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P R 061920Z JAN 09
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TO EU MEMBER STATES COLLECTIVE PRIORITY
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RUEHBR/AMEMBASSY BRASILIA 1128
RUEHBY/AMEMBASSY CANBERRA 3274
RUEHOS/AMCONSUL LAGOS 6396
RUEHME/AMEMBASSY MEXICO 7826
RUEHMO/AMEMBASSY MOSCOW 6961
RUEHNE/AMEMBASSY NEW DELHI 2126
RUEHSA/AMEMBASSY PRETORIA 2388
RUEHRH/AMEMBASSY RIYADH 0207
RUEHKO/AMEMBASSY TOKYO 7377
RUEHMT/AMCONSUL MONTREAL 0281
RUEHBS/USEU BRUSSELS

UNCLAS SECTION 01 OF 05 STATE 001023 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EAIR ECON ETRD SENV EU
SUBJECT: UPDATE ON EUROPEAN EFFORTS TO INCLUDE 
INTERNATIONAL AVIATION AND MARITIME EMISSIONS IN THE 
EUROPEAN EMISSIONS TRADING SCHEME. 
 
REF: A. 06 STATE 190254 
     ¶B. 06 STATE 188369 
     ¶C. 07 STATE 83246 
     ¶D. 07 STATE 141724 
 
¶1. (U) This is an action request.  See paragraph four. 
 
¶2.    (SBU) SUMMARY.  On October 24, 2008 European Ministers 
officially adopted a Directive to include international 
aviation in the European Union (EU) Emissions Trading Scheme 
(ETS).  All flights arriving and departing from EU airports, 
including those of non-EU airlines, will be covered by the 
scheme.  EU Member States must transpose the Directive into 
their domestic legislation by January 2010, and 
implementation will begin in 2012, with airlines required to 
provide baseline emissions data in 2009. 
 
¶3.    (SBU) European officials claim this will spur the 
international community to address greenhouse gas emissions 
from aircraft more quickly.  They anticipate changes in U.S. 
climate change policy under the new Administration and may 
appear to assume that this would entail support for inclusion 
of international aviation in the EU ETS.  This assumption is 
flawed: no matter what decisions the U.S. may take to address 
greenhouse gas emissions, there is strong bipartisan 
opposition to the EU unilaterally imposing its emissions 
trading scheme on U.S. air carriers. The longstanding U.S. 
view ) shared by a majority of non-EU countries ) is that 
inclusion of one country's airlines in another country,s 
trading scheme must be accomplished on the basis of mutual 
consent and agreement between governments.  End Summary. 
 
¶4.    (U) ACTION REQUEST: Department anticipates that this 
dispute will be at the forefront of aviation policy in the 
coming year as well as an underlying part of ongoing climate 
negotiations.  Below is a review of U.S. actions and 
positions that EU Posts may draw on in discussions with host 
government officials.  We encourage reporting on any 
developments to Washington agencies.  Please contact 
EEB/TRA/OTP Megan Walklet-Tighe or EUR/ERA Ben Rockwell with 
any questions. 
 
¶5.  (U) The EU is also contemplating action in the maritime 
domain.  Information and an update are found at paragraphs 
26-29. 
 
BACKGROUND ) The EU Proposal 
---------------------------- 
 
¶6.  (U) Under significant political pressure "to do something 
about aviation emissions," during the past three years the 
European Commission developed a legislative proposal that 
unilaterally extends the EU ETS to international civil 
aviation.  At each step of the process, the United States and 
other countries have expressed deep concerns, citing, among 
many issues, the inconsistency with EU Member State 
international legal obligations under the Convention on 
International Civil Aviation ("Chicago Convention"), and 
violation of bilateral air services agreements, including the 
U.S.-EU Air Transport Agreement signed in April, 2007 
(Reftels A & B). Despite strong international opposition, the 
EU has brushed off the concerns of the rest of the world, 
adopting EC Directive (Doc. 3647/08) on October 24th to 
include international aviation in the EU ETS. 
 
¶7.  (U) The Directive covers all flights arriving at and 
departing from EU airports, including those of non-EU 
airlines. Each airline will be required to surrender 
allowances for the total emissions of each flight, from 
departure to arrival.  For example, for a flight from Los 
Angeles to London, the GHG emissions attributed to that 
flight while in U.S. domestic airspace and in international 
airspace over the high seas ) in addition to emissions 
generated while within EU airspace - will count toward the 
 
STATE 00001023  002 OF 005 
 
SUBJECT: UPDATE ON EUROPEAN EFFORTS TO INCLUDE 
INTERNATIONAL AVIATION AND MARITIME EMISSIONS IN THE 
EUROPEAN EMISSIONS TRADING SCHEM 
total emissions of that flight.  Both EU and non-EU carriers 
will receive a certain number of allowances free of charge 
each year. Initially, overall emissions will be capped at the 
equivalent of 97% of average annual emissions generated 
between 2004 -2006, and the "free" allowances will be limited 
to 85% of that total.  Carriers will be expected to buy any 
additional allowances they need via auction and via the 
trading market.  Over time, the percentage of emissions 
allowed will fall, and the percentage of free allowances will 
decrease; it is expected carriers will eventually have to buy 
and sell 100% of their allowances.  Recent industry estimates 
project the costs will reach as much as 6.7 billion dollars a 
year. 
 
THE U.S. POSITION - Legal Analysis 
---------------------------------- 
 
¶8.  (U) The EU plan is not only unworkable, it is unlawful. 
It violates EU Member States' international legal obligations 
under the Chicago Convention, and violates certain aspects of 
the  U.S. - EU Air Transport Agreement, which is being 
provisionally applied as of March 30, 2008. 
 
¶9.  (U) Article 15 of the Chicago Convention prohibits 
imposition of "fees, dues or other charges" on airlines 
solely for the "right of transit over or entry into or exit 
from (a State's) territory of any aircraft of a contracting 
State."  By requiring the surrender of valuable emissions 
allowances simply for the right to land or depart an EU 
airport and threatening to bar air carriers from the EU for 
non-participation, the EU proposal is directly contrary to 
Article 15. 
 
¶10.  (U) The EU has argued that Article 11 of the Chicago 
Convention supports its approach by providng that "(s)ubject 
to the provisions of this Convention, the laws and 
regulations of a contracting State relating to the admission 
to or departure from its territory of aircraft ... shall be 
complied with by such aircraft upon entering or departing 
from or while within the territory of that State."  This 
interpretation ignores the explicit requirement that the 
relevant laws and regulations be consistent with other 
provisions of the Convention, including Article 15, and is 
overbroad.  Charging for aviation emissions emitted over the 
high seas, other countries' territories as well as over EU 
states is not related to admission to EU territory.  This 
interpretation implies that adoption of other laws of the 
admitting state ) such as its labor laws ) could be used as 
a condition of use of its airports. 
 
¶11.  (U) Moreover, emissions trading systems impose costs 
without providing any services, and can limit a carrier's 
operations.  As such, they are inconsistent with key 
provisions of the U.S.-EU Air Transport Agreement.  The 
Agreement restricts user charges to the full cost of 
providing services and prohibits the unilateral imposition of 
limits on the volume of traffic, frequency or regularity of 
service, or the aircraft types operated. 
 
¶12.  (U) In addition to the legal issues, the EU legislation 
is fundamentally flawed in several other respects.  First, it 
places the bulk of liability for greenhouse gas emissions 
from aviation on the airlines, taking little account of 
well-documented inefficiencies in the European air traffic 
system and their contribution to excess fuel burn.  Second, 
it does not preclude EU Member States from levying additional 
charges or taxes even if a foreign airline participates in 
the ETS.  Hence, a foreign airline could pay two or three 
times for the same ton of CO2 emissions.  Finally, the 
revenues generated from auctions of allowances are expected 
to go into the general revenue streams of EU member states 
with no obligation to improve aviation efficiency or address 
climate change issues. 
 
Prospects Under the New U.S. Administration 
------------------------------------------- 
 
¶13.  (U) Public perception and political attitudes in the EU 
suggest that the EU is counting on the new U.S. 
Administration to bring about a change in the U.S. position 
 
STATE 00001023  003 OF 005 
 
SUBJECT: UPDATE ON EUROPEAN EFFORTS TO INCLUDE 
INTERNATIONAL AVIATION AND MARITIME EMISSIONS IN THE 
EUROPEAN EMISSIONS TRADING SCHEM 
on this issue.  While President-elect Obama endorsed the 
concept of cap and trade for greenhouse gas emissions as a 
Senator and during the campaign, he has taken no positon on 
unilateral inclusion of aviation in the ETS.  There is clear 
bipartisan support (including through a sense of the Congress 
resolution) that unilateral inclusion is not acceptable. 
Influential members of Congress from both parties, including 
the Chairman of the House Transportation and Infrastructure 
Committee, will continue in leadership roles next year.  Some 
have suggested that the EU's actions threaten to undermine 
the U.S.-EU trade relationship.  Many also recall the dispute 
with the EU over "hushkitted" aircraft ) when the EU sought 
to unilaterally ban certain aircraft from operating within 
the EU.  This resulted in the United States taking legal 
action at the International Civil Aviation Organization 
(ICAO) and the EU being forced to repeal its legislation and 
replace it with legislation consistent with the Chicago 
Convention. 
 
ICAO - A Global Approach 
------------------------ 
 
¶14.  (U) The EU's action undermines ongoing work in ICAO.  A 
global response is the most appropriate and effective 
solution to reduce aviation emissions and ICAO is the 
appropriate forum for such discussions.  ICAO has been 
working to develop guidance on how to manage international 
aviation emissions for several years. The United States and 
much of the rest of the world believe inclusion of foreign 
airlines in emissions trading systems must be on the basis of 
mutual consent between governments.  This position was 
endorsed at the September 2007 Triennial ICAO  Assembly; the 
U.S., with the support of an overwhelming majority of ICAO 
contracting States, successfully included language in the 
Assembly Resolution that urged States not to implement an 
emissions trading scheme on other States' aircraft except on 
the basis of mutual agreement (Reftels D & E).  The Europeans 
) specifically the 42 countries comprising the EU and the 
European Civil Aviation Conference (ECAC) ) nevertheless 
entered a formal "reservation," based on their view that the 
EU has the right to apply market-based measures (both 
emissions trading and greenhouse gas emission charges) on all 
operators of all States operating to, from, or within their 
territories. 
 
¶15.  (U) The Assembly also agreed to develop a comprehensive 
plan on international aviation and climate change, including 
formation by the ICAO Council of a senior-level "Group on 
International Aviation and Climate Change" (GIACC).  The 
GIACC will develop a framework to limit or reduce 
international aviation's greenhouse gas emissions based on a 
global aspirational goal, likely linked to fuel efficiency 
improvements, to be achieved through voluntary measures, 
technological advances, operational measures, positive 
economic incentives and market-based measures.  The ICAO 
Council will convene a high level meeting in advance of the 
next (2010) Assembly to present the program and 
recommendations from GIACC for ICAO review. 
 
¶16.  (SBU) The GIACC - which is comprised of 15 countries: 
Australia, Brazil, Canada, China, France, Germany, India, 
Japan, Mexico, Nigeria, Russia, Saudi Arabia, South Africa, 
the United States, and the United Kingdom -  has met twice 
since the 2007 Assembly.  At the most recent meeting in July, 
there was broad consensus on developing a global fuel 
efficiency goal for international aviation.  Developing 
countries, however, are pressing to be exempted from taking 
any action, and other countries, particularly the Europeans, 
are pushing for more stringent measures beyond a fuel 
efficiency goal.  While a positive outcome on fuel efficiency 
looks possible, consensus on applicability and further 
measures will likely be difficult.  The next meeting is 
scheduled for February 2009. 
 
¶17.  (SBU) The EU touts the need for a global solution to 
climate change and aviation emissions, and purports to "lead 
the way" toward a global framework with the EU ETS.  However, 
statements by EU officials downplaying the ICAO process and 
the continued progression of EU legislation suggest they 
intend to go their own way no matter what is decided on an 
 
STATE 00001023  004 OF 005 
 
 
What is the U.S. Doing? 
----------------------- 
 
¶18.  (U) The U.S. is an active participant in negotiations at 
ICAO.  The U.S supports achievement of a performance-based 
approach at GIACC where countries agree on goals for the 
global aviation system and each country decides what measures 
are most cost-effective for achieving those goals. 
 
¶19.  (U) Underpinning the U.S. position is the environmental 
program that is part of the U.S. Next Generation Air 
Transportation (NextGen) Plan.  This includes a systematic 
and comprehensive approach to dealing not only with aviation 
greenhouse gas emissions, but also with aviation noise and 
air quality issues.  Dealing with the challenges of aviation 
and climate change include work on: better scientific 
understanding of aviation's impact on the environment, 
modernization of air traffic management technology and 
procedures, development of new lower-emissions and 
energy-efficient technologies for aircraft and engines, and 
identification and development of environmentally friendly, 
commercially viable alternative fuels.  We are working to 
advance efforts in all of these areas and are partnering with 
like-minded states and industry around the world to promote 
emissions reductions.  Indeed, the U.S. aviation industry has 
already pledged to improve energy efficiency by 30% by 2025. 
 
¶20. (U) In the last 40 years, global aviation fuel efficiency 
has increased 70 percent and is expected to improve a further 
25 percent by 2020.  As fuel bills represent 25-30 percent of 
airline operating costs (the single largest cost for U.S. 
carriers), strong incentives already exist for reducing fuel 
use.  In fact, unlike EU airlines, U.S. operators have 
actually reduced their carbon footprint.  Over the last seven 
years, U.S. air carriers have burned less fuel annually than 
in 2000, resulting in 77 million fewer tons of carbon 
emissions or the equivalent of removing two million cars from 
the road annually.  While burning 3 percent less fuel, U.S. 
operators have grown, flying 20 percent more revenue 
passenger miles over the same period. 
 
¶21.  (U) Air traffic management modernization holds major 
near and medium-term promise for efficiency gains and, 
therefore, reductions in carbon emissions.  Both the United 
States and the EU have undertaken modernization initiatives. 
These include plans to accelerate our major air traffic 
control initiatives, US NextGen and EU SESAR, to develop 
greener transatlantic flights faster over the next two years. 
 
¶22.  (U) More efficient aircraft and engine technology can 
offer important gains in the medium and long terms. 
Legislation before Congress, with bipartisan support, 
proposes a program to encourage the uptake of R&D results 
into more environmentally friendly aircraft and engine 
designs, similar to the EU's Clean Sky Joint Technology 
Initiative.  Some new technologies that could be retrofitted 
to current aircraft may reduce fuel burn by seven to ten 
percent per aircraft, offering significant promise. 
 
¶23.  (U) The United States has also launched the Commercial 
Aviation Alternative Fuel Initiative (CAAFI) to explore the 
use of alternative fuels to reduce aviation emissions 
impacts, both local and global.  Comprised of air carriers, 
manufacturers, airports, energy suppliers and distributors, 
and academic institutions, CAAFI has set goals to identify 
and have approved for use by civil aviation a synthetic fuel 
in the first half of 2009, a 50 percent bio-fuel by the end 
of 2010, and a 100 percent bio-fuel by the end of 2013. 
Several European research institutes and companies have 
joined us in this effort, and Boeing and Virgin Atlantic have 
undertaken an important project in this area as well. 
 
¶24.  (U) In sum, the U.S. believes that through a combination 
of enhanced air traffic management, improved aircraft 
technology, and alternative fuels it can achieve 
carbon-neutral growth of its aviation sector in the next 
decade.  These and other examples show there are alternatives 
to imposing punitive measures on an industry that is already 
 
STATE 00001023  005 OF 005 
 
 
DOUBTS FROM NEW MEMBER STATES AND TRANSPORT OFFICIALS 
----------------------------------------- 
 
¶25. (SBU) The EU may make further changes to the provisions 
concerning aviation in their climate action plan.  One thing 
that has become clear: many of the newer member states and 
those that are remote (e.g., Cyprus and Malta) or have remote 
territories (e.g., Portugal, Greece, France and Spain) have 
registered strong concerns regarding possible adverse affects 
to their economies.  Moreover, as the directive falls within 
the jurisdiction of the Commission's DG-Environment, member 
states' environment ministries, and the European Parliament's 
Environment Committee, officials in transport ministries and 
the aviation industry continue to express doubt, albeit 
quietly, as to the likely effectiveness of the directive. 
Increasingly, they see it as costly without providing 
benefit, but are officially toeing the EU line.  As this 
issue develops in the New Year, posts are encouraged to take 
advantage of any opportunities that arise where doubts about 
the EU's aviation proposal are expressed to make some of the 
key points outlined above. 
 
 
A NOTE ABOUT MARITIME EMISSIONS 
------------------------------- 
 
¶26. (SBU) The European Parliament is also actively focusing 
on emissions from the maritime sector, and is seeking to 
include international shipping in the EU ETS.  It has 
indicated it may be prepared to wait for the process in the 
International Maritime Organization (IMO) to play out; 
however, we anticipate that anything short of a global ETS 
will be insufficient. We are concerned that should the EU 
include international shipping in their ETS, it will 
short-circuit any possible agreement in the IMO. 
 
¶27. (SBU) In October, the IMO Marine Environment Protection 
Committee (MEPC) made good progress on technical standards 
that could be incorporated into future mandatory greenhouse 
gas regulations:  a design index to measure and regulate 
energy efficiency (i.e., CO2) of new ships, an operational 
index to measure CO2 output of existing ships in actual 
conditions, and best practices.  Developing countries, 
however, held up political agreement on next steps based on 
their belief that action in IMO will set an adverse precedent 
in the United Nations Framework Convention on Climate Change 
(UNFCCC) negotiations.  They demand that any new regulations 
should not apply to developing countries. 
 
¶28. (SBU) The United States supports mandatory, global action 
but we believe that IMO should first focus on operational and 
technological efforts for energy efficiency in order to 
facilitate developing country involvement.  The IMO will work 
further on the technical measures at an intersessional 
meeting in March 2009, with a view towards adoption at the 
next MEPC meeting in July 2009.  At the July meeting, the 
MEPC will also discuss market-based measures, including an 
emissions trading system and a levy on bunker fuel. 
 
¶29.  (SBU) Continued opposition by developing countries to 
any mandatory requirements that apply to their ships could 
well stymie the IMO, as would their insistence that any 
action in IMO be consistent with the UNFCCC's common but 
differentiated responsibilities (CBDR) -- an  approach 
fundamentally inconsistent with IMO's principle of no more 
favorable treatment. 
RICE