Witnesses
Panel I
The Honorable Ray LaHood
Secretary, Department of Transportation

Panel II
Jos Delbeke
Director General of the European Commission, Directorate-General for Climate Action
Sean Cassidy
First Vice President, Air Line Pilots Association, International
Edward Bolen
Preisdent and CEO, National Business Aviation Administration
Annie Petsonk
International Counsel for Climate and Air, Environmental Defense Fund
Nancy Young
Vice President for Environmental Affairs, Airlines for America

 

Committee Members Present
John Rockefeller (D-WV), Chairman
Kay Bailey Hutchison (R-TX), Ranking Member
Maria Cantwell (D-WA) 
John Thune (R-SD)
Frank Lautenberg (D-NJ)
Jim DeMint (R-SC)
Claire McCaskill (D-MO)
Johnny Isakson (R-GA)
John Kerry (D-MA)
Mark Begich (D-AK)
Olympia Snowe (R-ME)

 

On June 6, the Senate Committee on Commerce, Science and Transportation held a hearing on the European Union’s (EU) Emissions Trading System (ETS). The EU ETS, launched in 2005, is a cap and trade system employed by the EU member states. Factories, power plants and businesses are given emissions caps by their nation’s government and are required to monitor the amount of carbon dioxide they release on a yearly basis. If an organization or country goes over the emissions cap, it must buy permits from countries or organizations which stayed below their cap.

 

In January 2012, ETS was applied to international airlines based in any country, requiring them to adhere to emissions guidelines set by the EU. The next trading period for ETS begins in January 2013, which is when the EU will require airlines to acquire proper emissions caps.

 

Chairman John Rockefeller (D-WV) began his opening statement by urging airlines in the U.S, and internationally, to reduce carbon. He said he hoped to hear from the second panel of witnesses what airlines have done and will continue to do saying, “Good intentions don’t work … will not reduce emissions.” The chairman said he “support[s] the goals, but oppose[s] the actions” of the EU in applying ETS to international airlines and believes it is an imposition on U.S. sovereignty. Rockefeller raised concerns about how funds acquired by ETS will be spent as there is no provision requiring them to be spent on reducing emissions, which is not consistent with a Directive which amended paragraph three of article 30. The chairman said many in the airline industry and the Obama administration intend to follow an emissions regulation plan by the UN’s International Civil Aviation Organization (ICAO). He said he is skeptical of this as it could be a way for the airlines to “delay and defer any real action” since ICAO would most likely need a lot of time to draft an emissions regulation for international airlines.

 

 Ranking Member Kay Bailey Hutchison (R-TX) expressed confidence in the aviation industry, arguing they “are willing to have voluntary standards.” Hutchison said she too views the EU as “acting outside its prerogative” by applying ETS to international flight. Hutchison said this violates U.S. and ICAO authority by essentially taxing foreign companies. 

As Ranking Member of the Subcommittee for Aviation Operations, Safety and Security and the sponsor of a bill prohibiting U.S. airlines from partaking in the ETS, Senator John Thune (R-SD) gave an additional opening statement. The senator discussed his and Senator Claire McCaskill’s (D-MO) bill, the European Union Emissions Trading Scheme Prohibition Act of 2011 (S. 1956) which would give the Secretary of Transportation the authority to allow airlines and other U.S. companies to refuse to pay for any emissions cap imposed by the EU. A similar bill, the European Union Emissions Trading Scheme Prohibition Act of 2011 (H.R. 2594), has been passed in the House of Representatives. Thune claimed the imposition of ETS on international aviation is “arbitrary, unfair and against … international law” according to ICAO and the Convention on International Civil Aviation, known as the Chicago Convention. He said other countries including India, China and Russia have voiced opposition to the ETS.

 

Senator Maria Cantwell (D-WA) gave an opening statement as the Chairman of the Subcommittee for Aviation Operations, Safety and Security. She began by expressing support for the scientific community’s consensus on the anthropogenic cause of global warming. However, she agreed that the imposition of ETS on U.S. airlines was illegal and expressed doubt that a cap and trade system could reduce emissions. Cantwell cited the possibility for fraud and rewarding historic polluters in a carbon cap and trade system. She supported the airlines’ compliance with the Federal Aviation Administration’s (FAA) Next Generation Air Transportation System (NextGen) which will use airspace more efficiently, thus reducing emissions. While she believed action should be taken against the EU, the senator cautioned the disadvantages of a “trade war” with the EU.

 

In his testimony, Secretary of Transportation Ray LaHood expressed the administration’s strong opposition to the imposition of ETS on non-EU airlines on “both legal and policy grounds.” LaHood and Secretary of State Hilary Clinton sent a letter to their EU counterparts to express disappointment in their “go it alone policy” and urged them to include others in policies with an international effect.

 

LaHood asserted that his department will “take a backseat to no one” in reducing green house gas (GHG) emissions in transportation. He lauded the U.S. airlines for carrying more passengers and cargo while actually reducing emissions. The Federal Aviation Administration reports a 12 percent decrease in GHG emissions from airlines from 2000 to 2010, with a 15 percent increase in passenger and cargo transport per plane in the same period. The secretary said he would express support for a policy if it were made in collaboration with other countries, industry and environmental groups.  He assured the committee that the administration is attempting to do this through the ICAO.

 

Hutchison asked LaHood his opinion of S. 1956, Thune and McCaskill’s bill. The secretary reiterated his discontent with ETS as a “lousy policy” but declined to speak for or against the bill. McCaskill asked how the administration could oppose ETS imposition on U.S. airlines without legislation and noted that the secretary’s power does not allow him to defy ETS. Senator Johnny Isakson (R-GA) said that China and India have already begun to prohibit their airlines from paying any fees related to ETS. The secretary agreed with McCaskill that sufficient legislation, like S.1956, would give him the power to prohibit airlines from participating in ETS, but reasoned that the administration can still make international policy through ICAO.

 

The chairman was skeptical that ICAO could produce action in so short a period before ETS is imposed on international aviation, but LaHood explained that a discussion on the issue would be productive and ICAO is the best institution available for that discussion. Senator John Kerry (D-MA) asked if the administration had composed a framework for an international agreement through ICAO. LaHood reemphasized that ICAO is the best place to create an agreement though the ICAO has not begun composing an agreement because “they haven’t been pushed to.” Senator Mark Begich’s (D-AK) questions clarified that while ICAO can begin the discussion, other resources and policy makers will be needed to form an agreement.

 

Senator Jim DeMint (R-SC) urged the committee and LaHood to oppose the Law of the Sea (LOS) treaty claiming it would allow the Secretary General of the United Nations to impose a tax on U.S. sea vessels just as ETS would on airlines. Before his questioning, Kerry denied this claim and asserted there are no environmental regulations imposed by LOS. Kerry said he felt the EU is at least moving in the right direction with ETS, though he said agrees that ETS has no legal right to impose on international aviation. He argued the EU is trying to reduce emissions and is “right to question whether the U.S. is serious about this issue.” He accused the U.S. of being the “chief foot-dragger” against carbon emission control, debating that the United States Conference of Mayors have done more to combat climate change with their Climate Protection Center than the federal government. Senator Frank Lautenberg (D-NJ) sympathized with the EU’s logic, saying, “They just want clean air.” However, he said still opposes the ETS imposition on U.S. aviation.

 

Prompted by the chairman, LaHood explained how airlines are buying more fuel efficient aircraft. He said he predicts that the more efficient use of airspace emplaced by NextGen will decrease airline emissions dramatically. The secretary told Hutchison in response to one of her questions that NextGen is a top priority for the FAA. Thune brought up the argument that the U.S and other countries charge arrival and departure taxes for foreign aircraft that land and take off on their soil. Secretary LaHood said the major difference is how these policies were enacted. The arrival/departure tax was agreed upon by nations party to ICAO, while the ETS was formulated by countries in the EU and is now being imposed upon others. Thune agreed that this was a significant difference. Cantwell asked the secretary about asked about possible effects from ETS on non-commercial flight, such as private and shipping aviation. LaHood said he could not speak on this issue in detail, but was confident the second panel could provide a better explanation.

 

The second panel of witnesses was opened by Jos Delbeke, the Director General for the Directorate-General for Climate Action of the European Commission. He cited that European citizens feel climate change is one of the most important issues of today, inspiring the EU to introduce ETS. Delbeke reported that the EU is willing to revise the policy and is committed to a global solution to airline emissions. He argued ETS is in accordance with the Chicago Convention as it does not charge a tax in another state. Funds paid to increase an emissions cap will go to another corporation and though it will likely be a European company, money will not go through the EU. Delbeke asserted that any use of the word “tax” or “fine” is irrelevant to ETS; it is a market-based approach to reducing carbon emissions. He ended his testimony by denying any claims of discrimination in favor of European airlines and assured the committee that any money made from ETS will be put toward lowering emissions.

 

Captain Sean Cassidy testified on behalf of Air Line Pilots Association, International and discussed the detriments of ETS on the 10 million people employed by the airline industry. He felt the system was a “job-killer” and would surely decrease the economic activity of the airline industry from its 2010 level of $1.1 trillion. He argued that the ETS is a tax, citing a conclusions report by the Council of the European Union which claims the system has “the potential to generate revenue.” He claims the ETS is a dismissal of efforts by U.S. airlines to reduce emissions while increasing the number of passengers. He supports the pursuit of an agreement through ICAO as well as S.1956.

 

Edward Bolen, president and CEO of the National Business Aviation Administration, testified that in his view, the ETS is “fatally flawed.” His organization represents non-commercial aircraft owners and businesses, who he claims are “treated even worse” than commercial airlines. He gave an example where a small commercial plane that flies to Europe two times or less a day is exempt from the cap and trade while a non-commercial craft which makes one flight a year is not exempt. He argued that European factories with less than 25,000 tons of emissions per year would even be exempt.

 

In her testimony, Annie Petsonk of the Environmental Defense Fund (EDF) showed support for EU ETS calling it “modest, effective and reasonable.” She argued with a set of charts that the decrease in emissions was due to the relative small number of flights during the 2008 financial crisis and the FAA predicts emissions will increase through 2020.The ETS allows many channels to garner emissions credits, even through industry projects in developing countries. Petsonk correctly asserted that though the ETS does not explicitly state money raised must be used to address climate change, there is a provision that member states must state how the fund will be used. ETS states this allocation must be in accordance with Kyoto Protocol to the United Nations Framework Convention on Climate Change. European nations like Germany have already earmarked trade funds for programs which combat climate change. A FAA-supported study at the Massachusetts Institute of Technology estimated a increase of six U.S. dollars (USD) to round trip airfare, but argued that airlines have “great flexibility to choose when, where and how to meet their caps” and will most likely not raise ticket prices.

 

Petsonk claimed that ETS imposed flight will create jobs in the airline industry, citing the need for workers to develop, build and implement emissions-capping technologies. She stated ICAO has struggled with the issue of reducing airline emissions for 15 years, and has only started to make progress this year, she speculates, from EU ETS. She counter argued the sovereignty issue by discussing arrival and departure taxes levied by many nations, including the U.S.

 

Petsonk closed by presenting a scenario where S. 1956 or H.R. 2594 passes and the Secretary of Transportation prohibits airlines from participating in ETS. EDF alleges that the airlines’ insurance policies cannot cover a breach in compliance, and S.1956 gives no path for the secretary to absolve the airlines of responsibility. She suggests taxpayers may have to “foot the bill” in this scenario.

 

Nancy Young testified for Airlines for America (A4A) in opposition to ETS imposition on international aviation. Her testimony defined the imposition as a dangerous precedent which could result in taxing carbon emitting U.S. exports to Europe like automobiles, other machinery and chemicals. She argued ETS is “about a new source of tax revenue for … Europe” and will have little effect on the environment. She presented data from the Environmental Protection Agency which claims commercial aviation represents 1.7 percent of GHG emissions for the U.S., more than ten times less than non-aviation transport (24.8 percent). She claims the airline industry’s self-imposed emission cutting reforms have done more than the cap and trade “tax” introduced by the EU.

 

To begin his questioning, Rockefeller compared some of the panel’s testimony against the EU to attacks on the EPA and the president by coal companies as a way to “[make] it OK to hate the government … more importantly, [make] it OK not to do anything about cleaning up [the] product.” He asserted that the technology which reduces airline emissions was not industry’s accomplishment saying, “Don’t congratulate yourselves… the Congress did that.”

 

The chairman questioned Bolen on the 67 percent increase of emissions from non-commercial aircraft. Rockefeller qualified that two-thirds of aircraft over the U.S. are general aviation and private aircraft to emphasize the industry’s sizable effect on GHG emissions. Bolen said the industry now uses pioneering technologies such as the use of composite metal which makes planes lighter and Global Positioning Satellite (GPS) for more direct flight paths. He explained the general aviation community’s excitement for projects like NextGen and the Greener Skies Initiative.

 

Prompted by Thune, Delbeke argued that ETS is an “exception” to most EU policies in that it is explicitly stated that funds raised from ETS must be used to combat carbon emissions. Petsonk supported his answer citing that German legislation requires money made from allowance auctions to be spent on lowering emissions.

 

Young explained to Thune that costs to airlines as a result of compliance with ETS, $3.1 billion between 2012 and 2020, may not be passed on to consumers, but if it is not it will certainly disadvantage the airlines in buying equipment and alternative sustainable fuels. Bolen showed that private companies have already begun to pay to register for the ETS.

 

Cassidy argued that ETS introduces another level of instability, in addition to terrorist threats and other security concerns, and increased fuel prices, to an industry which represents 5 percent of the U.S. gross domestic product (GDP).

 

Delbeke alluded to the fact that differing estimates were made about the impact of ETS, which he attributed to a misunderstanding of the acquisition of allowances. He explained that 90 percent of emissions credits are given out for free by the EU. Delbeke further stated that ICAO decided in 2004 it would not formulate a global aviation cap and trade agreement; rather it should be developed by individual states.

 

Cantwell’s final question was whether the aviation industry would follow a target set by ICAO for global emissions. Young responded that ICAO has set up a target, with a framework that was provided by the airline industry in 2010. She explained that the next step is for ICAO and the airlines to come to agreement on how to implement the framework and achieve these targets.

 

Witness testimonies, opening statements, and a webcast of the hearing can be found on the Senate Committee on Commerce, Science and Transportation web site.