It is well known that under a EU Directive, adopted in 2008, all flights departing or landing in the EU, including intercontinental flights, have been integrated in the EU's emissions trading system (ETS) from 1 January 2012. The directive applies to all airlines flying in and out of the EU, including airlines from third countries. Hence, from that date all airlines are required to buy permits under the ETS. In 2012 85 per cent of the emissions permits will be allocated for free however 15 per cent of the airlines emission permits will be auctioned. This is having a damaging impact on the aviation industry. On the other hand, the aviation industry is likely to pass their costs on to the consumer – therefore airline fares are set to rise.

In fact, Lufthansa, Brussels Airlines and Delta AirLines have already included the ETS charge in the price of tickets. Obviously, other airlines will raise ticket prices to compensate for the costs of ETS. It is obvious that such measures will have a negative impact on the competitiveness of member states’ national airlines. As Jeremy Robinson, said in an article for the City A.M, “The EU’s decision to “nudge” the world into action can only be harmful. It discourages business travel to and from the EU, and can only encourage the eastwards shift of economic power, as airlines and businesses increasingly operate from Gulf hub airports. It damages the European economies (whether or not in the Eurozone) at a time of particular and historic fragility.”

Obviously, the aviation industry is not pleased with such piece of EU legislation, as they believe that their future business was not taken into account by the EU institutions. It has been estimated that the directive could add €9bn to the costs of the aviation industry by 2020.

The US as well as Australia, Canada, China, Japan, India, South Korea (including their airlines), even before the directive has been adopted, have shown their opposition to the EU’s ETS. In fact, the Air Transport Association of America, American Airlines Inc., Continental Airlines Inc. and United Airlines Inc. (collectively ‘ATA and others’), contested the measures transposing Directive 2008/101 in the UK, and brought proceedings against the Secretary of State for Energy and Climate Change before the High Court. They argued that the EU infringed several principles of customary international law and various international agreements, namely the Chicago Convention, the Kyoto Protocol and the Open Skies Agreement because it imposes a form of tax on fuel consumption, as well as certain principles of customary international law as it seeks to apply the allowance trading scheme beyond the European Union’s territorial jurisdiction. The High Court referred the matter to the ECJ, but, last December, the ECJ delivered its ruling, confirming the validity of the directive that includes aviation activities in the emissions trading scheme.

The US as well other countries such as China and India are not willing to give up their fight to exclude their airlines from the EU's ETS, despite the ECJ’s ruling. According to Tony Tyler, the head of the International Air Transport Association (IATA), "Non-European governments see this extra terrestrial tax as an attack on their sovereignty".

China has already banned its airlines from participating in the EU ETS. US and Russia are also considering prohibiting their airlines to participate in the scheme. However, as above-mentioned, all airlines are required to comply with the EU Directive since 1 January 2012. Under the Directive, all airlines flying in and out of the EU are required to report on their verified CO 2 emissions (2009-2013) by April 2013. Consequently, if airlines refuse to apply Community law they would be subject to sanctions including fines or, as a last resort, a EU flight ban, “in the case of a permanent and constant infringement”.

China has warned that such measures would lead to a "trade war". In fact, on 21 February the US, China, India, Russia and other 30 countries, the so called “coalition of the unwilling”, held talks in Moscow on potential retaliatory measures against the EU inclusion of airlines in the ETS. They signed a declaration opposing the EU legislation and asked Brussels to suspend it. According to Europolitics Krishna Urs, deputy assistant secretary for transportation affairs at the State Department, said “The EU should cease application of its ETS to non-EU carriers and engage meaningfully with the rest of the world in ICAO to develop a global approach that is acceptable to other countries and substantially reduces international aviation emissions”. The declaration outlines several potential retaliatory measures against the EU’s inclusion of aviation into its ETS, namely banning national airlines from participating in the ETS as well as imposing charges on European airlines. Russia is considering limiting trans-Siberian flights as a retaliatory measure.

There will be another international conference in Saudi Arabia over summer. However, Brussels is not planning to change its position. According to the European Commission’s director-general for climate, Jos Delbeke, the EU would solely suspend the inclusion of aviation in the ETS if there is a global emissions-reduction scheme agreed by the International Civil Aviation Organization (ICAO).