U.S. airlines lost a critical fight this week to avoid paying the costs of pollution caused by their aircraft in Europe. Foreign airlines are required to pay for their carbon pollution by the European Union, but American airlines insisted that they should not be required to pay for their share of pollution. It is the type of argument that received rapturous applause in Congress and immediate waivers of liability. However, American executives were shocked when the European Court of Justice in Luxembourg actually ruled that the companies should pay their environmental tax. The Obama Administration has supported the companies in fighting the pollution tax.
The principle of forcing companies to internalize the cost of their pollution produces certain efficiencies. A rational actor seeking wealth maximization will try to externalize the costs of production to the greatest extent possible. Cost internalization gives the actor an incentive to reduce those costs by abating their pollution. Germany has been a leader in such policies, including implementing an internationalization of costs associated with packaging. Faced with costs of disposal of packaging, companies responded by reducing packaging.
United Continental and American Airlines have led the fight to avoid paying their costs of pollution. Yet, in her interim opinion, Juliane Kokott, the ECJ’s advocate-general, rejected claims that this tax impinged on American companies and America itself: “EU legislation does not infringe the sovereignty of other states or the freedom of the high seas guaranteed under international law, and is compatible with the relevant international agreements.”
In the meantime, the Obama Administration opposes the pollution tax being applied to U.S. companies. Obama Administration officials insist that U.S. airlines should be allowed to pollute in Europe as they do in the United States — without paying such costs.
Airlines account for about 3 per cent of global carbon emissions and that percentage is quickly rising. The tax will add between €6-€12 per ticket for a transatlantic flight.