEA states and Switzerland?
  • If so, what remedy must be provided?

Decision

On December 21 2016 the ECJ found(1) that the 'stop the clock' decision does not infringe the EU principle of equal treatment.

According to the ECJ, European law imposes no obligation on the European Union to the effect that all third countries must be treated equally. This is consistent with public international law. Relations between the subjects of public international law in general, and the external relations of the European Union in particular, are characterised by their broadly discretionary nature.

The conduct of external relations necessarily implies policy choices. The European Union must be in a position to choose its policies and apply, according to the objectives it pursues, a distinction between third countries. The effect of the exercise of external policy prerogatives may therefore be that the treatment of one third country differs from that of other third countries.

It follows that the principle of equal treatment does not apply to the moratorium on the requirements to surrender emissions allowances. The European Union is not required to treat equally flights between EEA states and Switzerland on the one hand, and flights between EEA states and the other third countries on the other hand. Nor is the European Union obliged to treat operators of those two categories of flights equally.

Since the ECJ answered the first question referred for a preliminary ruling in the negative, it was unnecessary to answer the second question.

Comment

In its preliminary ruling, the ECJ clarified one of many controversial issues surrounding the ETS.

Even if the principle of equal treatment applied, it is unlikely that it had been breached, because the 'stop the clock' decision was a political decision by the European Commission regarding where best to strike a balance in relation to progressing matters at a global level within the ICAO framework.

In October 2016 ICAO's 191 member states agreed to implement a carbon offset and reduction scheme for international aviation. The scheme is set to commence with a voluntary period (between 2021 to 2026), after which it will become mandatory. The detailed rules will be prepared in 2017 and endorsed by ICAO in 2018.

Once the global scheme is in place, the European ETS should be repealed.

For further information on this topic please contact Andreas Fankhauser at Baumgartner Mächler by telephone (+41 44 215 4477) or email (afa@bmlaw.ch). The Baumgartner Mächler website can be accessed at www.bmlaw.ch.

Endnotes

(1) Case C-272/15, Swiss International Air Lines AG v The Secretary of State for Energy and Climate Change, Environment Agency.

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