The WTO Legality of the Application of the EU's Emission Trading System to Aviation

The aviation industry has been included in the EU's emissions trading scheme (ETS) since 1 January 2012. Airlines now have to acquire and osurrender' allowances for the carbon emissions produced by their flights. The scheme is comprehensive: it applies to EU and non-EU airlines (subject to a potential exemption), to passenger and cargo flights, and to flights between EU airports and between EU and non-EU airports. An airline that fails to surrender allowances is fined Euro100 per allowance and must make up the shortfall the following year. The EU's scheme has already given rise to legal action in connection with the EU's international civil aviation obligations. But, due to its impacts on trade in goods and services, the scheme also has implications for the EU's obligations under WTO law: specifically, under the General Agreement on Tariffs and Trade (GATT) and the General Agreement on Trade in Services (GATS). Some of these issues are specific to this scheme, but in other respects they are connected with the current debate on the WTO legality of border carbon adjustments (BCAs). As this article shows, it is challenging to design a carbon scheme that is both administratively feasible and justifiable under WTO law.