In 2005, the European Union launched its current Emissions Trading Scheme (EUETS), basically a kind of cap-and-trade system. In 2008, the European Parliament agreed that the EUETS would cover airlines that fly in and out of the European bloc. In response to this move, various American airline companies, using the UK as a conduit, have brought suit in the European Court of Justice urging that the imposition violates the Chicago Convention, the Kyoto Protocol, the US-EU open skies agreement, and is contrary to the customary international law principle that each state has complete and exclusive sovereignty over the airspace above its territory. I’m not a huge fan of cap-and-trade—a straightforward carbon tax is more sensible—and I have an less than mastery understanding of international law. Notwithstanding this, the ECJ case has caught my attention because of the undeniable potential power of the European Union to shape the environmental agenda of the next century.
Individually, European nations have been a poor display of economic growth in recent decades. However, because we are analyzing a bloc-wide policy, what ultimately matters is the clout of the EU as a whole. The GDP of the EU is about 15 trillion dollars. That is a huge market! Therefore, unless industies such as airline transportation is content with shunning all business in Europe, they will have to conform their business practices and technologies to European standards.
Hint: They are not content with shunning all European business.
By forcing industries to invest in more efficient technologies to meet European standards, it is conceivable that these technologies will eventually find themselves in American markets. The alternative is that industries will use efficient, clean technologies in Europe but continue to use outdated technologies in America and China. I find the former alternative more likely because standardizing a product line is generally more cost-efficient. The latter alternative will prevent industries from taking full advantage of their economies of scale, being that they will already be producing and utilizing more efficient technologies.
The American response to environmental threats has been one of the sorest disappointments of the last decade. In large part because of our obsession with China, we have never been willing to appreciate and address the enormousness of the problem. Because of this, the outcome of this case—what is essentially a controversy over international jurisdiction—will significantly determine the power of the European Union to be the environmental power player of the next century.