Business Aviation Law Blog : Boston Aviation Lawyer & Attorney : Harry Ekblom : Sullivan & Worcester Law Firm : FAA Regulation & Aircraft Transactions

Last Thursday at the 11^th Annual Aviation Summit in Washington, DC, a highly informative expert panel was convened to discuss the ever-so-controversial European Union Emissions Trading Scheme (“EU-ETS”). The panel members were:

•  Nancy Young, Vice President, Environmental Affairs, Airlines for America;

• The Honorable Julie Oettinger, Assistant Administrator for Policy, International Affairs and Environment, Federal Aviation Administration;

• Felix Leinemann, Transport Counselor, Energy, Environment and Nuclear Matters, Delegation of the European Union to the United States; and

• Edward M. Bolen, President and Chief Executive Officer, National Business Aviation Association.

The panel was moderated by Stephen D. Eule, Vice President for Climate and Technology, U.S. Chamber of Commerce’s Institute for 21st Century Energy, and was preceded by a keynote address from Ambassador Duane Woerth, representative to the Council of the International Civil Aviation Organization (“ICAO”). To better understand the conflict regarding the ETS, Ambassador Woerth explained that the United States and the European Union have had different focuses post-9/11. While the U.S. has been focused on security in the aviation industry, the EU has been more focused on climate and environmental issues, such as reducing emissions and noise pollution.

Although the panel members were at odds on most issues, they did find some common ground. All were of the opinion that most aviation industry leaders agree that emissions should be curbed to reduce their effects on climate. Opinions diverge, however, on the most appropriate vehicle to achieve this goal.  

Mr. Leinemann, the sole representative from the EU, delivered its point of view. From the EU’s perspective, the ETS is a “stepping-stone” to a global approach that already has garnered agreement from the EU’s 30 member states, all of which are willing to integrate their individual trading schemes. It is true that the EU prefers a global solution; however, because the EU views the ETS as a building block, it will not back down from its position that the ETS must move forward. 

Non-EU countries, however, do not see this controversy as one about aircraft greenhouse gas (“GHG”) emissions; rather, they see the dispute as one about national sovereignty and violation of international law. These countries view the ETS as an unilateral tax placed on them by the EU. 

In contrast to the EU’s views, the U.S. Federal Aviation Administration (“FAA”) views the ETS as an impediment to progress, and finds it difficult to reconcile the EU’s support of a global solution and its steadfast position not to repeal the ETS. In defense, Mr. Leinemann drew an analogy to the legislative inter-workings of the U.S. Congress and asked the Summit participants to imagine the difficulty in repealing legislation that enjoyed almost unanimous support in both the European Parliament and the Council of the European Union.

Non-EU countries have other concerns, as well. One concern involves the money that will be collected for the carbon emissions credits. According to Mr. Leinemann, the money will be used for emissions mitigation projects, particularly in developing countries. Ms. Young stated that the money paid to the EU could be used for such projects, but it is not mandatory. In fact, the United Kingdom has publicly stated that it would not “earmark” the funds. Another suggested likely scenario would be that non-EU airlines would have to buy carbon credits on the open market. EU businesses could use the money for energy-efficiency projects, all funded on the “backs” of non-EU airlines. 

When asked what it would take to satisfy the EU, Mr. Leinemann offered that the EU would like to see visible and irreversible progress from ICAO that includes all major emitting countries and sets GHG emission reduction targets that go further than the current ETS. However, non-EU countries take issue with the fact that the EU has not provided any guarantees that it would adopt such a global solution, even if one is worked out by ICAO members.

Mr. Bolen delivered the perspective of the non-commercial aviation industry. In the EU, small emitters are eligible for waivers of ETS requirements; however, there are no such waivers for corporate/business aircrafts. Neither is the non-commercial aviation industry eligible to receive the carbon credits that would be free to other ETS participants. According to Mr. Bolen, business aircrafts would be required to buy credits for each and every flight, thus placing a severe financial strain on the industry. Further, the administrative burden to comply is high. The non-commercial aviation industry does not have the same resources as the commercial industry to track emissions and achieve compliance.

As noted in earlier posts, ICAO is currently working on a global solution; however, no mandatory deadline has been established. One option for a quicker resolution is for the U.S. to file a challenge against the EU under Article 84 of the Chicago Convention for resolution of the dispute according to the ICAO Rules for the Settlement of Differences. According to Ms. Young and Ms. Oettinger, this challenge would effectively turn this into a judicial dispute requiring resolution by ICAO’s permanent Council. Such a situation is not without precedent. In 2000, the U.S. used a similar challenge to protest EU regulations to reduce noise pollution that effectively prevented U.S. aircrafts using “hush kits” to fly in Europe. The EU ultimately repealed this legislation two years later. A “roundtable” on pursuing this option was held on March 28, 2012 before the House aviation subcommittee. According to Ms. Oettinger, at this time, the FAA has not decided whether to bring such a challenge.

Even if ICAO crafts an acceptable global solution that is adopted at the next governing conference in September 2013, and, importantly, the EU finds the solution acceptable and repeals the ETS, the U.S. aviation industry still must bear the administrative burden and cost of tracking, collecting and submitting emissions data for the years 2012 and 2013. Thus, questions would remain regarding who will pay for these administrative costs; and does this make an Article 84 challenge the next logical step?

As this issue progresses, please check back to this blog for future posts.

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Spurred by China’s continuous economic growth and desire to maintain the country’s strong presence in the international marketplace, China announced that the general aviation sector is now an economic growth pillar of the country’s 12^th Five-Year Plan (2011-2015). As a result, China has eased regulations restricting corporate aircraft ownership by private individuals and companies, and relaxed regulations to permit corporate aircraft to fly in low-altitude airspace. The corporate aircraft industry responded by courting thousands of China’s newly minted millionaires and billionaires. In fact, last week a Chinese Luxury Consumer White Paper suggested that there are 63,500 ultra-high net worth individuals in China.

Corporate conglomerates like General Electric Co.(through its subsidiary GE Capital Corporate Aircraft Finance) and Honeywell International Inc.(through its Aerospace Division) are seizing the opportunity to provide capital, financing and manufacturing expertise -- having recognized the importance of this market and the opportunities to meet today’s and tomorrow’s demands. For instance, industry insiders expect last year’s registration of 132 private aircraft on China’s mainland to grow and surpass 1,000 in ten years.

This, of course, begs a few questions. Who will provide these aircraft? Who will pilot them? Who will provide maintenance? Who will update existing airport infrastructure? To answer some of these very questions, over 150 Chinese and international industry leaders met last week in Shanghai at the Asian Business Aviation Conference. At the conference, 30 corporate aircraft were on display, along with exhibits demonstrating companies’ products and services in the corporate aircraft industry.

Industry experts agree that opportunities in China exist today. Those already in the corporate aviation industry space should look to capitalize on this economic opportunity and bring their unique products and services to a growing China market.

Special thanks to Sullivan & Worcester’s Reggie McKoy, Legal Research and Business Development and Marketing Intern, for assistance in preparing this post.

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Recently the White House Office of Management and Budget (“OMB”) completed its review of the Environmental Protection Agency’s (“EPA”) Effluent Limitation Guidelines governing discharges from airport deicing operations. The guidelines, which will be implemented under the National Pollutant Discharge Elimination System (“NPDES”), require airports within the scope of the rules to collect spent deicing/anti-icing fluid and treat the associated wastewater. According to EPA’s website, the Agency projects the Final Rule to be published in the Federal Register in May 2012. 

The Federal Aviation Administration (“FAA”) requires airlines to remove frozen precipitation from an aircraft and airfield pavement to protect the safety of the passengers and cargo. Airlines use anti-icing/deicing (“ADF”) because it is economical and effective. According to EPA, during typical wet weather conditions, it can take an estimated 150-1,000 gallons of ADF to deice smaller corporate or business size aircrafts and 1,000-4,000 gallons to deice a large commercial aircraft. The concerns raised by environmentalists and residents living close to airports are that chemicals within ADF discharges may affect nearby surface and ground water quality, including reductions in dissolved oxygen, fish kills and contamination of drinking water sources. After more than a decade of research, EPA agreed.

The proposed Effluent Limitation Guidelines require airlines to use the best available technology to control direct discharges of toxic and non-conventional pollutants. Factors considered in assessing the best available technology include the cost of achieving effluent reductions, the age of the equipment and facilities involved, the process employed and potential energy impacts.

The use of best available technology and the amount of ADF required to be captured depends on the number of annual departures and the gallons of ADF used. According to the guidelines, an airport using more than 460,000 gallons of ADF annually, with more than 1,000 annual commercial jet departures and more than 10,000 departures of all aircraft must use best available technology to capture 60 percent of used ADF. Airports using less than 460,000 gallons of ADF annually must use best available technology to capture 20 percent of used ADF, meet the effluent limit for chemical oxygen and certify use of non-urea based pavement deicers or meet the effluent limit for ammonia. Additionally, airports with more than 1,000 annual jet departures and fewer than 10,000 annual departures must certify use of non-urea based pavement deicers or meet the effluent limit for ammonia.

This begs the question, who’s paying the bill for the purchase and maintenance of the best available technology; airports, airlines or customers? EPA’s proposed guidelines state that historically, most or all airport costs are eventually paid by airlines and passed through to airline customers. However, due to severe financial distress experienced by the airlines after 9/11 and the recent economic recession, cost pass through percentages by airports are significantly lower than a decade ago when the rate was 100 percent. For large airline operations and airports, the effect of the regulation won’t disrupt their bottom line; by contrast, for many small operators and airports, the cost of this regulation may be more than they can bear. 

Some airports have decided to reduce or eliminate their use of ADF altogether. For example, according to a WINGS Magazine article, New York’s John F. Kennedy Airport and New Jersey’s Newark International Airport invested in an Infrared Deicer technology designed and built by Radiant Aviation Services, Inc. The airports employing this new technology as an alternative to ADF, have found it to be reliable and cost-effective.

For airports with deicing operations, requirements for capture and mitigation of ADF will soon become a reality as EPA works toward finalizing and implementing its Effluent Limitation Guidelines. Airports meeting the criteria outlined in the proposed guidelines should begin preparing to meet these standards. As this issue progresses, please check back to this blog for future posts.

Special thanks to Sullivan & Worcester’s Legal Research and Business Development Intern, Reginald McKoy II, for assistance in preparing this post.

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Since taking effect on January 1, 2012, the European Union Emissions Trading Scheme (“EU-ETS”) has continued to be a hot button issue among the international aviation community. As such, much of the recent content of this blog has been devoted to covering this unfolding issue, including the following posts:

• Controversial Ruling on EU-ETS Causes U.S. Great Consternation
• UBS Report Could Spell the End of the EU-ETS    
• Coalition Lobbies Senate on Passage of EU-ETS Prohibition Bill
• House Passes European Union Emissions Trading Scheme Prohibition Act
• Inclusion of Non-European Union Aviation Sector in Emissions Trading System Does Not Violate International Law

Global aviation emissions negotiations are ongoing at the International Civil Aviation Organization (“ICAO”), however, each side of the question has taken a hard-line position which could make a compromise difficult or even unrealistic. Late last month, representatives from more than 20 non-EU countries, including the Russian Federation, the United States, India, China, and Japan met in Moscow, Russia in an informal “coalition of the unwilling” to protest their inclusion in the EU-ETS and to discuss measures to counteract its effects. The meeting resulted in a signed declaration that each country would consider a variety of actions including strongly urging the ICAO to adopt a multilateral approach toward international civil aviation emissions, barring their country’s aircraft operators from complying with the EU-ETS, and/or imposing levies/charges on EU aircraft operators. The joint declaration can be found here, as communicated by the Russian Federation. Continued discussions are planned for this summer in Saudi Arabia. Although most believe that the rhetoric of the Moscow joint declaration was “less aggressive” than previous draft statements, it may be enough to create momentum toward a global solution to this problem.

This month, a joint announcement was released by Airbus and eight other EU aviation companies stating that the current situation is “intolerable” and that threatened retaliation will have serious negative effects on the EU aviation industry. Airbus, Air Berlin, Air France, British Airways, Iberia, Lufthansa, MTU Aero Engines, Safran, and Virgin Atlantic all called for a global compromise facilitated through the ICAO. Shortly after its release, Connie Hedegaard, the EU’s Climate Action Commissioner, applauded the statement as creating more pressure for global action to regulate aviation emissions. The Office of the EU’s Climate Action Commissioner has preferred a global consensus approach, but has publicly and steadfastly held its position to move forward with the ETS despite the dissidence from non-EU countries.    

Among the aviation industry, the greatest concern is a resulting international trade war. China, for example, has reportedly told its airline operators to not cooperate in the EU-ETS and has suspended $12 billion worth of aircraft orders with Airbus, placing thousands of jobs at jeopardy. Reports indicate that India is contemplating a similar stance. As demonstrated by the Moscow joint declaration, this could just be the tip of the proverbial iceberg as other countries are considering similar countermeasures and further retaliatory restrictions on EU aircraft operators. The EU aviation industry is worried, and with good reason, that other important markets will follow in China’s footsteps.

The ICAO has established a dedicated working group, consisting of five member states and the International Air Transport Association (“IATA”), to study the issue and propose a global framework for international aviation emissions by the end of 2012, so that it can be adopted at the next IATA governing conference in September 2013. The ICAO may create any type of international regulation system, however, a compromise may come from one of two clauses in the 2008 law (2008/101/EC) that allow for the ETS to be easily modified. First, flights into the EU could be exempt from the ETS if emissions-reducing measures are in place in the country of departure. Second, if equivalent measures to the ETS are put in place in the country of origin, then airline operators may be exempted. However, as indicated by the recent difficulty in approving a successor to the Kyoto Protocol, a global environmental agreement on aviation emissions will be difficult to reach among the ICAO’s 190-plus members.

As this issue progresses, please check back to this blog for future posts.

Special thanks to Sullivan & Worcester’s Michael Karp, Business Development and Marketing Intern, for assistance in preparing this post.

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Hawaiian Airlines has become the first airline to earn aviation-based carbon credits in part by utilizing Pratt & Whitney’s innovative EcoPower engine-washing system. EcoPower reduces fuel burn by using atomized water to wash engines in a closed-loop system that both filters and reuses water. According to the Hawaiian Airlines press release, the reduction of emissions by 22,000 metric tons “has had the equivalent effect of taking 700 cars off the road annually. In addition, since launching the program in 2005, Hawaiian’s commitment to the engine-washing system has saved the company more than 2.5 million gallons of fuel, along with an estimated 26,000 gallons of water that would have been used with traditional washing methods.” For more information on the technology, also check out Pratt & Whitney’s press release.

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As previously posted, in June 2010, the Center for Biological Diversity (“CBD”) filed suit in the U.S. District Court for the District of Columbia (Ctr. for Biological Diversity et al. v. EPA et al., No. 1:10-cv-00985), alleging that the Environmental Protection Agency (“EPA”) unnecessarily “dragged its feet” and delayed making a determination that aircraft engine emissions significantly contribute to air pollution and climate change. 

Disagreeing with CBD’s position, on Wednesday, March 14, 2012, U.S. District Judge Frederick J. Scullin, Jr. declined to force EPA to study such emissions, stating that the agency properly focused on larger and more major pollution sources first and could not consolidate its processes for automobile and aircraft emissions findings into a single study because they were different sources. The ruling does require EPA to review CBD’s administrative petitions and respond within 90 days of the judge’s order, however, the ruling does not compel EPA to make an endangerment finding within 90 days of the order. As you may recall from our earlier post, on July 5, 2011, the court also dismissed CBD’s efforts to push for similar marine vessel and non-road vehicle engine emissions regulation.

EPA does plan to release findings on aircraft emissions in the future, but said it has focused its limited resources on a bigger piece of the air pollutant pie. As this issue progresses, please check back to this blog for future posts. 

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As we mentioned in our October 19, 2011 post, “EPA Sets Its Regulatory Cross Hairs on Leaded Aviation Fuel,” an environmental advocacy group, Friends of the Earth, filed a 2006 petition asking EPA to find that lead emissions from the use of aviation gasoline (“Avgas”) in the general aviation sector endangers public health, and to regulate such emissions under the Clean Air Act.  In May 2011, the group submitted a Notice of Intent to sue the EPA.  Last week, Friends of the Earth filed a lawsuit to challenge EPA’s failure to respond to the 180-day petition and for failure to regulate lead emissions from Avgas.

Friends of the Earth point to two facts that it says mandates immediate corrective action by EPA through regulation of Avgas: (1) according to EPA estimates, sixteen million people reside and three million children attend school in close proximity to the 22,000 airports where leaded Avgas may be used; and (2) there is no safe threshold for lead exposure.

As posted earlier, it is well-known that lead is highly toxic and may cause adverse health effects, thus, it was phased out of automobile gasoline many years ago.  A recent study from Duke University concluded that children living within 1,000 meters of an airport where Avgas is used show a higher blood lead level than other children.  EPA has commissioned air quality monitors be installed at 15 airports to gather information on lead pollution and the Federal Aviation Administration has assembled a task force to orchestrate a move away from Avgas use.  However, it appears that these actions were not good enough for Friends of the Earth.   According to the group, this lawsuit asks EPA “to move more quickly and definitively in establishing regulations.” 

Air pollution remains a top priority at EPA.  It is likely that we will see regulation of air emissions, such as lead emissions, in the near future.  As this issue progresses, please check back to this blog for future posts. 

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The United States Federal Aviation Administration (“FAA”) recently released its Aerospace Forecast for Fiscal Years 2012-2032. In the Forecast, FAA identified several risks to the aviation industry, including aviation’s impact on the environment and the uncertainty surrounding the European Union’s Emissions Trading Scheme (“EU ETS”).

Aviation sector operations are expected to grow to meet expanding national economic and mobility needs. With this growth comes increased noise pollution, air quality, and water quality concerns, especially around new construction and expansion of existing airports. Global carbon emissions from the fleet are also expected to rise, unless mitigated by new cleaner aircraft technologies, renewable fuels, operational improvements, and market based measures. If the aviation industry does not address these issues and make significant progress, tighter restrictions via environmental standards and operating limitations will be imposed, thus potentially depressing industry growth.

The report also notes that the effects of market based measures, such as the EU ETS, are unpredictable. Implementation of the EU ETS has the potential to increase costs for U.S. airlines, which in turn, could reduce the funds available for investments in new emissions reduction technology. However, the reverse could also be true. In the face of increased operating costs, U.S. airlines could hasten the development of more fuel efficient technologies. Most likely, U.S. airlines will face a short-term increase in operating costs that will soon be reduced through the adoption of cleaner technologies and fuels. Such an outcome would only be hastened by the uncertainty and recent increase in oil prices.

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The United States Navy recently purchased 450,000 gallons of algae and animal oil fat based biofuel from Louisiana based Dynamic Fuels, LLC, which is the single largest order of biofuel by the federal government in history. The biofuel is a drop-in fuel, meaning that no modifications to existing engines are necessary, and will be combined with marine diesel or aviation gas to be used in the newly formed “Green Strike Group.” The fuel combination has already been tested in the F/A – 18 fighter jet, as well as the V-22 Osprey and other sea vessels. Critics point out that the $12 million price-tag is too steep during a time which the military is already facing deep budget cuts, however, the Navy has always led the nation in transforming energy use and further, is responding to executive orders and instituted goals to invest in and to attain 50% of its fuel from renewable sources. The 450,000 gallons is only a fraction of the 1.26 billion gallons of fuel the Navy uses each year, but according to the USDA new release, the purchase “accelerates the development and demonstration of a homegrown fuel source that can reduce America’s, and our military’s, dependence on foreign oil.” The Navy’s procurement of the biofuel will enable it to test the cost and energy effectiveness on a large scale platform, which in turn could have a direct impact on the airline industry in the future.

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