[Senate Report 112-195]
[From the U.S. Government Publishing Office]
112th Congress
2d Session SENATE Report
112-195
_______________________________________________________________________
Calendar No. 484
EUROPEAN UNION EMISSIONS TRADING SCHEME PROHIBITION ACT OF 2011
__________
R E P O R T
OF THE
COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION
on
S. 1956
August 2, 2012.--Ordered to be printed
SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION
one hundred twelfth congress
second session
JOHN D. ROCKEFELLER IV, West Virginia, Chairman
DANIEL K. INOUYE, Hawaii KAY BAILEY HUTCHISON, Texas
JOHN F. KERRY, Massachusetts OLYMPIA J. SNOWE, Maine
BARBARA BOXER, California JIM DeMINT, South Carolina
BILL NELSON, Florida JOHN THUNE, South Dakota
MARIA CANTWELL, Washington ROGER F. WICKER, Mississippi
FRANK R. LAUTENBERG, New Jersey JOHNNY ISAKSON, Georgia
MARK PRYOR, Arkansas ROY BLUNT, Missouri
CLAIRE McCASKILL, Missouri JOHN BOOZMAN, Arkansas
AMY KLOBUCHAR, Minnesota PATRICK J. TOOMEY, Pennsylvania
TOM UDALL, New Mexico MARCO RUBIO, Florida
MARK WARNER, Virginia KELLY AYOTTE, New Hampshire
MARK BEGICH, Alaska DEAN HELLER, Nevada
Ellen Doneski, Staff Director
James Reid, Deputy Staff Director
John Williams, General Counsel
Richard Russell, Republican Staff Director
David Quinalty, Republican Deputy Staff Director
Rebecca Seidel, Republican General Counsel
Calendar No. 484
112th Congress Report
SENATE
2d Session 112-195
======================================================================
EUROPEAN UNION EMISSIONS TRADING SCHEME PROHIBITION ACT OF 2011
_______
August 2, 2012.--Ordered to be printed
_______
Mr. Rockefeller, from the Committee on Commerce, Science, and
Transportation, submitted the following
REPORT
[To accompany S. 1956]
The Committee on Commerce, Science, and Transportation, to
which was referred the bill (S. 1956) to prohibit operators of
civil aircraft of the United States from participating in the
European Union's emissions trading scheme, and for other
purposes, having considered the same, reports favorably thereon
with an amendment (in the nature of a substitute) and
recommends that the bill (as amended) do pass.
Purpose of the Bill
The European Union Emissions Trading Scheme Prohibition Act
of 2011, S. 1956, as reported: (a) would give the Secretary of
the Department of Transportation (DOT) the authority to
prohibit an operator of civil aircraft in the United States
from participating in the European Union (EU) Emissions Trading
Scheme (ETS) if the Secretary determines the prohibition to be
in the public interest; and (b) would direct the Secretary of
Transportation and the Administrator of the Federal Aviation
Administration (FAA), and other appropriate officials to enter
into international negotiations, including agreements to pursue
a worldwide approach to address aircraft emissions, and to take
appropriate measures under existing authorities to ensure U.S.
air carriers are held harmless from any ETS unilaterally-
imposed by the EU.
Background and Needs
The EU has instituted a ``cap and trade'' policy, known as
the ETS, in an effort to combat greenhouse gas (GHG) emissions.
The EU implemented the system in 2005, covering approximately
11,000 power stations and industrial plants in 30 European
countries. The EU ETS caps the total amount of emissions each
year for certain industries and creates ``allowances'' that
permit covered entities to emit a specific amount of GHGs. Each
year, each covered industry is allocated allowances to cover a
portion of their total forecasted emissions. The remaining
allowances are available for purchase through government
auction or between participants, creating a ``carbon market''.
At the end of the year, a company must submit enough allowances
to the EU to cover all their emissions, or pay penalties to EU
member states. The EU's current plan reduces the emissions cap
over time to further limit GHGs in the future.
Aircraft operators, including airlines, were incorporated
into the EU ETS beginning in January 2012. According to the
Congressional Research Service, global aviation GHG emissions
account for two to three percent of the world's GHG emissions.
Any flight, with limited exceptions, that originates or lands
in the EU, including those operated by foreign aircraft
operators, are subject to the ETS. The emissions cap for
aircraft operators in 2012 has been set at 97 percent of their
average emissions from 2004 through 2006. Within this overall
emissions cap, aircraft operators have been allocated
allowances to cover 85 percent of these emissions. Aircraft
operators will have to submit allowances, or pay penalties, for
their 2012 emissions in April of 2013. For the 2013 through
2020 time period, the aircraft operator emissions cap has been
set at 95 percent of the industry's average emissions from 2004
through 2006. Over this period, the aircraft operators will be
allocated allowances for 82 percent of these emissions. Even
without traffic growth, the diminishing portion of allowances
allocated by the EU will increase the exposure of aircraft
operators to increasing costs. Since most airlines expect
growth in their operations over this time frame, it is
anticipated the allocated allowances will cover an increasingly
smaller percentage of the air carriers' actual emissions. The
airline industry currently estimates the cost of the EU ETS at
$3.1 billion through 2020, but that cost may increase as carbon
market prices change.
There has been strong opposition to the inclusion of non-EU
aircraft operations in the ETS from the global aviation
industry and sovereign countries around the world. A primary
concern that has been raised is that the ETS includes emissions
produced by foreign flagged aircraft while operating outside
the EU's airspace. Opponents argue the EU has no jurisdiction
to regulate emissions in foreign or international airspace
based on long-standing international obligations established
under the Chicago Convention of 1944. Opponents also have
significant concern with the eventual costs of complying with
the ETS. While proponents of the ETS claim the initial costs to
airlines and passengers will be relatively minimal, the airline
industry has very thin margins, and the cost of allowances are
expected to increase over time as the cap decreases and fewer
allowances are provided by the EU. In addition, a July 2012
proposal by the European Commission to increase carbon market
prices shows the market is vulnerable to manipulation. Finally,
many aviation stakeholders point out that there is no
requirement that the proceeds of the EU ETS be used to reduce
aviation emissions, such as improvements and modernization of
air traffic management; the ETS does not guarantee this.
Regardless of the use of the revenues generated from the ETS,
U.S. airlines oppose the ETS arguing it is de facto taxation on
the industry and other aircraft operators in a manner that is
inconsistent with treaty obligations under the Chicago
Convention, which was ratified by all 27 EU member states.
On September 30, 2011, 26 International Civil Aviation
Organization (ICAO) member countries, including the United
States, China, India, Japan, Korea, Russia, Mexico, and several
Latin American countries, signed a joint ``Delhi Declaration''
at the New Delhi meeting of the ICAO Council opposing inclusion
of international aviation in the EU ETS. Instead, the
declaration supports ICAO efforts to develop meaningful
aircraft carbon emissions standards with a target of adopting
such standards at the ICAO General Assembly in 2013. It urges
the EU to refrain from including non-EU flights in the EU ETS
and to work collaboratively with the international community.
On November 22, 2011, the ICAO Council approved the opposition
to the EU's application of ETS as expressed in the New Delhi
declaration.
On December 16, 2011, Secretary of State Hillary Clinton and
Secretary of Transportation Ray LaHood sent a letter to
European Commission officials expressing strong opposition to
the EU ETS stating that ``application of the ETS to airlines of
non-EU states is inconsistent with the legal regime governing
international aviation and with ICAO guidance on emissions
trading.'' They urged the EU to work with the broader
international community through the auspices of ICAO to address
the challenges of reducing aviation emissions.
In February 2012, representatives of the United States and 22
other countries met in Moscow and produced a joint declaration
urging EU member states to cease applying the ETS to civil
aviation. These countries unanimously agreed that the EU should
instead participate in ongoing efforts within ICAO to address
aviation emissions through a global solution that would be
adopted worldwide. The next ICAO meeting, the 38th Assembly in
September 2013, will review progress toward development of such
a global framework to reduce emissions.
If an agreement cannot be reached in advance of April 2013,
when the first submission of aviation allowances come due for
the aviation sector, the issue may be elevated to the ICAO
Council through an Article 84 proceeding under the Chicago
Convention treaty. This is the formal process to resolve
aviation disputes between two or more states subject to the
Convention.
Summary of Provisions
S. 1956, as reported: (a) would give the Secretary of
Transportation the authority to prohibit an operator of civil
aircraft in the United States from participating in the EU ETS
if the Secretary determines the prohibition to be in the public
interest; and (b) would direct the Secretary of Transportation,
the FAA Administrator, and other appropriate officials, to
enter into international negotiations, including agreements to
pursue a worldwide approach to address aircraft emissions, and
to take appropriate actions to ensure U.S. air carriers are
held harmless from any ETS unilaterally imposed by the EU.
Legislative History
Senator Thune introduced S. 1956 on December 7, 2011. The
Committee conducted a hearing on June 6, 2012, to consider S.
1956, which has twelve bipartisan cosponsors. The Secretary of
Transportation, the European Commission, the Airline Pilot
Association, the National Business Aviation Association, the
Environmental Defense Fund, and Airlines for America testified.
The House of Representatives passed a companion bill, H.R.
2594, the European Union Emissions Trading Scheme Prohibition
Act of 2011, on October 24, 2011, by a voice vote. In addition,
the FAA Modernization and Reform Act of 2012 (126 Stat. 11),
included a Sense of Congress that application of the EU ETS to
civil aviation is contrary to international law and that EU
member states should work through ICAO to address aviation
emissions. The FAA Modernization and Reform Act of 2012 directs
the Executive Branch to ``use all political, diplomatic, and
legal tools at the disposal of the United States to ensure that
the European Union's emissions trading scheme is not applied to
[U.S.] aircraft.''
On July 31, 2012, the Committee met in Executive Session
during which S. 1956 was considered. One amendment, in the
nature of a substitute, was offered by Senators Thune and
McCaskill during the Executive Session that incorporated a
number of modifications offered by Members and technical
changes suggested by DOT, FAA, and the Department of State. The
bill, as amended, was ordered reported by voice vote.
Estimated Costs
In accordance with paragraph 11(a) of rule XXVI of the
Standing Rules of the Senate and section 403 of the
Congressional Budget Act of 1974, the Committee provides the
following cost estimate, prepared by the Congressional Budget
Office:
August 1, 2012.
Hon. John D. Rockefeller IV,
Chairman, Committee on Commerce, Science, and Transportation,
U.S. Senate, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for S. 1956, the European
Union Emissions Trading Scheme Prohibition Act of 2011.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is Megan
Carroll.
Sincerely,
Douglas W. Elmendorf.
Enclosure.
S. 1956--European Union Emissions Trading Scheme Prohibition Act of
2011
The European Union (EU) has established the European Union
Emissions Trading Scheme (ETS), a regulatory framework related
to greenhouse gas emissions. Currently, the ETS covers
emissions from air carriers that operate flights within, to,
and from EU member states. Negotiations between the U.S.
government and the EU about the applicability of the ETS to
U.S. air carriers are ongoing, and the potential outcome of
those negotiations is unclear.
S. 1956 would direct the Secretary of Transportation to
prohibit U.S. air carriers from participating in the ETS if the
Secretary believes such a prohibition to be in the public
interest. The bill would direct federal agencies to continue
negotiations in pursuit of a worldwide approach to addressing
aviation-related emissions and would authorize the Secretary to
use existing authorities to ensure that U.S. air carriers are
held harmless for any costs they incur if they participate in
the ETS.
CBO estimates that enacting S. 1956 would have no
significant impact on the federal budget. We expect that the
bill would not alter the scope of diplomatic efforts currently
under way or federal agencies' costs to participate in those
efforts, which are subject to appropriation. The bill would not
affect direct spending or revenues; therefore, pay-as-you-go
procedures do not apply.
S. 1956 contains no intergovernmental mandates as defined
in the Unfunded Mandates Reform Act (UMRA) and would not affect
the budgets of state, local, or tribal governments.
S. 1956 would impose a private-sector mandate, as defined
in UMRA, if U.S. air carriers would be prohibited from
participating in the ETS. The cost of the mandate would depend
on how the prohibition is administered by the Department of
Transportation. Because information about how the prohibition
would be implemented is not available, CBO has no basis for
estimating the cost, if any, to U.S. air carriers.
Consequently, CBO cannot determine whether the cost of the
mandate would exceed the annual threshold established in UMRA
for private-sector mandates ($146 million in 2012, adjusted
annually for inflation).
On September 23, 2011, CBO transmitted a cost estimate for
H.R. 2594, the European Union Emissions Trading Scheme
Prohibition Act of 2011, as ordered reported by the House
Committee on Transportation and Infrastructure on September 23,
2011. The two bills are similar, and the CBO cost estimates are
the same.
The CBO staff contacts for this estimate are Megan Carroll
(for federal costs) and Amy Petz (for the impact on the private
sector). The estimate was approved by Theresa Gullo, Deputy
Assistant Director for Budget Analysis.
Regulatory Impact Statement
In accordance with paragraph 11(b) of rule XXVI of the
Standing Rules of the Senate, the Committee provides the
following evaluation of the regulatory impact of the
legislation, as reported:
NUMBER OF PERSONS COVERED
The reported bill would be consistent with the current
operation of the air transportation system, thus the number of
persons covered should be consistent with the current levels of
individuals impacted under the existing aviation system.
ECONOMIC IMPACT
S. 1956 is expected to have a positive impact on the U.S.
economy. The transportation system is a key component of the
Nation's economy. Provisions in this legislation aim to ensure
the transportation system continues to facilitate commerce.
PRIVACY
The reported bill is not expected to have any impact on the
privacy rights of individuals.
PAPERWORK
It is not anticipated that there will be a major increase in
paperwork burdens resulting from the enactment of S. 1956.
Congressionally Directed Spending
In compliance with paragraph 4(b) of rule XLIV of the
Standing Rules of the Senate, the Committee provides that no
provisions contained in the bill, as reported, meet the
definition of congressionally directed spending items under the
rule.
Section-by-Section Analysis
Section 1. Short title.
This section cites the short title of the Act as the
``European Union Emissions Trading Scheme Prohibition Act of
2011''.
Section 2. Prohibition on Participation in the Europeans Union's
Emissions Trading Scheme.
This section would direct the Secretary of Transportation,
upon a finding that it is in the public interest to do so, to
prohibit civil aircraft of the United States from participating
in the European Union Emissions Trading Scheme, codified in EU
Directive 2003/87/EC of October 13, 2003, as amended.
The factors that would be considered in determining the
public interest are: (1) the impacts on U.S. consumers, U.S.
carriers, and U.S. operators; (2) the impacts on the economic,
energy, and environmental security of the United States; and
(3) the impacts on U.S. foreign relations, including existing
international commitments.
Prior to taking any action, but after the Secretary of
Transportation determines it may be in the public interest to
take some action, the Secretary must hold a public hearing at
least 30 days before any such action is taken.
Section 3. Negotiations.
This section would direct that the Secretary of
Transportation, the FAA Administrator, or any other appropriate
office of the United States Government should, as appropriate,
use their authority to conduct international negotiations to
pursue a worldwide approach to address aircraft emissions, and
shall, as appropriate, use their authority to hold operators of
civil aircraft of the United States harmless from the European
Union Emissions Trading Scheme, codified in EU Directive 2003/
87/EC of October 13, 2003, as amended.
Section 4. Definition of Civil Aircraft of the United States.
This section would define the term ``civil aircraft of the
United States'' as that term is defined in section 40102(a) of
title 49, United States Code, which ``means a citizen of the
United States undertaking by any means, directly or indirectly,
to provide air transportation.''
Changes in Existing Law
In compliance with paragraph 12 of rule XXVI of the Standing
Rules of the Senate, the Committee states that the bill as
reported would make no change to existing law.