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The Court of Justice of the European Union in Luxembourg ruled in a lawsuit brought by the Air Transport Association of America, American Airlines and United Continental that aviation can be included in the E.U.'s emissions trading system (ETS). The decision cannot be appealed. The European Court of Justice earlier ruled that the EU could, from next year, include all carriers in a carbon trading system targeting polluters as part of the EU's efforts against climate change. The court said the plan "infringes neither the principles of customary international law at issue nor the Open Skies Agreement" covering transatlantic flights.

The US Department of Transportation said it opposed a court ruling which told US airlines to get ready to obey emissions rules in the same way EU companies do. US and Canadian carriers argued the decision was discriminatory and amounted to a backdoor tax. US Secretary of State Hillary Clinton had warned of reprisals ahead of the ruling.

Airlines landing or taking off in Europe will have to join the ETS on Jan. 1, 2012, getting 85 percent of their emissions certificates for free and buying the rest at auction. Even flights conducted by the U.S. Navy will be included.

U.S. air carriers said they would "comply under protest" when the law takes effect but would also press their argument in British court and in international forums.

Environmental groups welcomed the ruling as a necessary nudge for the U.S.

The aviation sector's burden in the ETS for 2012 is expected to be close to €500 million, based on current price forecasts for 2012, when the sector will face a shortfall of around 60 million tons. The cost rises to €9 billion total by the end of 2020.

The CO2 emissions of aircraft operators will be capped at 97 percent of their average 2004-2006 levels next year and 95 percent from 2013 forward. Airlines that do not use all their allowances can sell the excess, while those that are short will have to buy more. Airlines will need to start counting fuel consumption and emissions in 2012, and bills are expected to go out in early 2013, unless they can stop this measure.

Airlines initially would only be required to pay for 15% of the carbon they emit and would be allocated free allowances to cover the other 85%.  Depending on decisions by airlines on how much to pass on to customers, the European commission has calculated that costs per passenger could rise between €2 and €12, much less than the €100 per allowance penalty it would impose on airlines that do not comply.

Several countries including Canada, the U.S., China and Russia have opposed these rules, and the airlines are hoping the fight moves to the political realm where countries can negotiate new rules through the Montreal-based International Civil Aviation Organization. (AFP, E&E Publishing, 12/21/2011, The Guardian, 12/21/2011)