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US-Europe fight over airline emissions could help talks on climate change

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At the end of November, the US raised the stakes again by passing legislation that could forbid American companies from complying with the EU law. The EU Emissions Trading Scheme Prohibition Act, which passed with the support of the airline industry, is designed to shield American companies from EU emissions tax liability.

It directs the secretary of Transportation to determine whether prohibiting domestic airlines from participating in the European system is in the public interest. If it is not, then US law will ban domestic airlines from paying any taxes under Europe’s cap-and-trade rules.

However, the legislation does not permit federal agencies to reimburse airlines for penalties incurred by their refusal to pay the EU’s tax, so airlines may be stuck between an EU obligation to pay a tax and US obligation not to.

The US has passed such prohibitive legislation before, such as laws banning engagement with apartheid South Africa and with Middle Eastern states participating in the boycott of Israeli goods and companies, but it is a rare and provocative move. The US has never previously applied such rules to countries seeking to address global environmental concerns.

A transnational fight over climate change legislation might be a positive development, however, particularly if it brings parties to the bargaining table and provides governments with a reason to move forward with some multilateral regulation. The EU appears receptive to the idea of such a compromise.

In part because of the US legislation, the European Commission – the executive arm of the EU – has proposed suspending the taxes foreign airlines owe for 2012 and instead negotiating a global solution. The European Parliament has not yet voted to adopt the suspension, but the European Commission could choose not to enforce the law for 2012. Both the US and the EU have agreed to start negotiations at the International Civil Aviation Organization.

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