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Inside Energy & Environment

What’s the Deal with Low Oil Prices?

Posted in Uncategorized

The International Energy Agency (IEA)’s latest monthly market report, published on November 13, 2015, revealed that the already “massive cushion” of oil stockpiles has inflated further to reach a record level of almost 3 billion barrels.  Following the announcement, oil prices reportedly dropped to a two-month low.

The IEA described this stockpile as “an unprecedented buffer against geopolitical shocks or unexpected supply disruptions.”  The glut in oil supplies is expected to maintain pressure on global oil prices, which many analysts predict will remain at the lower end of a $54-$64.0/bbl range during 2016.

In this post, we highlight two observable trends in the M&A activities of industry participants during 2015 as they navigate the current challenges facing the sector.

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California Enacts Law Requiring 50% Renewables By 2030

Posted in Uncategorized

Last week, California Governor Jerry Brown signed the Clean Energy and Pollution Reduction Act of 2015.  The law establishes ambitious energy efficiency and renewable energy goals for California, including increasing from 33% to 50% the procurement of California’s electricity from renewable sources and doubling the energy efficiency savings through energy efficiency and conservation.

Key provisions of the new law:

  • Renewable Energy: California’s existing Renewables Portfolio Standards Program aims to increase the amount of electricity generated from renewable energy sources to at least 33% by December 31, 2020.  The new law increases that renewable energy target to 50% by December 31, 2030, with interim targets of 40% by the end of 2024 and 45% by the end of 2027.
  • Energy Efficiency: The new law requires the California’s Energy Resources Conservation and Development Commission to set annual targets for statewide energy efficiency savings, with the goal of doubling of statewide energy efficiency savings in electricity and natural gas final end uses of retail customers (such as homes, businesses and factories) by January 1, 2030.  California’s Public Utilities Commission must establish efficiency targets for electrical and gas corporations consistent with this goal.
  • California Independent Systems Operator (“ISO”): Current law requires the ISO to ensure efficient and reliable operation of California’s electrical transmission grid.  The new law provides for the transformation of the California ISO into a regional organization to promote the development of regional electricity transmission markets in the western states.  Specifically, the new law requires the ISO to propose governance modifications to accomplish this goal, which must be approved and implemented by the state legislature.

Cairn Energy Compels India to Engage in Arbitration Proceedings

Posted in Uncategorized

Cairn Energy’s investment arbitration proceedings against India recently demonstrated the importance of default arbitrator nomination procedures in international arbitration.

Cairn Energy’s dispute with India

In March 2015, Cairn UK Holdings Limited received a draft assessment order from Indian tax authorities, requiring payment equivalent to US$1.6 billion, plus any applicable interest and penalties, in respect of the 2006-2007 fiscal year.[1]  The assessment was made under a 2012 law pursuant to which the Indian government has tried to tax transactions retrospectively,[2] in this case due to a group reorganization that facilitated Cairn Indian Limited’s IPO Cairn Energy, the ultimate parent company of both Cairn UK Holdings Limited and Cairn India Limited, contests the assessment.

While other companies have sought to resolve similar issues before the national Indian courts, Cairn Energy commenced a claim under the UK-India Investment Promotion and Protection Treaty, arguing that India has expropriated Cairn Energy’s investments by attaching its shares in Cairn Indian Limited.[3]  Cairn Energy filed its notice of dispute in March 2015 and appointed an arbitrator for a three-person tribunal in late May 2015.[4] Continue Reading

Can Courts Oblige States to Increase Greenhouse Gas Emission Cuts? Urgenda vs. Dutch State

Posted in Uncategorized

On September 23, the Dutch Government appealed a decision* of the District Court in The Hague that obliges the Dutch State to reduce its greenhouse gas (“GHG”) emissions by at least 25%, instead of the currently envisaged 17%, compared to 1990 levels.  The decision is unique in its kind in Europe: it forces a government to change its policies in pursuit of more ambitious climate change targets on the basis of the State’s “duty of care.”  The ruling comes at a time where NGOs in Europe are becoming increasingly active in pressuring governments to tighten environmental regulations. Continue Reading

Greater Sage-Grouse Numbers Rise as FWS Poises to Announce the Bird’s ESA Listing Status

Posted in Uncategorized

Since the United States Fish and Wildlife Service (FWS) designated the Greater Sage-Grouse as a candidate for listing under the Endangered Species Act (ESA) in 2010, environmentalists and industry stakeholders have vehemently disagreed about the species’ need for federal protection. While FWS is expected to announce its decision later this month, new data suggests that local efforts to protect the sage grouse may be succeeding. Continue Reading

EU Court of Justice Decides on Complex Articles Under REACH

Posted in Europe

Yesterday, the Court of Justice of the European Union (“CJEU”) held that the obligations on importers to notify the European Chemicals Agency (“ECHA”) and on suppliers to inform customers under the REACH Regulation apply to each of the articles contained in a complex article and not only to the complex article as a whole. The CJEU’s decision sides with the “once an article, always an article” approach already followed by several Member States, and will require foreign manufacturers and EU/EEA importers and suppliers of articles to quickly adjust their REACH compliance programs. The decision will have most impact outside the EU/EEA, where it will increase the pressure on foreign supply chains to disclose, and keep track of, the presence of substances listed in the Candidate List of Substances of Very High Concern for Authorization (“Candidate List”) in all types of articles and their components (e.g., electronic equipment, paper and board products, textiles) that may be shipped to the EU/EEA.


Article 7(2) of the REACH Regulation requires producers and importers of articles to notify the ECHA of the presence of Candidate List substances in their articles if: (i) the use of the Candidate List substances has not been previously registered; (ii) the concentration of that substance exceeds the threshold of 0.1% in the article; (iii) the quantity of the substance exceeds one ton per year per producer or importer; and (iv) it cannot be excluded that humans and the environment may be exposed to the substance during the article’s normal or reasonably foreseeable conditions of use, including disposal. Article 33 of the Regulation requires suppliers of articles that contain Candidate List substances in concentrations above 0.1% to provide their customers with sufficient information, including the name of the substance, to allow the safe use of the article.

Article 3(3) of the REACH Regulation defines an article as “an object which during production is given a special shape, surface or design which determines its function to a greater degree that does its chemical composition.” The Regulation, however, does not specifically address the situation of complex articles (articles produced by assembling other articles), i.e., most products marketed in the EU/EEA. The Commission, ECHA and a majority of Member States took the position that the 0.1% concentration threshold should be measured on the basis of the whole article (e.g., a computer). In contrast, France, Belgium, Germany and other Member States took the view that the concentration threshold should be measured on the basis of each of the articles (e.g., components of a computer) composing the complex article.

The Decision

The CJEU’s decision was in response to a reference for a preliminary ruling from the French Conseil d’État in the context of proceedings brought by French Federation of Businesses in the Trade and Distribution Sector and the Federation of DIY and Home Improvement Shops. The proceedings concerned the validity of a Notice of the French Ministry of Environment on the duty to communicate information on substances contained in articles in accordance with Articles 7(2) and 33 of the REACH Regulation. That Notice expressed the French view that the concentration limits should be measured on the basis of each of the articles composing a complex article.

Clearly influenced by the REACH Regulation’s objective to achieve a high level of protection of human health and the environment, the CJEU’s decision sides with the most restrictive interpretation and does not give much weight to proportionality and international trade concerns. The Court takes the view that under REACH an article “does not cease to be an article when it is assembled or joined with other objects in order to form with them a complex product.” According to the CJEU, an article remains an article “so as long as it retains its shape, surface or design which is more decisive for its function than its chemical composition or as long as it does not become waste.”

However, the CJEU distinguishes between the Article 7(2) notification obligations that apply to producers and importers of articles and the Article 33 information obligations that apply to suppliers of articles. On that basis, the Court allocates different obligations to the different operators taking into account the REACH Regulation’s objective of a high level of human health and environment protection, and its principles of industry (producer) responsibility and substitution:

Article 7(2) of the REACH Regulation

  • EU/EEA producers must notify ECHA only of the presence of Candidate List substances in “their” articles. According to the Court, this means that producers are not required to notify ECHA of the presence of Candidate List substances in the articles that they use to assemble or produce their complex articles.
  •  In contrast, importers of complex articles must notify ECHA of the presence of Candidate List substances in concentrations above 0.1% in any of the articles that compose the imported complex articles. The Court bases this interpretation on the REACH Regulation’s definition of importer, as “any natural or legal person established within the Community who is responsible for import” (emphasis added).

Importantly, the CJEU argues that any difficulties for importers to obtain the required information from non EU/EEA supply chains do not affect the interpretation of Article 7(2).

Article 33 of the REACH Regulation

  • Suppliers of complex articles must provide their customers with information on the safe use of their products, including at least the name of the Candidate List substance, if any of the articles composing the complex article contain a Candidate List substance in concentrations above 0,1%. The CJEU’s decision argues that this interpretation is necessary to ensure the effectiveness of the duty to provide information all along the supply chain through to the final consumer.

The CJEU’s emphasis on the protection of human health and the environment and the principle of industry responsibility and its little concern for the possible impact of its decision on international trade is in line with the its prior ruling in C-558/07 S.P.C.M and Others on the concept of monomer substances under the REACH Regulation. In that case, the Court held that “in order to ensure genuine competition within the Community, importers of monomer substances must be subject to the same obligations as those to which manufacturers are subject or to similar obligations which lead to an adjustment of costs.” In fact, as the Advocate General stated in its Opinion, the Court’s decision will “disseminate the standards established by the REACH Regulation outside the European Union.”

While the decision is not likely to trigger immediate enforcement actions, it will require importers and suppliers to reconsider how they assess the presence of Candidate List substances in their articles. In effect, this increases the pressure on foreign suppliers, and the administrative costs of supplying information to professional users and responding to requests from consumers in the EU/EEA.

*David Haughan is a Stagiaire with Covington & Burling LLP and attends King’s College, London.

Risk and Reward in the UKCS: Recent Positive Development

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Our Risk and Reward in the United Kingdom Continental Shelf (“UKCS”) series has reported on the challenging times recently faced by the UKCS oil and gas industry.  The past week has seen positive developments in the form of newly awarded exploration licences and the first modest improvement in the industry’s quarterly outlook since 2013.  In this post, we outline these developments and their potential impact.

41 New Licences Awarded in the 28th Offshore Licensing Round

On 27 July 2015, the Oil and Gas Authority (the “OGA”) (the newly created UK oil and gas regulator) announced the award of a further 41 new licences in the 28th Offshore Licensing Round, in addition to the 134 licences confirmed by the Secretary of State for Energy and Climate Change on 6 November 2014.

This award makes the 28th Offshore Licensing Round one of the largest rounds in the five decades since the first licensing round took place in 1964, with a total of 175 licences covering 353 blocks.

The UK Government described the award as “a welcome boost” to oil and gas exploration in the UKCS. Andy Samuel, Chief Executive of the OGA, added that “licences are however just a start and industry, government and the OGA now need to work together to revitalise exploration activity across the basin and convert licences into successful exploration wells.”

Mr Samuel’s comments appear to broadly reflect the current mood of companies active in the UKCS, according to Oil & Gas UK’s Business Sentiment Index, which was published on 29 July 2015.

Business Sentiment Index for Q2 2015 Shows Modest Improvement in Outlook for First Time Since 2013

Oil & Gas UK’s Business Sentiment Index measures a number of economic indicators to capture the outlook of the industry for each quarter.  As the graph below shows, in the second quarter of 2015 (Q2 2015), optimism in the UK oil and gas industry increased from minus 31 points to minus 27 points (on a -50/+50 scale):

Chart - Catherine Karia

Business Sentiment Trend, Oil & Gas UK Sentiment Index, Q2 2015


Oonagh Werngren, Oil & Gas UK’s operations director, said: “While the overall index remains in negative territory for the fourth quarter in a row, this slight improvement in mood is the first upward movement we have seen since Q1 2013.”

The Office for National Statistics (the “ONS”) estimated that the UK’s economy grew by 0.7% in Q2 2015, with a “surge” in North Sea oil and gas production lifting overall industrial output by 1%.  The ONS reported that this increase was driven by the package of support for the UKCS oil and gas industry announced by the UK Government in March 2015 (see our blog post on UKCS developments in Q1 2015).

However, Oil & Gas UK’s Business Sentiment Index reported that higher activity levels in Q2 2015 may be due to preparations for the annual summer maintenance programmes, when levels traditionally increase on the UKCS.

While the above developments hint at a moderate improvement in the outlook for the UKCS oil and gas industry, it may not signal the start of a upward trajectory in the long-term.  Oil & Gas UK emphasises that the business environment remains tough and the industry fragile, with respondents to the Business Sentiment Index expressing concerns over significant issues in the future if the oil price does not recover.

UK Energy Minister Andrea Leadsom confirmed on 27 July 2015 that the UK Government is “determined to make the most of our North Sea resources” and was “backing our oil and gas industry.”  To that end, the Energy Bill 2015-16 was introduced into the House of Lords on 9 July 2015, with an emphasis upon continuing to “support the development of North Sea oil and gas.”  We will continue to monitor UKCS developments, including the progress of the Energy Bill 2015-16 through the UK Parliament.


A Watch List of Possible Changes in EPA’s Final Clean Power Plan

Posted in EPA, Renewables

In August, EPA is expected to finalize and to modify its ambitious Clean Power Plan to reduce greenhouse gas emissions from existing power plants.  Here is a Watch List of key areas for possible changes and clarification that EPA might make, after considering voluminous public comments on the Proposed Regulations, which were issued in June 2014:

  • Timelines for State Implementation. Will EPA relax the level of interim requirements for emission reductions by 2020 (or 2022, as suggested in recent press reports) and allow each state a more gradual or back-loaded schedule to meet final targets by 2030?
  • Timelines for Filing State Implementation Plans. Will EPA delay or ease the threshold for granting waivers of the one-year requirement for filing single-state implementation plans or two-years for multi-state implementation plans?
  • Credits for Early Action. Will EPA enable states to obtain credits or adjustments in baseline periods for early emission reduction actions that have already occurred or for acceleration of emission reductions achieved prior to 2020?
  • Adjustments to the Four Building Blocks. Will EPA modify the four building blocks used to calculate each state’s achievable emission reductions, including changes in assumptions regarding achievable emission reductions under each building block? Continue Reading

Supreme Court Decisions Raise Questions about Future Judicial Scrutiny of EPA’s Clean Power Plan

Posted in EPA

Two of the Supreme Court’s major, end-of-term decisions turn on the deference the Court gives to agency determinations of the meaning of ambiguous clauses in complex regulatory statutes, applying the familiar Chevron framework.  The Court’s less deferential applications of Chevron raise important questions about the deference courts might be expected to give to the scope of EPA’s exercise, in its Clean Power Plan, of its statutory authority to establish carbon dioxide emission reduction standards for existing fossil-fuel power plants under Section 111(d) of the Clean Air Act.

In King v. Burwell, the Court reviewed an Internal Revenue Service regulation that allowed tax subsidies under the Affordable Care Act for insurance plans purchased on either a federal or state-created “Exchange.”  In Michigan v. EPA, the Court reviewed EPA’s threshold determination under Section 112 of the Clean Air Act that it was “appropriate and necessary” to initiate regulation of hazardous air pollutants emitted by power plants, without consideration of costs at that initial stage of the regulatory process.

The outcome in each case depended upon the Court’s review of the regulatory context of the applicable ambiguous statutory clause.  Since the context of Section 111(d) of the Clean Air Act differs markedly from the contexts of the Affordable Care Act and Section 112 of the Clean Air Act, the outcomes in King v. Burwell and in Michigan v. EPA do not likely portend the outcome of future court challenges of the Clean Power Plan.  However, the Court’s application of Chevron deference in these two cases may portend a strikingly less deferential judicial review of EPA’s Clean Power Plan than might have been expected under the traditional two-part test of Chevron.

Under Chevron, courts examine first whether a regulatory statute leaves ambiguity and, if so, courts are directed to defer to a federal agency’s reasonable resolution of the ambiguity in a statute entrusted to administration by that agency.  All of the Court’s majority and dissenting opinions in King v. Burwell and in Michigan v. EPA (except for Justice Thomas’s lone dissenting opinion questioning the constitutionality of Chevron deference) confirm the applicability of the traditional Chevron framework.  What stands out in these cases is that the Court’s majority opinions do not defer to the agency’s resolution of ambiguity.

Chief Justice Robert’s opinion for a 6-3 majority in King v. Burwell grounds Chevron in “the theory that a statute’s ambiguity constitutes an implicit delegation from Congress to the agency to fill in the statutory gaps.”  But, “in extraordinary cases,” the Court states that Congress may not have intended such an “implicit delegation.”  The Court holds the statutory ambiguity before it to be one of those extraordinary cases in which Congress has not expressly delegated to the respective federal agency the authority to resolve the ambiguity and, therefore, seemingly, zero deference is given by the Court to the applicable IRS regulation.  The Court explains that whether billions of dollars in tax subsidies are to be available to insurance purchased on “Federal Exchanges” is a question of “deep economic and political significance,” central to the scheme of the Affordable Care Act, such that had Congress intended to assign resolution of that question to the IRS “it surely would have done so expressly,” especially since the IRS “has no expertise in crafting health insurance policy of this sort.”  Eschewing any deference to the IRS interpretation, the Court assumed for itself “the task to determine the correct reading of” the statutory ambiguity.

King v. Burwell is the rare case in which the Court accords a federal agency zero deference in resolving statutory ambiguity under Chevron.  Notably, the Court left open how appellate courts should determine whether other statutory ambiguities similarly deserve less or no deference to agency interpretations.  The Court, perhaps, offered a hint by citing to its much quoted dicta in its 2014 decision in Utility Air Regulatory Group v. EPA that the Court “typically greet[s] … with a measure of skepticism, … agency claims to discover in a long-extant statute an unheralded power to regulate a significant portion of the American economy.”  Many commenters have opined, even before King v. Burwell, as to whether this dicta has implications for judicial review of the Clean Power Plan, which, it may be argued, has “deep economic and political significance” comparable to the Affordable Care Act.  However, EPA surely has longer experience, greater expertise and wider latitude in crafting policy under the Clean Air Act than the IRS has in crafting health insurance policy.  Given the Court’s strong precedent establishing that greenhouse gases are expressly within the scope of the Clean Air Act, appellate courts might distinguish King v. Burwell and apply traditional Chevron deference to the final Clean Power Plan.

Michigan v. EPA applies Chevron to EPA regulations under a different part of the Clean Air Act.  In this case, the Court reviewed EPA’s threshold determination, under Section 112 of the Clean Air Act, that it was “appropriate and necessary,” without regard to costs, to regulate hazardous air pollutants, such as mercury, from power plants.  The specific mercury emission limits imposed on categories of power plants were established during subsequent phases of EPA’s rulemaking under Section 112 based on EPA’s explicit consideration of costs.  Justice Scalia’s opinion for a 5-4 majority strikes down EPA’s determination that it could find regulation of hazardous air pollutants from power plants to be “appropriate and necessary” without consideration of costs.  The Court states it was applying the traditional Chevron framework, under which it would normally defer to EPA’s choice among reasonable interpretations of the  ambiguous and “capacious” statutory test requiring an EPA finding that regulation be “appropriate and necessary.”  But, the Court finds EPA’s interpretation of this test, as not requiring any consideration of costs, to “have strayed far beyond … the bounds of reasonable [statutory] interpretation.”  Michigan v. EPA may be the first case in which the Court has applied Chevron to find that EPA adopted an entirely unreasonable resolution of statutory ambiguity in its Clean Air Act regulations.

Justice Kagan’s dissent in Michigan v. EPA faults the Court for failing to give due deference under Chevron to EPA’s decision as to when in its regulatory process it gives consideration to the costs involved in regulating hazardous air pollutants from power plants.  While all nine Justices seem to agree that EPA must consider costs in its Section 112 rulemakings, and seem also to agree that EPA gave consideration to costs in later stages of its rulemaking, the dissent criticized the majority’s “micromanagement of EPA’s rulemaking,” emphasizing that EPA reasonably determined “that it was ‘appropriate’ to decline to analyze costs at a single stage of a regulatory proceeding otherwise imbued with cost concerns.”

It is difficult to predict whether, based upon King v. Burwell and Michigan v. EPA, appellate courts might narrow the deference accorded to EPA’s resolution of statutory ambiguities under Section 111(d).  Those ambiguities arise in a quite different context than those considered by the Court.  As one example, critics of the Clean Power Plan have argued that two different versions of Section 111(d) appear to have been signed into law, one of which critics claim should prohibit EPA from issuing regulations under Section 111(d) for sources of pollution already covered by other EPA regulations, such as hazardous pollutant regulation under Section 112.  EPA sharply disagrees with its critics and defends its interpretation of which statutory version applies and the scope of permissible regulation under either statutory text.  A related issue under the statutory version pressed by critics concerns whether the status of the hazardous air regulations under Section 112, during remand after Michigan v. EPA, should alter EPA’s analysis the potentially competing statutory provisions.  It remains to be seen what kind of Chevron deference courts will give to EPA’s reasoned interpretations of the different versions of Section 111(d).

Critics also point to purported ambiguity in Section 111(d) as to whether EPA may prescribe carbon dioxide performance standards based on so-called “outside the fence” measures, and whether those standards may be determined on an average state-wide basis, rather than for individual sources.  EPA’s resolutions of these and related programmatic issues have occasioned widespread commentary and may feature prominently in future court challenges to the Clean Power Plan.  Again, it remains to be seen whether the Court’s recent cases will influence the extent of Chevron deference given by appellate courts to EPA’s well-considered interpretation of its authority to craft the details of the Clean Power Plan under Section 111(d).

On one point, there should be little doubt.  Section 111(d) expressly directs EPA to consider costs in establishing performance standards reflecting “the best system of emission reduction.”  Unlike in Michigan v. EPA, EPA expressly addressed “costs” as a factor considered in its proposed rules.  EPA is expected to elaborate upon the costs (and benefits) of regulation in its final Clean Power Plan.  Michigan v. EPA should, therefore, be inapposite with respect to any possible challenges of the manner in which the Clean Power Plan addresses costs.

The applicability of Chevron deference is, of course, only one among many legal issues that could face the U.S. Courts of Appeals and, ultimately, the Supreme Court, if and when they review the Clean Power Plan.  The precise legal issues to be framed for the courts and the timing of litigation will not begin to come into focus until after the Obama Administration issues the final Clean Power Plan later this summer.  And, Congress could step in and alter the course of judicial review.  Stay tuned.

The Road to Paris 2015: EU Emissions Trading Scheme and its Application to Non-EEA Airlines – Enforcement on the Rise?

Posted in COP21 - The Road to Paris 2015

Europe is stepping up enforcement of its climate change rules against foreign airlines.  Recently, a Belgian authority competent for the enforcement of the EU Emissions Trading System (“ETS”) on airlines flying to and from Brussels, collected a fine of €1.4 million.  The fine was imposed on Saudi Arabian Airlines for failing to surrender emission allowances.  This follows a UK judgment upholding the UK Environment Agency’s fine against the Indian carrier Jet Airways for failing to report emissions from its intra-European flights in 2012.  These are only two out of many examples of fines for non-compliance with the emissions trading rules.

This increased enforcement comes at the time when the International Civil Aviation Organization (“ICAO”) is supposed to reach an agreement on international aviation emission reductions.

The Cap and Trade System

The ETS is a “cap and trade” system, established by Directive 2003/87/EC (“ETS Directive”).  In short, under the ETS Directive, European authorities issue a limited number of emission allowances on a yearly basis.  This cap represents the total amount of greenhouse gas emissions that operators, including airlines, may emit.  The number of allowances drops over time, encouraging operators to lower their emissions.  Operators are allocated a limited number of allowances per year, and every April 30, operators must surrender a number of allowances equal to their prior year’s emissions.  If an operator expects to exceed its annual number of allowances, it must purchase additional allowances from other operators.

Under the ETS Directive, airline companies must:

  • Register with the ETS Union Registry.  The Union Registry is an online database that keeps track of all the emission allowances in the EU, including all transactions that take place using those allowances.
  • Surrender, by April 30th of each year, a number of allowances equal to the total emissions from their aircrafts during the preceding calendar year.  Upon surrender, the competent Member State authorities must cancel the allowances.
  • Monitor and report emissions from each aircraft that they operate, per calendar year.

The ETS applies to Economic European Area (“EEA”) and non-EEA airlines.  However, until December 2016 the rules will only be enforced for intra-EEA flights, i.e., flights that take place between European airports.  After 2016, the cap and trade rules will also effectively apply to flights to or from airports in the EEA unless the EU is satisfied with the ICAO’s progress on an international agreement to reduce emissions.

Enforcement on the Rise?

The ETS Directive provides for two types of penalties:

First, aircraft operators must pay a fine of €100 per ton of CO2 (or CO2 equivalent) that they emit in excess to the number of allowances they surrender.  In addition, aircraft operators will be required to obtain and surrender sufficient allowances to cover the excess emissions.  These fines are the same throughout the EEA.

Second, Member States must impose “effective, proportionate and dissuasive” penalties on  airlines that fail to comply with their other obligations under the ETS Directive.  These fines may vary significantly from one Member State to another.  For example, the maximum fine in Spain for failure to comply with monitoring and reporting obligations could be as high as €2.000.000, whereas in the United Kingdom it is only €50.000.

The recent enforcement actions on Jet Airways and Saudi Arabian Airlines are the latest of a series of enforcement actions against non-EEA airlines that failed to comply with the EU’s cap and trade rules.  The UK Environment Agency recently published a list of the fines it imposed on Air India, Loid Global Ltd, Oranto Petroleum, Media Consulting Services LLC, and Primevalue Trading Ltd for failure to surrender allowances by April 30th, 2013.  Similarly, in 2013 German authorities published a list of airlines and aircraft operators that did not comply with the ETS in 2012, including non-EEA companies such as Air Arabia Egypt, and Tathra International.  In addition, the French authorities also fined non-compliant airlines, such as the Swiss airline Legend Air.  The €112.500 fine was imposed for failing to surrender 1.125 allowances for the year 2012.

It will be interesting to see whether these enforcement practices will influence the negotiations within the ICAO regarding an agreement to reduce emissions from aviation by 2016.

Pedro Mendez de Vigo is a Covington summer legal trainee from the Universidad Autónoma de Madrid.