[Senate Hearing 112-763]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 112-763
 
                    THE EUROPEAN UNION'S EMISSIONS 

                             TRADING SYSTEM
=======================================================================



                                HEARING

                               before the

                         COMMITTEE ON COMMERCE,

                      SCIENCE, AND TRANSPORTATION

                          UNITED STATES SENATE

                      ONE HUNDRED TWELFTH CONGRESS

                             SECOND SESSION

                               __________

                              JUNE 6, 2012

                               __________

    Printed for the use of the Committee on Commerce, Science, and 
                             Transportation


       SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION



                  U.S. GOVERNMENT PRINTING OFFICE
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                      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             Ranking
BARBARA BOXER, California            OLYMPIA J. SNOWE, Maine
BILL NELSON, Florida                 JIM DeMINT, South Carolina
MARIA CANTWELL, Washington           JOHN THUNE, South Dakota
FRANK R. LAUTENBERG, New Jersey      ROGER F. WICKER, Mississippi
MARK PRYOR, Arkansas                 JOHNNY ISAKSON, Georgia
CLAIRE McCASKILL, Missouri           ROY BLUNT, Missouri
AMY KLOBUCHAR, Minnesota             JOHN BOOZMAN, Arkansas
TOM UDALL, New Mexico                PATRICK J. TOOMEY, Pennsylvania
MARK WARNER, Virginia                MARCO RUBIO, Florida
MARK BEGICH, Alaska                  KELLY AYOTTE, New Hampshire
                                     DEAN HELLER, Nevada
                    Ellen L. Doneski, Staff Director
                   James Reid, Deputy Staff Director
                     John Williams, General Counsel
             Richard M. Russell, Republican Staff Director
            David Quinalty, Republican Deputy Staff Director
   Rebecca Seidel, Republican General Counsel and Chief Investigator



                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on June 6, 2012.....................................     1
Statement of Senator Rockefeller.................................     1
    Prepared statement...........................................     2
Statement of Senator Hutchison...................................     3
Statement of Senator Thune.......................................     4
Statement of Senator Cantwell....................................     7
Statement of Senator Lautenberg..................................    16
Statement of Senator DeMint......................................    18
Statement of Senator McCaskill...................................    19
Statement of Senator Isakson.....................................    20
Statement of Senator Kerry.......................................    22
Statement of Senator Begich......................................    24
Statement of Senator Snowe.......................................    26
Statement of Senator Boozman.....................................    28

                               Witnesses

Hon. Ray Lahood, Secretary, U.S. Department of Transportation....     8
    Prepared statement...........................................    10
Jos Delbeke, Director-General, DG Climate Action, European 
  Commission.....................................................    30
    Prepared statement...........................................    31
Captain Sean Cassidy, First Vice President, Air Line Pilots 
  Association....................................................    38
    Prepared statement...........................................    40
Edward M. Bolen, President and Chief Executive Officer, National 
  Business Aviation Association..................................    44
    Prepared statement...........................................    45
Annie Petsonk, International Counsel, Environmental Defense Fund 
  (EDF)..........................................................    49
    Prepared statement...........................................    51
Nancy N. Young, Vice President, Environmental Affairs, Airlines 
  for America (A4A)..............................................    62
    Prepared statement...........................................    64

                                Appendix

Response to written questions submitted to Hon. Ray LaHood by:
    Hon. John F. Kerry...........................................    83
    Hon. Maria Cantwell..........................................    83
    Hon. Amy Klobuchar...........................................    86
    Hon. John Thune..............................................    86
Response to written question submitted to Jos Delbeke by:
    Hon. John D. Rockefeller IV..................................    86
    Hon. Maria Cantwell..........................................    87
    Hon. John Thune..............................................    89
Response to written questions submitted to Edward M. Bolen by:
    Hon. John D. Rockefeller IV..................................    91
    Hon. Maria Cantwell..........................................    92
Response to written questions submitted to Annie Petsonk by:
    Hon. John F. Kerry...........................................    96
    Hon. Maria Cantwell..........................................    97
Response to written questions submitted to Nancy N. Young by Hon. 
  Maria Cantwell.................................................   110


             THE EUROPEAN UNION'S EMISSIONS TRADING SYSTEM

                              ----------                              


                        WEDNESDAY, JUNE 6, 2012

                                       U.S. Senate,
        Committee on Commerce, Science, and Transportation,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 2:35 p.m. in room 
SR-253, Russell Senate Office Building, Hon. John D. 
Rockefeller IV, Chairman of the Committee, presiding.

       OPENING STATEMENT OF HON. JOHN D. ROCKEFELLER IV, 
                U.S. SENATOR FROM WEST VIRGINIA

    The Chairman. I'll make my statement, then go to Ranking 
Member Hutchison and then to Maria Cantwell if she's here, and 
then to John Thune.
    The European Union's emissions trading system has elicited 
a lot of strong feelings from aviation stakeholders across the 
globe, which is why it's important for Congress to involve 
themselves in what is in that and how it would affect us. 
Secretary LaHood is going to provide us a much-needed 
perspective from the administration. The United States has 
always led the world on aviation issues and implementing 
policies to reduce greenhouse gas emissions should not be an 
exception to our legacy of leadership in aviation.
    I'm approaching this hearing with an open mind regarding 
the options that should be considered to reduce emissions in 
the aviation sector. However, nothing happening is not an 
option which I want to contemplate. Let me be clear. I believe 
that the airline industry both in the United States and 
globally needs to take steps to reduce its greenhouse emissions 
now. I do not discount or dismiss the technical and financial 
challenges of this effort, but the issue is too important for 
any business of any sort to ignore.
    The aviation industry has consistently expressed that 
action should be taken to limit pollution from aircraft and I'm 
sure that all participants testifying at this hearing will 
confirm their commitment in that direction.
    Good intentions don't work. There's some reduction in 
emissions which has taken place because of technology, but 
we've got to go farther than that. I want to know what airlines 
are actually doing to reduce emissions as they're planning 
today or as they're trying to do today and then their plan for 
reducing them in the future.
    I know that our witnesses believe that a process that is 
implemented with the agreement of all relevant parties will 
deliver a far more comprehensive system, with much greater 
results than any plan that singles out flights operating in and 
out of a particular region of the world. However, I have to 
confess that I have some concerns over what happens if we turn 
this over to ICAO, which I think is the preferred way around 
this dais, maybe not by all.
    I'm just worried about, for example, if you get a lot of 
non-European countries, do you actually get an agreement that 
does something to reduce emissions? I do worry about that and I 
want to express that, and it could be that maybe they don't 
want to build consensus. Maybe it's to delay and defer any real 
action. And I hope that our witnesses will convince me that I'm 
entirely wrong.
    Many concerns have been raised regarding the unilateral 
imposition of the EU ETS on international and foreign airspace, 
the ability of the airline industry and its passengers to 
absorb the additional costs, and the lack of clear 
understanding of how any funds raised through this system would 
be spent. That's an important issue.
    So these are issues that can't and shouldn't be easily 
dismissed. So we have a problem. The European Union acted 
because it believes it needed to make a bold effort to reduce 
greenhouse gas emissions and I understand why they did so, and 
I can't criticize them for that. But I believe that their 
unilateral action is likely not sustainable by international 
law.
    I support the goals, but I have to oppose the action. We 
all need to work together to find a way to move forward on this 
issue that is both legally and politically sustainable and one 
that produces results. It has to produce results.
    [The prepared statement of Senator Rockefeller follows:]

       Prepared Statement of Hon. John D. (Jay) Rockefeller IV, 
                    U.S. Senator from West Virginia
    The European Union's Emissions Trading System (EU ETS) has elicited 
strong feelings from aviation stakeholders across the globe, which is 
why it is important that Congress examine its potential impact on 
international air travel. Secretary LaHood will provide us a much-
needed perspective from the Administration. The United States has 
always led the world on aviation issues. Implementing policies to 
reduce greenhouse gas emissions should not be an exception to our 
legacy of leadership on aviation.
    I am approaching this hearing with an open mind regarding the 
options that could be considered to reduce emissions in the aviation 
sector. However, doing nothing is not an option. Let me be clear. I 
believe that the airline industry--both in the United States and 
globally--needs to take steps to reduce its greenhouse gas emissions 
now. I do not discount or dismiss the technical and financial 
challenges to this effort, but the issue is too important for any 
business to ignore.
    The aviation industry has consistently expressed that action should 
be taken to limit pollution from aircraft. I am sure that all of the 
participants testifying at this hearing will confirm their commitment 
to develop a global solution on this issue. Good intentions will not 
reduce emissions. I want to know what you are actually doing to reduce 
emissions today and your plan for reducing them in the future.
    I know that our witnesses believe that a process that is 
implemented with the agreement of all relevant parties will deliver a 
far more comprehensive system with much greater results than any plan 
that singles out flights operating into and out of one region of the 
world. However, I fear that the industry's desire to turn this over to 
ICAO is not to build consensus, but to delay and defer any real action. 
I hope our witnesses can convince me otherwise.
    Many concerns have been raised regarding the unilateral imposition 
of the EU ETS on international and foreign airspace, the ability of the 
airline industry and its passengers to absorb additional costs, and the 
lack of a clear understanding of how any funds raised through this 
system would be spent. These are not issues that can, or should, be 
easily dismissed. Again, the difficulty of the challenge should not be 
the reason that we avoid undertaking it.
    The European Union acted because it believes it needed to make a 
bold effort to reduce greenhouse gas emissions, and I understand why 
they did so. But, I believe that their unilateral action is likely not 
sustainable by international law. I support the goals, but I have to 
oppose the action. We all need to work together to find a way to move 
forward on this issue that is both legally and politically sustainable.
    I hope this hearing and the discussions today will help us to 
develop a path forward to address aircraft emissions in a global manner 
in both the short-term and the long-term.

    The Chairman. So I hope this hearing will help, and I know 
that whatever Senator Kay Bailey Hutchison has to say will 
help. So I call on her.

            STATEMENT OF HON. KAY BAILEY HUTCHISON, 
                    U.S. SENATOR FROM TEXAS

    Senator Hutchison. Well, I thank you, Mr. Chairman, and we 
are in agreement on the main point, which is that the European 
Union with this emissions trading scheme is acting outside of 
their prerogative and the trading scheme will have a negative 
effect on our aviation community. There are significant flaws.
    First, it violates U.S. sovereignty, because a U.S. carrier 
has to pay the European tax for all segments of a flight from 
the U.S. to Europe, including the flight time that is strictly 
over the United States or over non-European international 
waters. So that's number one. They have certainly overstepped 
their boundaries.
    Second, the tax revenue is intended to mitigate aviation 
emissions, but there's no obligation in their law that the 
revenue collected be spent on aviation. So it looks like a 
revenue-generation scheme that really violates decades of 
global transportation policy.
    Third, we do have ICAO, as the Chairman mentioned. It is 
ICAO that addresses global policy issues, and for the EU to 
simply ignore it or not participate in what could be a 
voluntary global policy really doesn't make sense.
    Let me say that the aviation community, talking about the 
emissions, has had a very good record. Fuel costs are a market 
force that is causing air carriers to reduce their fuel 
consumption. They're cutting back on flights. They're filling 
the flights up instead of having more flights. So that in 
itself reduces the amount of fuel consumed.
    Furthermore, since the 1970s aviation has reduced global 
fuel use and carbon emissions by 120 percent per passenger 
mile. Between 2000 and 2009, aviation reduced emissions by 15 
percent while carrying over 15 percent more passengers and 
cargo. So I think the numbers indicate that the aviation 
community is certainly willing to have voluntary standards if 
we would discuss this in the forum that has been the normal 
forum for global aviation issues, which is ICAO. And I think 
that the EU needs to step back and I'm hoping, Mr. Secretary, 
that you're going to, when you do finally have a chance to 
talk, say that we are at one on this issue and that you will be 
using all the resources that you have to assure that the U.S. 
aviation community is not penalized by the EU, because it is 
not in anyone's interest for us to be having a tiff with or a 
trade war with the European Union, and especially on something 
that is so black and white wrong for the EU to do.
    Thank you, Mr. Chairman.
    The Chairman. Thank you, Senator Hutchison.
    Senator Cantwell has asked that Senator Thune, who is 
Ranking Member on the Aviation Subcommittee, go first.

                 STATEMENT OF HON. JOHN THUNE, 
                 U.S. SENATOR FROM SOUTH DAKOTA

    Senator Thune. Thank you, Mr. Chairman, and I want to thank 
the Ranking Member as well, Senator Hutchison, for holding the 
hearing on what I think is a very important issue. I want to 
thank our witnesses for testifying today, and I especially want 
to thank Secretary LaHood, who is a former colleague in the 
House of Representatives. Always nice to have you with us.
    Any system that includes international and other non-EU 
airspace must be addressed through the International Civil 
Aviation Organization, or ICAO, policies in which the U.S. and 
190 countries are members. In 2005, the European Union began 
their emissions trading system and starting in 2012 the EU 
began including civil aviation operators departing from or 
landing in Europe. Under this program, any airline, including 
non-European airlines, flying into or out of Europe will be 
required to pay for EU emissions allowances. It will affect not 
only commercial carriers, but smaller general aviation aircraft 
operators, who will bear an unusually large brunt of the cost 
and administrative burdens.
    This change comes at a time when EU allowance prices 
continue to decline, to a little over 6 euros, and the European 
Commission is beginning to consider proposals to drive up the 
prices.
    Very simply, the unilateral imposition of such a scheme on 
the United States and other countries is arbitrary, unfair, and 
a violation of international law. Plus it is being done without 
any guarantees for direct environmental improvements.
    As a result of this action by the EU, this past December 7 
I introduced the bipartisan European Union Emissions Trading 
Scheme Prohibition Act along with Senator McCaskill from 
Missouri. The bill gives the Secretary of Transportation the 
authority to take the necessary steps to ensure America's 
aviation operators are not penalized by any system unilaterally 
imposed by the European Union. The bill also requires the 
Secretary of Transportation, the Administrator of the FAA, and 
other senior U.S. officials to use their authority to conduct 
international negotiations and take other actions necessary to 
ensure that U.S. operators are held harmless from the actions 
of the EU.
    The House of Representatives passed a similar bill by voice 
vote last October and I'm hopeful the Senate will pass my 
bipartisan bill as well.
    The U.S. commercial aviation community, including airlines 
and manufacturers, are all supportive of this bipartisan 
legislation. In fact, a variety of stakeholders have sent 
letters opposing the EU ETS, including A4A, the NBAA, the ALPA, 
who are testifying today, the International Association of 
Machinists and Aerospace Workers, and the U.S. Chamber of 
Commerce.
    I would like to ask, Mr. Chairman, to include these letters 
into the hearing record.
    The Chairman. It will be done.
    [The information referred to follows:]

                                                 September 17, 2012
Hon. Barack H. Obama,
President of the United States,
The White House,
Washington, DC.

Dear Mr. President:

    The undersigned coalition of aviation stakeholders strongly 
encourages you to challenge the inclusion of international aviation 
under the European Union Emissions Trading Scheme (EU ETS) by 
initiating an Article 84 proceeding in the International Civil Aviation 
Organization (ICAO). Standing up against the application of this 
unilateral scheme on U.S. airlines and general aviation aircraft 
operators is necessary to protect U.S. sovereignty and jobs. And it is 
the right position for the environment, since it will foster 
implementation of a truly international approach to aviation greenhouse 
gas emissions that will produce a better environmental outcome than a 
unilateral scheme. In fact, draining away any funds through taxation or 
cap-and-trade schemes to general government funds reduces the ability 
of our industry to limit emissions.
    If this EU breach of U.S. sovereignty--the imposition of an EU tax 
on U.S. airlines, aircraft operators and citizens while on the ground 
in the United States, over our airspace and international waters--goes 
unanswered, it almost certainly will result in other such schemes 
affecting a variety of sectors of the U.S. economy. In addition, the EU 
ETS will likely lead to job losses in the aviation, manufacturing and 
travel industries, which is undesirable under any circumstances, but 
especially in this time of economic uncertainty.
    The aviation sector has a tremendous fuel efficiency and emissions-
savings record. We have achieved this by investing hundreds of billions 
of dollars in new aircraft, new engines and new equipment. Because fuel 
costs represent about 40 percent of our operating costs, we are already 
highly incentivized to reduce our fuel consumption and emissions. 
That's why our industry represents just 2 percent of all greenhouse gas 
emissions in the United States while driving 5 percent of the Nation's 
GDP. And we are not stopping there. U.S. airlines have committed 
billions of dollars toward the purchase of more efficient aircraft like 
the Boeing 787 Dreamliner and 737 MAX. Mr. President, this is how we 
reduce emissions, improve our efficiency and create good American 
manufacturing jobs.
    The United States must answer, and an Article 84 action is an 
appropriate and critical part of that answer. An Article 84 proceeding 
under the Chicago Convention is the dispute mechanism to which all 191 
ICAO Member States have agreed by treaty. Further, contrary to what 
some have asserted, the private legal action heard by the European 
Court of Justice ECJ did not resolve the legal questions that would 
arise in an Article 84 case. In fact, the ECJ refused to hear questions 
posed under the Chicago Convention and determined that the private 
parties in that action did not have standing to bring sovereignty 
claims. Moreover, an Article 84 action will prompt, rather than impede, 
agreement and implementation of a global framework for addressing 
aviation greenhouse gas emissions.
    Our organizations continue to support the global framework for 
addressing aviation greenhouse gas emissions as agreed at the 2010 ICAO 
Assembly. Work is going on now to further flesh out that agreement and 
to put it into operation. However, the EU ETS has been a roadblock to 
reaching full agreement and it must be removed.
    ICAO has a proven track record of efficiently handling an Article 
84 dispute while simultaneously advancing new environmental standards. 
Indeed, when the United States brought an Article 84 challenge to the 
illegal EU ban of aircraft fitted with noise ``hushkit'' technology in 
2000, ICAO also was working on a new noise standard for aircraft and on 
a new international framework for addressing community noise exposure 
in the vicinity of airports. It was during the time the Article 84 
proceeding was pending before ICAO that the EU first stayed and then 
withdrew its wrongful hushkit ban. The ICAO States not only advanced 
but unanimously adopted the Chapter 4 noise standard and a global 
framework for aircraft noise management, known as the ``Balanced 
Approach to Noise''. With ICAO currently working on a carbon dioxide 
standard for aircraft as a means of implementing the global approach to 
aviation and climate change, the parallels to today's dispute regarding 
the EU ETS are clear.
    While the global emissions reduction program is being further 
developed, we are continuing to invest billions of dollars in new 
aircraft and engines, support the deployment of technology and 
procedures for the ``Next Generation'' (NextGen) air traffic management 
system and utilize the creativity of our employees to make operations 
more efficient without sacrificing safety. Working closely with the 
Department of Defense, we also are driving toward the deployment of 
sustainable alternative aviation fuels, which will not only bring 
additional emissions savings but will also allow the aviation industry 
to advance our shared goal of reducing the dependency of our Nation on 
foreign oil.
    Filing an Article 84 action at ICAO has worked to address difficult 
environmental issues before and the United States should take the lead 
again. We believe the Administration has all the tools necessary to 
prevent the EU ETS from implementing its unilateral scheme, and thus 
should support the passage and approval of the bipartisan S. 1956, the 
``European Union Emissions Trading Scheme Prohibition Act''. As the 
aviation sector did during the hushkit dispute and in the ICAO work on 
the Chapter 4 noise standard and Balanced Approach policy, we are 
committed to working with the Administration to see the wrong measure 
overturned in favor of the right one.
            Sincerely,

Aerospace Industries Association
Aircraft Owners and Pilots Association
Air Line Pilots Association
Airlines for America
Airports Council International--North America
American Society of Travel Agents
Cargo Airline Association
Consumer Travel Alliance
General Aviation Manufacturers Association
Global Business Travel Association
Independent Pilots Association
Interactive Travel Services Association
National Air Carrier Association
National Air Transportation Association
National Business Aviation Association
Professional Aviation Safety Specialists
Regional Airline Association
U.S. Chamber of Commerce
U.S. Travel Association
      
                                 ______
                                 
     International Association of Machinists and Aerospace 
                                                    Workers
                             Upper Marlboro, Maryland, June 5, 2012

                          RE: E.U. Emissions Trading Scheme

Hon. Barbara Boxer,
United States Senate,
Washington, DC.

Dear Senator Boxer,

    As the largest aerospace union in North America, our members have 
experienced firsthand the devastating impact of the continuing economic 
crisis on their families, communities, and the economic health of our 
Nation. Nowhere has the economic impact been more severe than in the 
business aviation industry where job losses have been in the tens of 
thousands. In this context we want to express our opposition to the 
European Union's emissions trading scheme (EU-ETS), which threatens to 
negatively impact the U.S. aerospace industry, one of the few 
industries in which we maintain a positive balance of trade with the 
rest of the world, as well as the commercial aviation industry.
    While it is commendable to seek reductions in greenhouse gas 
emissions, the EU-ETS is in reality nothing more than a revenue raiser 
for the E.U.; a tax that will also place an unnecessary regulatory 
burden on both commercial and general aviation. It is important to note 
that globally commercial aviation contributes only 2 percent of 
greenhouse gas emissions and general aviation a minuscule 0.04 percent. 
Instead of a job killing tax, a more sensible approach would be to 
support investments in fuel efficient engine and aircraft designs, 
biofuels, and NextGen aircraft traffic control systems. Together, these 
innovations will actually create meaningful reductions in greenhouse 
gas emissions.
    The anemic jobs numbers in the most recent employment report from 
the U.S. Bureau of Labor Statistics highlight not only the fragility of 
our economic situation, but also that of the global economy. It would 
be a regrettable mistake for the U.S. to embrace the EU-ETS, a scheme 
without merit, but with the ability to do real economic harm. I 
strongly urge you to support efforts to exempt U.S. carriers and the 
general aviation industry from the E.U.'s disastrous tax.
    If you have any questions, please contact Legislative and Political 
Director Matthew McKinnon.
            Sincerely,
                                    R. Thomas Buffenbarger,
                                           International President.

    Senator Thune. Many other countries, including Argentina, 
Brazil, China, India, Japan, Korea, Mexico, and Russia have 
voiced their opposition to the EU scheme. Keep in mind, with 
near-record oil prices, the EU ETS will add to the already high 
amount that airlines pay for fuel and passengers pay for their 
tickets.
    As was stated earlier, doing nothing is not an option. We 
need to act now. I would like to see us pass this bipartisan 
legislation that addresses the EU's unilateral imposition of 
ETS in order to protect the U.S. aviation industry, and I hope 
that after the hearing today that our colleagues will agree and 
that we can move forward with the legislation.
    Mr. Chairman, thank you.
    The Chairman. Thank you, Senator Thune.
    Senator Cantwell.

               STATEMENT OF HON. MARIA CANTWELL, 
                  U.S. SENATOR FROM WASHINGTON

    Senator Cantwell. Thank you, Mr. Chairman, and thank you 
for calling this important hearing.
    Let me say clearly for the record that I believe and trust 
the virtually unanimous agreement in the scientific community 
that there is a cause for global warming and it is human-
related. Or, to put it another way, there is not one single 
scientific body of national or international standing that does 
not support this conclusion.
    So while there may be some remaining uncertainty on the 
timing and the scope about climate change, we cannot continue 
to ignore this threat to our environment and to America's 
prosperity.
    Today's hearing is on the European Union emissions trading 
system, and that applies to today in aircraft that fly in and 
out of the European Union. I believe Congress spoke loud and 
clear about its concerns when we enacted the FAA bill.
    Three issues in particular. First, is the European proposal 
overly complex and lacking transparency? I have a lot of 
concern, and so do people in the State of Washington, about 
cap-and-trade regimes, which typically rely on carbon trading 
markets that can be volatile, subject to fraud, or provide 
windfalls to historic polluters.
    Last Congress we also had testimony before the Finance and 
Energy Committees, which I serve on, which raised serious 
concerns about the veracity of emissions offsets.
    Second, it is unclear to me if the auction proceeds 
collected by the European communities for selling credits will 
actually be used to reduce or mitigate the impact of global 
warming. This makes the EU ETS look more like just a tax on air 
transportation.
    Third, while I know it's a challenge, I believe aviation is 
unique and is best served by a comprehensive emissions 
reduction agreement, or at least a series of comparable 
measures tailored to each country. I'm not sure it makes sense 
that this proposal and the greenhouse gases emitted from a 
flight from Seattle to London is calculated beginning when the 
flight leaves SEATAC, even though the majority of the trip is 
not even over European airspace.
    But while many of my colleagues share these concerns, they 
should not be used for an excuse not to do anything. The United 
States as the world's sole superpower must act and lead the 
world to a cleaner energy future. There is a way to create a 
simple market-based system that will reduce carbon while 
protecting all low and middle income families from the impact 
of rate increases.
    But in the interim, we need to focus on what we know will 
work, implementing NextGen. The result will be fewer delays and 
more direct flights. It will reduce carbon emissions by nearly 
14 million tons by 2018. We need airlines retiring older 
aircraft and purchasing new ones that have more energy 
efficient engines and advanced materials such as composites, 
which make a big difference, and increased use of domestically 
sourced emissions-reducing bio-jet fuel.
    It is a win-win situation when the Department of Defense 
and civil aviation and our Nation try to work together to drive 
down the cost of aviation biofuels. I know several of my 
colleagues, maybe more in the House, are trying to stop the 
Department of Defense from moving forward on this. I couldn't 
disagree more. I think the Department of Defense is very smart 
to look at biofuels.
    Market-based mechanisms reducing greenhouse gases from 
global aviation sector or from the global maritime sector 
requires going through an appropriate international 
organization. The key international document governing 
international aviation is the Convention on International Civil 
Aviation, known as the Chicago Convention, and all of the EU 
countries signed the document and are obligated to abide by its 
rules.
    So I recognize the challenge of going forward with such an 
organization, but there are opportunities for parties to work 
together and to try to get through this situation. I hope, Mr. 
Chairman, that today's hearing gives us a path to move forward 
on this. I know it's a thorny issue, but I think that we can 
find a better solution than what we're currently proposed with 
that might lead to some sort of trade war, which is what we 
don't want to happen.
    I thank the Chairman and thank him for his indulgence.
    The Chairman. I thank you, Senator Cantwell.
    Now it's my honor to produce the--present the Secretary of 
Transportation, Ray LaHood. You are a friend of this committee. 
We hope that we're a friend to you, and we're very anxious to 
hear from you.

           STATEMENT OF HON. RAY LaHOOD, SECRETARY, 
               U.S. DEPARTMENT OF TRANSPORTATION

    Secretary LaHood. Mr. Chairman, thank you. And to every 
member of the Committee, thank you for your interest in this 
issue. I also want to thank the Committee for your hard work on 
putting together what I believe is a very, very good 
transportation bill that passed the Senate with 74 votes. You 
all worked hard on that and I can tell you at DOT we're very 
appreciative of it.
    But we're also appreciative of this hearing today to 
discuss the European Union emissions trading scheme and for 
your leadership on this important issue. I particularly would 
like to recognize the leadership of both Senator Thune and 
McCaskill. Your bipartisan work has sent an important message 
about Congressional opposition to EU ETS as it pertains to 
international aviation, and to any other Senator who co-
sponsored that bill.
    The U.S. Government remains strongly opposed, on both legal 
and policy grounds, to the imposition of EU ETS on U.S. 
airlines. We support reducing aviation impact on the 
environment and we continue to aggressively pursue that 
objective both domestically and internationally. However, 
including international aviation in the EU ETS is the wrong way 
to achieve that objective.
    We have made our opposition clear to the EU at every 
opportunity. Secretary Clinton and I have written a letter to 
our counterparts in the EU strongly objecting to the imposition 
of EU ETS on U.S. air operators. We called on the EU to halt EU 
ETS as it pertains to international aviation and to find a 
global solution for aviation greenhouse gas emissions at the 
International Civil Aviation Organization, commonly known as 
ICAO.
    Absent such willingness on the part of the EU, we advised 
that the U.S. would be compelled to take appropriate action. I 
have personally reiterated U.S. concerns to the leadership of 
the EU and several of its member states.
    In addition, the U.S. joined over two dozen like-minded 
countries in New Delhi and Moscow, in two separate meetings, to 
adopt strong declarations opposing the EU's go-it-alone policy 
and support global efforts to address greenhouse gas emissions 
from international aviation. We continue to work with other 
countries to have the EU change course.
    I have been disappointed by the EU's response to date. The 
EU must cease application of ETS to U.S. and other non-EU 
carriers. So let me be clear. The United States Government 
takes a back seat to no one when it comes to reducing 
greenhouse gas emissions in the transportation sector. The 
Department of Transportation has taken unprecedented action to 
build the foundation for a clean energy economy, to tackle the 
issue of climate change, and to protect the environment.
    U.S. aviation emissions have declined since 2000. They are 
down more than 12 percent through 2010. At the same time, U.S. 
carriers have transported 15 percent more passengers during 
that time.
    With the support of this committee, we are working on a 
wide range of efforts to further reduce aviation greenhouse 
emissions, including new development of cleaner aircraft 
technology, an overhaul of our national air traffic control 
system through our Next Generation initiative, and the 
development and deployment of substantial alternative aviation 
fuels.
    In addition, under President Obama's leadership DOT and EPA 
are working together to improve fuel efficiency and lower 
greenhouse gas emissions from automobiles and trucks. Everybody 
here knows about those efforts. More recently, we proposed to 
improve fuel economy for new cars and trucks in model year 2017 
through 2025.
    We achieved these successes by bringing government, private 
industry, the environmental community, and other stakeholders 
together in a cooperative, collaborative process. We didn't do 
it as the Lone Ranger, the way this EU scheme has been 
developed. They've been the Lone Ranger in this. What we've 
done is the best way to solve problems --bring everybody 
together, sit at a table, talk about the issues and talk about 
the solutions. We've had success doing that and we're proud of 
that success.
    We ask the EU to take that model and use it for this 
scheme. Be inclusive. Don't just pass a law and think that 
we're all going to go along with it.
    I appreciate that the EU has expressed support for making 
progress on aviation emissions in ICAO. However, we need to see 
real signs of flexibility from the EU. The EU needs to 
constructively engage to find a global approach, the kind of 
approach that we've used, that works for the rest of the world 
and allows it to set aside ETS in relation to the U.S. and 
other non-EU carriers.
    We strongly urge the EU to cease application of ETS to 
international aviation in order to help accelerate our efforts 
to forge a global solution on aviation emissions.
    I'm happy to take questions, Mr. Chairman. Thank you for 
holding this hearing.
    [The prepared statement of Secretary LaHood follows:]

           Prepared Statement of Hon. Ray LaHood, Secretary, 
                   U.S. Department of Transportation
I. Introduction
    Thank you for the opportunity to discuss the European Union (EU) 
Emissions Trading Scheme, or ETS.
    We remain strongly opposed, on both legal and policy grounds, to 
the imposition of ETS on U.S. and other non-EU airlines. We share the 
EU's objective of reducing aviation's impact on the environment and 
continue to aggressively pursue that goal both domestically and 
internationally. However, including international aviation in the EU 
ETS is the wrong way to achieve the right objective.
II. U.S. Actions
    We have made our opposition clear to the EU member states and 
institutions at every opportunity, at all levels. Secretary Clinton and 
I wrote to our counterparts in the EU and member states strongly 
objecting to the imposition of EU ETS on U.S. air operators. We called 
on the EU to halt EU ETS application to non-EU airlines and re-engage 
with the rest of the world to find a global solution for aviation 
greenhouse gas (GHG) emissions at the International Civil Aviation 
Organization, also known as ICAO. Absent such willingness on the part 
of the EU, we advised that the U.S. would be compelled to take 
appropriate action.
    I have personally reiterated U.S. concerns to Transport 
Commissioner Kallas, Climate Commissioner Hedegaard, and several EU 
member state transport ministers. In addition, U.S. officials have 
joined with over two dozen likeminded countries in meetings in New 
Delhi and Moscow and at ICAO in Montreal in adopting strong 
declarations opposing the EU's go-it-alone policy and supporting work 
on global efforts at ICAO. And we continue to work actively with a 
range of countries to have the EU change course.
III. U.S. Environmental Performance
    I want to reemphasize that while we oppose the EU's approach to 
addressing GHG emissions from international aviation, we strongly 
support our shared goal of reducing such emissions. The United States 
Government is committed to addressing the impacts of GHG emissions in 
the transportation sector while carefully considering the costs and 
benefits of any regulatory approach to ensure an appropriately balanced 
decision. The Department of Transportation has taken unprecedented 
action to build the foundation for a clean energy economy, tackle the 
issue of climate change, and protect the environment. Our actions are 
improving the efficiency of the aviation sector and heavy and light 
duty vehicles, promoting the use of alternative fuels, and accelerating 
the development of new technologies across all modes of transportation.
    In aviation, we are building on a strong record of U.S. fuel 
efficiency improvements and GHG emissions savings. According to FAA 
data, U.S aviation emissions have actually declined since 2000: down 
about 12 percent through 2010, while U.S. carriers have transported 15 
percent more passengers and cargo in the same period. With the support 
of Congress, the Administration is working on a wide range of efforts 
that will address aviation GHG emissions, including development of new, 
cleaner aircraft technology, overhaul of the National Airspace System 
through NextGen, and the deployment of sustainable alternative aviation 
fuels. Many of these efforts, including the Continuous Lower Energy, 
Emissions, and Noise (CLEEN) program and the alternative fuels 
development efforts, are being pursued in collaborative partnerships 
with industry as well as other national and international stakeholders. 
We are working with international partners around the world to 
accelerate implementation of air traffic procedures to reduce fuel burn 
and emission. This includes the Atlantic Interoperability Initiative to 
Reduce Emissions (AIRE) between the U.S. and the European Commission.
    Elsewhere in the transportation sector, under President Obama's 
leadership, DOT and EPA-are working together on a series of actions to 
improve fuel efficiency and lower GHG emissions from automobiles and 
trucks, including a joint rule that will build on current standards to 
improve fuel economy for light vehicles in model years 2017-2025. In 
developing this proposal, DOT and EPA worked with California and with 
major stakeholders, including auto manufacturers, automotive suppliers, 
environmental groups, and the United Auto Workers. These efforts show 
that government, industry and other key stakeholders can agree to a 
long term plan for steady improvement in vehicle fuel economy that will 
reduce emissions and allow consumers to use less fuel.
    We achieved these successes by bringing government and stakeholders 
together in a cooperative, collaborative process. Our experience and 
record are in marked contrast to the EU approach.
IV. ICAO
    International aviation is a quintessentially global industry that 
needs a global solution for addressing greenhouse gas emissions. For 
the past six years, the United States and other countries have been 
urging the EU to work collaboratively with the rest of the world in 
ICAO to develop a multilateral approach to reducing GHG emissions from 
international aviation. Far from improving the environment, the EU's 
go-it-alone approach is impeding international progress on a 
multilateral agreement for international aviation that will actually 
deliver on our shared goal of achieving lasting reductions in 
greenhouse gases.
V. Conclusion
    I appreciate that the EU has expressed support for making progress 
on aviation emissions in ICAO. However, stating support for an ICAO 
solution is not enough. The EU needs to engage constructively to find a 
global approach that works for the rest of the world and allows it to 
set aside ETS in relation to foreign carriers. We strongly urge the EU 
to cease application of the ETS to international aviation in order to 
help accelerate our efforts to forge a global solution. We need to see 
real signs of flexibility from the EU. The global community needs to 
believe that the EU is genuinely willing to work on a global deal to 
help us accomplish our shared goals on the environment.
    Thank you.

    The Chairman. Thank you very much, Mr. Secretary.
    I might start and then we'll continue as we did the opening 
statements, and then in the order of people's appearances. 
There is a good turnout and there's going to be a better 
turnout.
    I share the thoughts that you have put forward about the EU 
ETS. I remain a little bit nervous about their standing on the 
sidelines and then the United States gets together with all the 
rest of the countries, which would be China, Russia, Indonesia, 
India, the Americas, et cetera, under ICAO, whether or not that 
would in fact be an effort that would result in something or 
whether in fact it would be, because there couldn't be 
consensus reached, those countries being poorer and their 
airlines having fewer resources, etcetera, that there wouldn't 
be a consensus reached and therefore there would be a delay in 
all of this. I do worry about that. But I'm interested in the 
Secretary's response.
    Secretary LaHood. Well, we believe that ICAO is the place 
to resolve this. It is the organization that has worked on a 
number of aviation issues, particularly safety issues. We think 
that it's really the place where this can be resolved, and 
that's why we have suggested that this be taken up.
    I've met with the head of ICAO. He came to our office here 
in Washington. We had a very, very good discussion, and I 
believe it is the institution that can help resolve this, 
because all the countries belong, are members, and it's an 
opportunity for people to actually come together in a 
collaborative way and begin the discussion.
    So we believe it is the institution that probably works the 
best to get everybody together and try and resolve it.
    The Chairman. I don't doubt that it's the best institution 
to do that. My question is would the smaller countries be a 
party to this? Would there be sufficient energy to reduce 
emissions the way they needed to be reduced, simply because of 
the cost factor and the financial condition of some of the 
countries that are involved?
    Secretary LaHood. Well, obviously that would have to be 
part of the discussions. But I think our efforts have been to 
get the discussion going by having people really use ICAO to 
make this happen.
    The Chairman. All right. It's interesting because when you 
look at the improvement of commercial aviation and their 
emissions reductions, a lot of that has come through 
technology, through new airlines. It's not sort of the policy 
of airlines to reduce emissions, but it's the policy of 
airlines to be able to travel in lighter planes that are just 
as strong, with cheaper fuel, because cheaper fuel is what 
drives their concern.
    So that if you're going to say we just can't make this a 
technology-based solution, what the technology has done---- for 
example, the air traffic control system, that's going to have a 
major effect on reducing the amount of carbon emissions into 
the air. But there would be more. People should push beyond 
what has already been legislated, what is already going to 
happen. I'm interested in what the administration thinks about 
that.
    Secretary LaHood. Well, the airlines and the companies that 
build airplanes, certainly Boeing and Airbus, have done 
extraordinary engineering work in now building planes that are 
more fuel efficient. They get it. They understand it. It helps 
them with their bottom line, obviously, because more fuel 
efficient planes obviously helps them save on fuel costs.
    All the major airlines now are buying much more fuel 
efficient planes, and obviously that can be helpful. But this 
notion that one level of government or one form of government 
can pass a tax on to an industry is just patently wrong.
    The Chairman. OK, Mr. Secretary, and I appreciate that, and 
I call on the Ranking Member, Senator Hutchison.
    Senator Hutchison. Well, thank you.
    I want to say how much I appreciate what Senator Thune and 
Senator McCaskill and others have done. But I think they really 
took the lead on this. I think it is essential that we be very 
firm. I'm going to ask you outright: Do you support their bill 
that gives you the ability to say American airlines do not have 
to comply with this EU scheme?
    Secretary LaHood. Senator, we haven't been in--since I've 
been in this job, we really haven't taken a position on 
legislation, and we're not going to take a position on this 
legislation right now.
    Senator Hutchison. Well, I do think it is important, 
honestly, Mr. Secretary, for you to do so. This is an American 
position. I think it's very bipartisan, and the things that 
have been mentioned by Senator Rockefeller and Senator 
Cantwell, I think are legitimate concerns, which I think you 
would also agree would be something that needed to be 
addressed.
    But I'd like to see you consider taking a position, because 
I think this is not a political, but rather an American 
essential, that we stand up for our airlines against an attack 
on our sovereignty, if you will. So will you consider that?
    Secretary LaHood. Senator, I think all of you know that I'm 
a part of a team of people. I'll run it up the 25 flagpoles I 
have to run it up, but, look, I don't make these decisions, 
Senator. In my statement I complimented Senator Thune and 
Senator McCaskill, and I've told them both personally we're 
grateful that they're stepping up and providing some leadership 
on this. But at this point we're not prepared to support 
legislation, this bill.
    Senator Hutchison. Well, it could be that the President 
might want to look at this as well. But he has other issues 
with the EU, I'm sure. But I just think that when you are 
representing our position internationally it would be nice to 
have a clear position from the administration.
    Secretary LaHood. Well, Senator, I have talked to many of 
my colleagues, transportation ministers. Nobody has been 
bolder, nobody has been more frank, than Ray LaHood 
representing this administration, somewhat to my detriment. 
Some of them have complained to some people in the 
administration that I've been too frank with them.
    I have not minced words with them. They know we think this 
is a very lousy, bad policy that they should not be doing. They 
know that. I told them. They don't like to be told that by one 
of their transportation ministers. But we've told them. There's 
no equivocation on this. We think this is a lousy policy, a 
lousy law that they've passed.
    Senator Hutchison. I think we're in a bipartisan way giving 
you a way to actually do something and be effective. So we're 
trying to help you.
    Let me ask you one other question. On NextGen and the 
importance of NextGen to all of us, the aviation community is 
going to have to make significant contributions to it. NextGen 
is going to lower emissions because we're going to use the 
airspace more efficiently. So I'd like to ask you your opinion 
of how this European Union policy is going to affect the 
ability for us to move forward as expeditiously as possible on 
NextGen?
    Secretary LaHood. NextGen is the top priority at the FAA, 
it really is. We're working very hard on it. You all have 
been--Congress has been good enough to give us plenty of 
resources. The FAA bill that you passed made it a very, very 
important priority. We're grateful. That FAA bill was a very 
good bill, a good bipartisan bill. You all worked hard on it. 
We appreciate the work that was done on it. It gives NextGen 
the kind of priority that everybody feels is necessary.
    Senator Hutchison. Will NextGen also lower emissions?
    Secretary LaHood. Absolutely. When NextGen is fully 
implemented, it will lower emissions because it will be able to 
guide planes in and out of airports more efficiently, in a way 
that will help airlines save jet fuel.
    Senator Hutchison. Would you say that if aviation companies 
have to divert money from NextGen to pay these emissions taxes 
that that would be a detriment to U.S. efforts to improve fuel 
efficiency and safety derived from NextGen technology?
    Secretary LaHood. I know our friends from the airline 
industry are going to be up here sitting in my seat pretty 
quickly here and I'm sure they can answer that much better than 
I can. But we've appreciated the great support we've had from 
the airline industry on implementing NextGen. They've been good 
partners and we know that will continue.
    Senator Hutchison. Mr. Secretary, I just hope very much 
that you will see your way to being a little more forthcoming 
on something that's pretty clear to all of us that we need to 
do for America.
    Thank you.
    The Chairman. Senator Cantwell.
    Senator Cantwell. Thank you, Mr. Chairman.
    I'm tempted to ask you about legislation that you can't 
comment on, so I won't. But I will say I don't know that this 
is the intent of this legislation, and maybe I'll talk to 
Senator Thune afterwards, but this provision about holding 
harmless from any trading scheme, I just want to flag that as 
something I think we need to think about what that means or 
what the unintended consequences of that means. But maybe we'll 
get somebody from your office to give you--get us an 
interpretation of how the Department views that language.
    My question is more about just the noncommercial aviation 
and how this thing got developed. I want to make sure I 
understand it. But it seems that one of the reasons is that it 
appears like Chilean national airline carrier, LAN, flies four 
times a week from Santiago to Madrid on an Airbus 340. So that 
adds up to a lot of--but they're exempted. So that adds up to a 
lot more greenhouse gas emissions on an annual basis, and yet 
these other non-commercial aviation jets aren't exempted.
    So I'm trying to understand what you think the European 
Union is trying to do with de minimis standards for greenhouse 
emissions and how are they drawing this line, because I would 
think that this would cause some very unfair competition on 
flights, you know, if you had people exempted within Europe, 
saying they're de minimis, and then having other carriers have 
to comply.
    Am I perceiving that right? Is there some unlevel playing 
field here?
    Secretary LaHood. I don't know the answer to that, Senator. 
I could maybe look into it, but I don't know what their 
thinking is on that particular aspect of exempting. I don't 
know the answer.
    Senator Cantwell. OK. Well, Mr. Chairman, I think I'll wait 
for our next panel then to ask the question.
    But clearly I think this is part of the challenge, too, is 
that the U.S. aviation industry or the general aviation 
industry wants to know that it's going to be a level playing 
field and they're not going to be disadvantaged when certain 
carriers with inside Europe are going to be exempted from it, 
saying, oh, we don't really have that much of an impact, and 
then everybody else on the outside will have to comply.
    So I thank you.
    Secretary LaHood. Thank you.
    Senator Cantwell. And I hope that we'll continue to move 
forward on freight mobility issues and streamlining and 
improving our transportation system. So thank you.
    Secretary LaHood. Thank you.
    The Chairman. That's it?
    Senator Thune.
    Senator Thune. Mr. Secretary, supporters of the EU ETS have 
argued that it is really no different than arrival and 
departure taxes that other countries, including the U.S. 
charge. The ability of sovereign countries to impose user fees 
has long been recognized internationally and in the case of the 
U.S. we use these fees to fund our aviation system and to 
ensure that it's the safest in the world.
    EU ETS on the other hand is assessed on our airlines as a 
condition of operating into or departing from their member 
states, something explicitly forbidden under international 
aviation law. I believe that ETS is completely separate from 
the user fees that countries might apply on passengers and I'm 
interested in knowing your opinion on that, whether that's 
something with which you agree?
    Secretary LaHood. The fees that you're talking about are 
agreed-to fees. This particular tax was never agreed to. It was 
passed by the EU, as far as I can tell with little or no 
discussion with those that were going to have to pay the tax. 
These other fees that you're talking about are fees where 
people actually talked to one another about them and talked 
about what they were going to be used for and then agreed to 
them. That's the difference.
    Senator Thune. Well, that seems like a fairly important 
difference.
    It has been 6 months since you and Secretary Clinton sent a 
letter to the EU urging them to cease and desist on ETS, noting 
if they didn't the U.S. would be, and I quote, ``compelled to 
take appropriate action,'' end quote. Thus far we haven't seen 
any change in policy at the EU and I guess my question is what 
is the current status of negotiations with the EU and what are 
the United States Government's next steps?
    Secretary LaHood. There has been a lot of discussion about 
this within the administration, and there are a lot of moving 
parts. This is not just up to Ray LaHood. It's a part of 
administration policy, and we've had lots of discussions and 
they will continue. We've participated in meetings in Delhi and 
also in Moscow where a lot of countries came and were 
represented, and they put together a paper in opposition to 
this, which has been submitted to the EU.
    I know these issues have been raised at higher levels 
between our government and EU and leaders in the EU. So the 
direct answer to your question is there's a lot of discussion 
and debate going on, not only within the administration about 
how to proceed and when to take further action, but also with 
our friends when discussions are held, when bilaterals are 
held.
    Senator Thune. Has the United States Government drafted a 
formal Article 84 complaint at ICAO or considered filing 
something similar with the World Trade Organization against the 
ETS?
    Secretary LaHood. Well, WTO doesn't have much authority in 
this, and we've had lots of discussion within the 
administration about Article 84.
    Senator Thune. Are you considering other legal retaliatory 
actions?
    Secretary LaHood. Probably the thing--probably the next 
thing and where our discussions are really going are 
discussions of Article 84.
    Senator Thune. But your conclusion on this is this is, like 
most of us I think conclude, this is a violation of 
international law?
    Secretary LaHood. Absolutely.
    Senator Thune. And unfair and arbitrary.
    Secretary LaHood. Absolutely.
    Senator Thune. OK, good.
    Mr. Chairman, I will reserve my questions for the next 
panel. Thank you.
    The Chairman. Thank you very much, Senator Thune.
    Senator DeMint--Senator Lautenberg.

            STATEMENT OF HON. FRANK R. LAUTENBERG, 
                  U.S. SENATOR FROM NEW JERSEY

    Senator Lautenberg. Thank you, Mr. Chairman.
    Mr. Secretary, always good to see you here, and I thank you 
for your hard work and your diligence in on solving problems 
and getting to the bottom of things. You have experience having 
been in the House and know how to get things done.
    Now, what is it--the airlines in the U.S. would not have to 
comply with EU law if there was either an equivalent 
international agreement or U.S. policy in place. If an 
international agreement can't be reached, would you support 
domestic policies to reduce global warming emissions from 
aviation?
    Secretary LaHood. As I said in my testimony, Senator, we 
take a back seat to no one. This administration takes a back 
seat to no one when it comes to environmental issues, emissions 
issues. If you look what we've done with our friends in the car 
industry on emissions and you look what we've done on other 
emissions issues, we've been right out front and we've been 
leaders on it.
    But it's all been done in a collaborative way, where people 
talk to one another, reach an agreement, and then solve a 
problem.
    Senator Lautenberg. Well, you've been in touch, as you 
described, with people from the--senior people from the EU. 
What's their problem as they express it to saying, hey, we have 
enormous amounts of business from America to our country? Why 
wouldn't they want to have a better understanding with us, 
because there are other issues that they worry about being cut 
off from in this country? Do they give you any logic to say, 
well, here's what we would like to do cooperatively?
    Is there anything at all that they offer?
    Secretary LaHood. Well, I'm not going to impugn the motives 
of those in the European Union.
    Senator Lautenberg. Of course not.
    [Laughter.]
    Secretary LaHood. Well, because----
    Senator Lautenberg. No, I'm kidding.
    Secretary LaHood.--you know, we have many friends there.
    What I believe is is that they want to--they want to be 
environmentally pure. They want clean air, and apparently they 
felt this was the way to reach that goal. My reaction to that 
is that they should have done it in a more collaborative way 
and they should have done it with everybody having a chance to 
express their opinion, in a way that really reflects the way 
that we've solved other issues, whether they be safety issues 
or airport issues or other issues, without doing it in an 
arbitrary way.
    Senator Lautenberg. Well, can we point to actions being 
taken by us that gets onto the problem of reducing the 
emissions, regardless of whether or not we've got an agreement 
with them? I mean, if we can do it we should do it based on the 
needs that we have for our own health and well-being. Are we 
putting anything forward that says, OK, here's where we'd like 
to go? Is there any start to discussions with ourselves and 
them?
    Secretary LaHood. Most of the discussions I've had, 
Senator, are really around the idea that this is a bad tax, 
it's a bad way to treat your friends. But when we get beyond 
that, obviously I've talked to other transport ministers about 
the fact that we're getting into next generation technology 
which will save jet fuel, that most of our companies now--and 
I'm sure A4A will substantiate this --most of the companies now 
are buying planes that are more fuel efficient and are using 
jet fuel that's more environmentally better.
    So there's a lot of activity going on.
    Senator Lautenberg. Well, I would hope that we could get 
something going, because aviation produces so much of the toxic 
emissions that are emitted in this world.
    Mr. Chairman, for one quick question, on a different 
subject, the aviation subject obviously. Airlines have been 
charging more fees for basic services, choosing an aisle or a 
window seat. These fees can be especially onerous for 
passengers traveling with children, who need to book side-by-
side seats.
    Does the Department have any power at all to limit the 
proliferation of these fees?
    Secretary LaHood. Well, we can't tell airlines what fees 
they can charge. But I want you to know that I have personally 
talked to CEOs about the idea of selling certain seats or 
charging a certain amount of money for an aisle seat versus a 
window seat, and making flying very unfamily friendly. So I've 
been doing a little jawboning about this with our friends in 
the industry, with the CEOs of the companies.
    But obviously, we can't tell airlines what seats they can--
--
    Senator Lautenberg. It's irritating the public to the 
point, I think, that you're going to have very tough responses 
to these fees being imposed. They don't yet charge a breath 
fee, but who knows, or the lavatory.
    Thanks very much.
    The Chairman. Thank you, Senator Lautenberg.
    Senator DeMint.

                 STATEMENT OF HON. JIM DeMINT, 
                U.S. SENATOR FROM SOUTH CAROLINA

    Senator DeMint. Thank you, Mr. Chairman.
    Thank you, Mr. Secretary. It's good to see you again. I'm 
glad to see a little indignance here about a country 
arbitrarily slapping a tax on us and us trying to protect our 
own sovereign ability to make decisions. We all know that 
America does more business around the world than any other 
country, and if any one of hundreds of countries can 
arbitrarily tax us, not just for what we do over their 
airspace, but all the way from L.A. to Europe, the whole route 
is now taxed under this rule, as you know.
    But it is important. It reminds me that we have to have our 
policies right at home, because it wasn't but two years ago 
when I remember reading a letter from the Europeans about us 
putting an arbitrary tax on travelers to the U.S. in order to 
pay for a travel promotion agency of our own. They didn't like 
that, and I think we need to work with our partners around the 
world to make sure that we're not living in a glass house.
    I would remind all my colleagues and everyone here that 
we're talking about our sovereignty and a bill by Senator Thune 
and Senator McCaskill that would say we need to stand up and 
not comply with this. But there are people in this 
administration and this body who are promoting a treaty which 
will take that completely out of our hands. The Law of the Sea 
Treaty will deal directly with this issue of emissions over the 
oceans, and not only with airplanes, but eventually deal with 
cars and trucks in our country because of those emissions that 
move all over the world. And it'll no longer be in our hands to 
decide; it'll be arbitrated and it will be decided by the 
Secretary-General of the United Nations.
    So I think as we get our backs up about this, we need to 
realize that all of our policies do make a difference, and we 
need to use our technology. As has already been pointed out, we 
need to recognize that a lot of our companies, like Boeing, are 
making very fuel efficient planes with composites and better 
engines and technology is moving us forward.
    Mr. Secretary, you're exactly right. Working with our 
friends all over the world to do this in a concerted way that 
does not allow arbitrary decisionmaking is real important. But 
I think we need to start here at home in making sure that we 
don't get ourselves into treaties that are going to subject us 
to this kind of--not just from one country, but any country in 
the world who wants to complain about our emissions over the 
oceans can drag us into an international court now that we no 
longer have control of.
    So a lot of things come to mind as we consider this, but 
I'm glad to see my colleagues get a little exercised about 
another country arbitrarily taxing us and telling us how to run 
our business.
    So I don't have a question, Mr. Secretary. I appreciate all 
your work and your comments today, because I think generally 
we're in agreement. Thank you for being here.
    Secretary LaHood. Thank you.
    Senator DeMint. I yield back, Mr. Chairman.
    The Chairman. Thank you, Senator DeMint.
    Senator McCaskill.

              STATEMENT OF HON. CLAIRE McCASKILL, 
                   U.S. SENATOR FROM MISSOURI

    Senator McCaskill. Thank you, Mr. Chairman.
    Welcome, Senator LaHood. I will be sorry to see you go.
    Secretary LaHood. Thank you.
    Senator McCaskill. I think you're a good one.
    Secretary LaHood. Thank you.
    Senator McCaskill. We kind of had a bad beginning, because 
you and I kind of went at each other about the earmark thing, I 
remember, when you were being confirmed. It turned out I really 
like you.
    [Laughter.]
    Senator McCaskill. I want to talk about this from the 
context of what you have the authority to do without 
Congressional action, just hypothetically. I understand that 
your hands are tied in many ways, because this is more 
complicated than just this issue, because obviously, in case 
anyone isn't paying attention, a lot of our friends in the 
European Union are stressed right now and we are trying to do 
everything we can to make sure our export market remains in the 
European Union. It's important to our economy.
    I get that it's complicated, but some people have been 
opposed to Senator Thune's and my legislation on the basis that 
this is something the administration can do without 
legislation. Do you believe that's the case?
    Secretary LaHood. I believe that we could--we have the 
opportunity to probably not go as far as your legislation goes, 
but what we could do is send this to ICAO and have them take it 
up and consider it.
    But, Senator, we don't--I don't have the authority really 
to go as far as your legislation goes.
    Senator McCaskill. That's what I assumed, and that's why I 
thought that some of the objections to our legislation was 
misplaced, because I don't think that you have the authority to 
do what our legislation purports to do.
    The other thing I wanted to cover with you is that what is 
upsetting to me about this is the notion that they would tax us 
on complete routes, not airspace over the European Union; and 
that this money would not even need to be used to do anything 
to impact emissions or global warming or the environment. Am I 
correct in saying that every dime of this tax they're trying to 
put on our domestic airline industry could go toward anything 
they wanted to spend it on in their government?
    Secretary LaHood. That's correct.
    Senator McCaskill. So not only is it taxing us for flying 
over airspace that has nothing to do with the EU, it also does 
not even have to be used for the stated purpose of why they're 
collecting the money in the first place.
    Secretary LaHood. That's correct.
    Senator McCaskill. Let me also ask you how the airline 
industry is working with the administration on--I know you've 
talked about this a little bit, but if you would elaborate in 
any way you're comfortable with. I know that the Canadian 
airline industry just finalized their agreement with the 
Canadian government and that they will voluntarily achieve a 2 
percent reduction in emissions each year through 2020. That was 
done through agreement with the Canadian airline industry and 
the Canadian government.
    The airline industry indicates to my office that they are 
working well with your administration on reaching an agreement. 
Do you agree with that? Do you think we're making progress 
toward an agreement?
    Secretary LaHood. We have a great relationship with our 
friends in the airline industry, every one of them.
    Senator McCaskill. Let me try again. Do you think that you 
are making progress toward an agreement on a voluntary 
reduction in emissions?
    Secretary LaHood. The answer is definitely yes, we're 
moving in the right direction.
    Senator McCaskill. One option for the U.S. and other 
nations opposing this is to file an 84 complaint under the 
Chicago convention. Do you believe the U.S. should file an 
Article 84?
    Secretary LaHood. We're debating that within the 
administration, Senator. That decision hasn't been made.
    Senator McCaskill. I think that Senator Thune and I would 
agree that you should, for what it's worth. I can't speak for 
the rest of the Senators, but anybody who co-sponsors this 
legislation would think that an Article 84 would be necessary.
    What's the down side of a country other than the United 
States filing the 84 against the EU, as opposed to us taking 
the lead?
    Secretary LaHood. There's a provision that allows us to do 
that. I don't know if that same provision is allowed by other 
countries. I just don't know the answer to that. I know that we 
have the ability to do it.
    Senator McCaskill. Can you list for us what other countries 
have instructed their airlines not to participate in the EU 
ETS?
    Secretary LaHood. Could I just get that for the record for 
you, rather than try to say it off the top of my head or look?
    Senator McCaskill. Sure.
    Secretary LaHood. I don't want to thumb through all these 
pages. I'm sure it's in this book somewhere.
    Senator McCaskill. Sure.
    I would love for, at least for the administration to 
indicate what is in the way, and there may be other 
complicating factors that are not directly related to this 
issue. But you've said clearly you think our legislation is 
important. I think you've said clearly you oppose this policy. 
It would be very helpful if the administration could let us 
know why they cannot come out in favor of our legislation. If 
we could get any specificity, and that may be another flagpole 
that you need to talk to as it relates to that.
    But I think it's important for us to know, because the 
administration can help with this if they would come out in 
favor of it and I think it would be helpful if they would.
    Thank you, Secretary LaHood.
    Secretary LaHood. Thank you.
    The Chairman. Thank you, and now Senator Isakson.

               STATEMENT OF HON. JOHNNY ISAKSON, 
                   U.S. SENATOR FROM GEORGIA

    Senator Isakson. Thank you, Mr. Chairman.
    Mr. Secretary, Ray, how are you doing?
    Secretary LaHood. Fine, thank you.
    Senator Isakson. I took from Ms. McCaskill's salutation to 
you that you were going someplace. Is that right?
    Secretary LaHood. I'm not leaving here until I answer all 
your questions.
    Senator Isakson. OK, because she said she thought you were 
one of the best. I happen to agree with that----
    Secretary LaHood. Thank you.
    Senator Isakson. But it sounded like she was talking in the 
past, and I wanted to make sure you weren't going anywhere, 
because we kind of like you.
    Secretary LaHood. Thank you.
    Senator Isakson. And I'm a co-sponsor of the Thune-
McCaskill bill and I associated myself with the remarks of 
Senator McCaskill from Missouri.
    In listening to your answer to Senator Thune regarding the 
Article 84, you seemed to back away from filing an Article 84 
at this time; is that correct?
    Secretary LaHood. There's a debate within the 
administration about the Article 84 and when's the right time, 
if there is a right time. So there has been no decision made.
    Senator Isakson. OK. I know it's in your little book there 
and you deferred the answer to after the hearing, but if I'm 
informed correctly neither China nor India airlines are paying 
the ETS.
    Secretary LaHood. That's correct.
    Senator Isakson. So we've got a situation where China and 
India are not paying, we are complying but complaining, and we 
can't make a decision on whether or not to file an Article 84, 
which is the logical place to go if you have a grievance with 
another entity, country, or organization; is that not correct?
    Secretary LaHood. Everything you said is correct.
    Senator Isakson. Well, when the next time you get a chance 
to talk to those others in the administration that are 
discussing it, this is a huge issue for the United States. I 
represent the State of Georgia, which houses Gulfstream, which 
builds all the G-4's, G-5's, and G-650s; Delta Airlines, which 
is the international carrier out of the Southeast; and 
Southwest and Airtran, who have merged and eventually will be 
doing overseas travel as well.
    This is a huge impact on the U.S. economy, on aviation, and 
on fairness. I just don't think it's fair to let China and 
India sit there and tell their airlines, don't pay the fee, 
they still land at Heathrow, they still go into the EU, and 
here we are trying to represent our airlines and the American 
people, yet we don't do what we need to do to get their 
attention.
    So I would associate myself with the Thune-McCaskill bill 
and, for what it's worth, my opinion would be we should move 
forthright on an Article 84 to get an answer to the question.
    Secretary LaHood. Thank you, Senator.
    Senator Isakson. Thank you, Mr. Secretary.
    Secretary LaHood. Thank you.
    The Chairman. Thank you, Senator Isakson.
    Now it's Senator Kerry.

               STATEMENT OF HON. JOHN F. KERRY, 
                U.S. SENATOR FROM MASSACHUSETTS

    Senator Kerry. Mr. Chairman, I've been listening to this 
and I've got to tell you, you know, if this wasn't so sad you 
might laugh at what's going on here, because it really 
represents a failure of over 20 plus years of people to be 
serious about an issue, and that's why we're here.
    Let me just say to my colleague from South Carolina, there 
is nothing, nothing in the Law of the Sea Treaty, nothing, that 
will wind up dealing with global climate change or emissions, 
and that will become clear to people as we go forward. Lawyers 
galore, including George Bush's lawyers, Ronald Reagan's 
lawyers, will make it clear, because they negotiated it, that 
it's not there.
    So let's deal with facts, not paranoia. The fact is that 
obviously there's huge interest in the aviation industry about, 
and in our government, about ensuring that the emissions 
trading system is fair to our airlines and our consumers. We're 
at a stalemate today and tensions are high as the clock ticks 
toward 2013 and the start of the program.
    But let's be serious about why we're here. In a couple of 
weeks people are going to meet in Rio to celebrate the 20th 
anniversary of the efforts that George Bush, George Herbert 
Walker Bush, signed onto. The world entered into a voluntary 
system for emissions control. Subsequently they met in Kyoto 
and signed an agreement that a lot of people didn't like, and I 
understand why, because they were afraid the China wouldn't be 
part of it.
    But the truth is we dragged our feet. The United States of 
America has been one of the principal foot-draggers in this 
entire effort. And the coal industry and a whole bunch of other 
people have continually spent huge amounts of money to prevent 
anything from happening on a real system of emissions control 
in this country.
    There isn't anywhere in the world today where you can't 
look and see the impacts of climate change that are hugely 
negative--species that are moving into new habitat, places 
where things don't grow any more, bugs that chew up millions of 
areas of acres of forest because they don't die any more 
because it doesn't get cold. You can run the list of things --
the melting of the Arctic, and so on and so forth, the change 
of ecosystems--all in danger because we're procrastinating.
    And we've been the principal procrastinator. China has 
actually engaged in a more robust effort to spend money, until 
this last year when we caught up to them in some expenditures. 
We don't have any regime. We have no effort to control carbon, 
except for the individual efforts of cities' mayors. Mayors are 
doing more than the Federal Government, more than the states. 
More than a thousand mayors joined together in a consortium to 
try to live up to the standards of production.
    So what does Europe do? Europe looks at that and says: What 
are we going to do? I mean, I laugh at this discussion of whose 
airspace is whose. The stuff that goes up there goes to 
everybody's airspace. It doesn't stay in the United States. We 
get China's fumes, we get Indiana's and Ohio's in 
Massachusetts. And we had a huge fight about acid rain that 
came about because it was killing our lakes a number of years 
ago because of that. Now we have acidification and all these 
other issues.
    So the problem here is that we tried to forge a global 
agreement, we dragged our feet, and frankly the Europeans have 
now chosen to do--I don't agree with what they've done, and 
there's a better way to do it. And so I agree with all those 
statements that have been made here. But they're trying to 
protect themselves. They're trying to do what they think is 
important in order to have a future with respect to this issue 
of climate change.
    So the EU, we all know, signed on individually country by 
country. And obviously, it's laughable that they should suggest 
that as a unit the EU, which didn't sign it as a unit, is now 
somehow exempt. I get it. I understand. But that's what makes 
this really so absurd.
    Secretary Clinton and Secretary LaHood have clearly and 
correctly stated that this application of the ETS is 
inconsistent with the legal regime that governs international 
aviation, and for the EU to argue they're not bound by it is 
absolutely ridiculous.
    So the question is where are we going to go. Congress in 
the FAA Modernization and Reform Act said the EU should work 
through ICAO, address this issue. Secretary Raymond Benjamin 
has pledged to have a proposal on how to regulate these on a 
global basis by the end of this year. There are other solutions 
that could be reached through negotiated equivalency standards 
or the like.
    My point is there are many options to explore besides 
passing a new law that simply threatens unilateral prohibitions 
on flights to Europe or establishes new authorities for the 
Secretary on our side, and we ought to pursue that. But the 
Europeans, my friends, are right to question the motives of 
some of those who oppose their efforts in India and China, and 
they're right to question whether or not the United States is 
serious about this issue, because we haven't been.
    So my hope is the only way to deal with this is a global 
consensus through hard outreach, and I would urge our European 
friends to follow it. I'd urge us to follow it. But this ought 
to be an underscoring of what's to come. Do you think these 
fights are tough? Wait until we get into the fights on water on 
fights on nutrition and fights on global refugees and all the 
other things that are coming down the pike because we are 
failing to step up and be responsible with respect to global 
emissions. And they belong to all of us, not anybody's single 
airspace.
    No question, Mr. Chairman. Maybe one question if I have a 
moment left. Maybe, Mr. Chairman, you can tell us. You've said, 
Mr. Secretary, you've said that you think we ought to have--I 
think you've said that we ought to pursue this international 
agreement. Can you share with us, what's the administration 
framework for that international agreement? How would you think 
an international agreement that would bind all of us and be 
responsible in balancing this, what would it look like?
    Secretary LaHood. I think that's what we have organizations 
like ICAO are for, Senator. That's how we've made flying safe 
all over the world, where people sit around a table and talk 
about----
    Senator Kerry. Is ICAO going to create a global emissions 
trading system or a global emissions reduction system?
    Secretary LaHood. That's a good place to start, not by one 
government saying, OK, we're going to tax you all. That's not 
the way to do it.
    Senator Kerry. I agree with that.
    Secretary LaHood. OK.
    Senator Kerry. I've said that.
    Secretary LaHood. Well, there is an organization. It's 
called ICAO. It's an organization where everybody can sit 
around, and if they need to set up some other organization 
they'll do that.
    Senator Kerry. What do you think is----
    Secretary LaHood. But the idea that one government 
establishes a tax and says the hell with everybody else----
    Senator Kerry. We agree with that, but what do you think--
--
    Secretary LaHood.--is not right.
    Senator Kerry--is the reason that they haven't been able to 
do that?
    Secretary LaHood. Well, we're trying to persuade them to do 
it.
    Senator Kerry. Why haven't they done it?
    Secretary LaHood. Why hasn't ICAO done it? Because, 
frankly, they haven't been pushed to do it, and we're pushing 
them.
    Senator Kerry. Thank you, Mr. Chairman.
    The Chairman. Well spoken, Senator Kerry.
    Senator Begich.

                STATEMENT OF HON. MARK BEGICH, 
                    U.S. SENATOR FROM ALASKA

    Senator Begich. Thank you very much, Mr. Chairman.
    Mr. Secretary, good to see you. All the comments that 
Senator Kerry said are important, and I'm glad you were here to 
respond to Senator DeMint, because I was going to be on a rant 
here, but I'm glad he did and so that's on the record. I 
appreciate those comments.
    Also, I appreciate the administration's effort on this 
issue. I guess I want to follow up on ICAO if I can. Let me ask 
it a different way. Do you think ICAO has the capacity to deal 
with a global discussion and, I'll call it an agreement--maybe 
it's something different--with regards to emissions? Do you 
think they have the capacity to do that?
    Secretary LaHood. I do. I think they have the capacity, at 
least to begin the discussion.
    Senator Begich. Do you think that if they started there 
might be other elements that come into play to help?
    Secretary LaHood. I do.
    Senator Begich. That's probably what you're thinking ----
    Secretary LaHood. I do.
    Senator Begich.--is that there's a need to move it forward.
    Secretary LaHood. I do. I think on this one they're 
probably going to need other resources, other smart people. And 
I don't think they'd be bashful about trying to get them 
involved.
    Senator Begich. Do you think this issue might, the issue 
that we're engaged in now with the EU, will kind of help 
trigger this realization that they have a role or a partial 
responsibility?
    Secretary LaHood. I've talked to ICAO about this and they 
know they need to play a significant role. They need to get the 
discussion going. And I believe that they have the capacity to 
really begin the discussion.
    Senator Begich. Do you think the--as you've said that this 
might be the right place to get this first issue resolved, 
which I agree with everything you have said on the record here 
about, and also what I've heard you say out publicly about this 
issue, that it just seems unfair, it's unilateral, and we can 
go through the list of all the reasons again.
    But do you think that ICAO can first resolve this issue and 
then move to the next without creating some tensions that they 
can't get to the next stage?
    Secretary LaHood. Well, I think there needs to be a 
starting point. They need to get this discussion moving, and 
we'll see where it takes us.
    Senator Begich. You had mentioned some data points, and I 
forget the year period, but I think it was up to 2010, that 
emissions are down about 12 percent, but ridership or 
passengers are up about 15 percent over that same period.
    Secretary LaHood. Correct.
    Senator Begich. Which means more people traveling, less 
emissions. That's good from both ends, the industry standpoint, 
but also from the health of our environment.
    Once NextGen, because we haven't even really implemented 
NextGen----
    Secretary LaHood. That's correct.
    Senator Begich. That's going to have some--I'll use this 
word; I may be using it too strongly, but---- significant 
impact to our emissions. But have you done any modeling or has 
your agency or maybe EPA done any modeling to say once NextGen 
is in play here's what it does to emissions?
    Secretary LaHood. We have, and I'll be happy to submit that 
for the record.
    Senator Begich. Would you do that?
    Secretary LaHood. Absolutely.
    [The information referred to follows:]

    The Federal Aviation Administration has done extensive modeling of 
the expected impacts of NextGen air traffic management (ATM) 
improvements on fuel usage and CO2 emissions. As reported in 
the 2012 NextGen Implementation Plan, NextGen is projected to reduce 
CO2 emissions by 14 million metric tons between now and the 
year 2020, relative to what they would be if we did not implement 
NextGen. These savings increase to 44 million metric tons through 2030. 
Note that these model results only consider NextGen ATM improvements, 
and not the advanced research on renewable alternative jet fuels and 
improved aircraft technology which the FAA also sponsors under NextGen. 
Work is underway to estimate the effects of these additional measures 
on aviation emissions.

    Senator Begich. That would be great, because I know when we 
had this discussion on NextGen through the FAA bill there was, 
besides safety, saving fuel, which also has impact, time 
delays, which again has impacts to emissions. The less fuel 
you're using, the less time you're in the air, the less time 
you're on the ground idling waiting to take off--all that has a 
direct impact to emissions.
    Secretary LaHood. Absolutely.
    Senator Begich. Is that fair to say?
    Secretary LaHood. It is.
    Senator Begich. I think that would be a great document to 
have. I think your advocacy on NextGen and I know the 
industry's advocacy on NextGen--and several of us on here 
fought hard to make sure that that was speeded up, actually. I 
don't remember the exact timetable. We moved it by five years 
or more to get this in the middle, mainly for safety, but these 
other two pieces, fuel savings and emissions savings, was part 
of the equation. Is that fair?
    Secretary LaHood. Yes, it sure is.
    Senator Begich. Great.
    Secretary LaHood. And earlier on, I complimented the 
Committee on an FAA bill that we thought was a very, very good 
bill, particularly as it relates to NextGen for one thing, and 
safety for another.
    Senator Begich. Right.
    Let me end with this and again say I agree--I'm not sure--
I'm still looking at the legislation, but I think your 
positioning and what you are doing on behalf of the 
administration and what the industry is doing is saying, look, 
we're all for reducing emissions, but let's make it a global, 
fair system. And to hear certain folks are exempted, large 
users, China, India, creates this unfair balance. I think 
that's one of the pieces of your equation, that, look, we're 
all about working together, but don't make the system unfair 
and we get the penalty and we write the checks, and they get to 
use the money for who knows what, which really, if it's about 
emissions, then they should use it to lower emissions.
    Secretary LaHood. Sure.
    Senator Begich. And in the FAA and the airline industry, 
it's pretty fair to say all the systems that we have in the 
domestic airline industry, if you pay a fee it goes back into 
the system to support capital improvements or passenger or TSA, 
or whatever the list might be. We generate that money and we 
put it back in; is that a fair----
    Secretary LaHood. Correct.
    Senator Begich. So in our industry, we understand that it's 
part of the relationship between government and the private 
sector, is once we negotiate out these fees they recognize 
there's a value coming back in service or capacity.
    Secretary LaHood. That's correct.
    Senator Begich. In this system it really doesn't say that.
    Secretary LaHood. It doesn't.
    Senator Begich. Well, I'll leave it at that and just say 
thank you very much for your testimony.
    Secretary LaHood. Thank you.
    Senator Begich. And if you could get that for the record, 
I'd look forward to that.
    Secretary LaHood. We'll do it. Thank you.
    Senator Begich. Thank you.
    Thank you, Mr. Chairman.
    The Chairman. Thank you, Senator Begich.
    Senator Snowe and then Senator Boozman.

              STATEMENT OF HON. OLYMPIA J. SNOWE, 
                    U.S. SENATOR FROM MAINE

    Senator Snowe. Thank you, Mr. Chairman.
    Welcome, Mr. Secretary. To follow up on some of the issues 
that have been raised regarding this proposal, would you not 
describe this as being precedent-setting?
    Secretary LaHood. Precedent-setting, yes.
    Senator Snowe. It is. So this could be the beginning of 
multiple initiatives on the part of the European Union, for 
example, to impose fees or levies for environmental purposes 
and so on.
    Secretary LaHood. That's not the way to treat your so-
called friends.
    Senator Snowe. Do you have any idea about what type of 
retaliation we could expect in the event that our airline 
industry did not comply? Have you had that discussion at all?
    Secretary LaHood. I really haven't, no.
    Senator Snowe. So in 2013 when this is to go into effect, 
what then if no measures have been taken to address this 
situation?
    Secretary LaHood. I think we need to begin to resolve it 
before then.
    Senator Snowe. You're assuming it's going to----
    Secretary LaHood. That's really where we've put our 
efforts.
    Senator Snowe. In the ICAO?
    Secretary LaHood. I've talked to the head of ICAO about 
this. He came to my office. We had a very, very extensive 
discussion about this, and we continue those discussions and we 
continue a pretty spirited discussion within the administration 
about it.
    Senator Snowe. Is it likely that ICAO could take action 
that's expeditious under the circumstances?
    Secretary LaHood. Well, I don't want to speak for them, 
Senator. They know how big an issue this is for us.
    Senator Snowe. They have addressed it in prior 
deliberations, have they not, on the whole issue of emissions 
and a trading system?
    Secretary LaHood. Yes.
    Senator Snowe. They have?
    Secretary LaHood. Yes.
    Senator Snowe. But have they ever--my concern is how long 
it's going to take for them to make a decision, to come to some 
kind of determination.
    Secretary LaHood. Well, I think they're trying to figure 
that out.
    Senator Snowe. So do you expect that they would take some 
action?
    Secretary LaHood. I don't want to speak for them.
    Senator Snowe. Well, I guess part of the point is that what 
measures that are allowable or stated by the European Union in 
terms of what could happen, which is obviously very high fees 
and fines, seizure of aircraft, preventing aircraft from 
landing. So there are a number of retaliatory measures that 
could be implemented by the European Union.
    Secretary LaHood. Well, I haven't really--I've really 
focused my attention on trying to find a path forward here and 
a mechanism to do that.
    Senator Snowe. You don't think the legislation would be an 
assist in that regard and give impetus to the administration?
    Secretary LaHood. We at this point have not taken a 
position on the legislation.
    Senator Snowe. Well, hopefully it can be resolved. I mean, 
I know we'll hear from other witnesses that would suggest that 
they intend to go forward, obviously, with this initiative. So 
with no interim steps in the meantime, that makes it 
inordinately difficult if you have no backstop in terms of 
legislation.
    Secretary LaHood. I can tell you, this is something that I 
care a lot about, and we will continue to talk about it within 
the administration and I will continue to talk about it with 
other transportation ministers.
    Senator Snowe. Mr. Secretary, in the whole current 
structure of this cap-and-trade system and providing 
allowances, are there enough safeguards to ensure that these 
fees would be going for environmental purposes?
    Secretary LaHood. I don't know that we really know that.
    Senator Snowe. So you can't be certain by the way it's 
structured?
    Secretary LaHood. That's correct.
    Senator Snowe. So it could be--in other words, it could be 
the fees could be diverted for other purposes?
    Secretary LaHood. That's correct.
    Senator Snowe. Even for budgetary purposes.
    Secretary LaHood. That's correct.
    Senator Snowe. Thank you, Mr. Secretary.
    The Chairman. Thank you, Senator Snowe.
    Senator Boozman.

                STATEMENT OF HON. JOHN BOOZMAN, 
                   U.S. SENATOR FROM ARKANSAS

    Senator Boozman. Thank you, Mr. Chairman.
    Very quickly, because I know you are busy and we do 
appreciate you being here, and appreciate your leadership on 
this issue. It's interesting. This is a great committee. It's a 
very bipartisan committee and we work hard on the issues and 
really try and reach agreement. It's interesting, though. 
You've got a lot of people on the panel, we don't agree 
necessarily on CO2. In fact we don't agree. You've 
got a real mix of opinions as to how much that's hurting the 
environment, what we need to do about that.
    But it seems like there is almost complete agreement here 
that the mechanism that the EU has chosen to solve the problem 
as they see it is not reasonable, it is unreasonable. I think 
that it's illegal.
    So we do appreciate your leadership. The question I was 
going to bring up was the one that Senator Snowe--that even if 
they are successful in getting this levy, there is no assurance 
that this actually goes into a fund that actually reduces 
CO2 emissions. So again I just--so that is your 
opinion?
    Secretary LaHood. That's correct.
    Senator Boozman. That we simply don't know that.
    Secretary LaHood. That's correct.
    Senator Boozman. I would associate myself with the rest of 
the panel and again have great concern for this. If you can 
solve the problem without legislation, great. If you can't, 
then I know that you'll follow up with us and let us help you 
in making sure that we move forward so that we are not 
obligated in this way.
    Thank you very much.
    Secretary LaHood. Thank you.
    The Chairman. Thank you, Senator Boozman.
    Mr. Secretary, you've emptied the room.
    Secretary LaHood. Pardon me?
    The Chairman. You have emptied the room.
    Secretary LaHood. Yes. You're happy about that, right?
    The Chairman. No, not particularly. But you're some kind of 
a rock star.
    Secretary LaHood. Senator, can I just--I know you're going 
to wrap up here and I'm happy----
    The Chairman. No, we're not going to wrap up. We've got a 
second panel.
    Secretary LaHood. Oh, OK. I know it's not a second panel 
for me.
    I want to reiterate what I said before. This committee has 
been terrific in working with our Department in fashioning good 
legislation, and the FAA bill is certainly an example of that. 
I know that a number of people around here are trying to get a 
transportation bill. Your piece of the transportation bill is 
very, very good. It's excellent, particularly on safety in 
transportation.
    I just want to say we are grateful at DOT for your 
leadership, for the Ranking Member's leadership, and every 
Member's leadership in putting together a very, very good, 
excellent transportation bill that passed the Senate with 74 
votes. We need a transportation bill in this country, we really 
do. There are a lot of people out of work. They're ready to go 
to work. The states are ready to do the work. And thank you for 
the work you did on your piece of the transportation bill.
    Senator Thune. Mr. Chairman.
    The Chairman. Yes?
    Senator Thune. That sounded very much like an endorsement 
of a piece of legislation.
    [Laughter.]
    The Chairman. No. I thought the Secretary----
    Secretary LaHood. Well, Senator Thune, it's a bill that 
already passed. Of course I'm going to support a bill that 
passed.
    The Chairman. All right.
    Senator Thune. Where's the love? That's all I want to know.
    [Laughter.]
    Secretary LaHood. Pass your bill and I'll support it, 
Senator.
    [Laughter.]
    The Chairman. From my point of view, before I introduce the 
next panel, I want to thank you for your passion on the safety 
part of it, which is what we basically do on this committee, 
and particularly the whole area of drunk driving and distracted 
driving, which I know are totally key in your thinking, as they 
are in mine.
    So thank you very much.
    Secretary LaHood. Thank you, sir.
    The Chairman. And you might wave at the folks behind you. 
They may not talk to you.
    Thank you, Mr. Secretary.
    All right. Now, I'm going to call the second panel to come 
up, and they're going to have to be efficient, by which I 
mean--well, I think I'll wait until they get up there.
    [Pause.]
    The Chairman. If the witnesses could take their seats, 
please. All right, if we could have order starting right now. 
Conversation will cease.
    I want to introduce Mr. Jos Delbeke, who's Director General 
of the European Commission, and I want to say--I want to 
acknowledge that Dr. Delbeke is testifying before this 
committee in his official capacity as Director General of the 
European Commission. The purpose of his testimony is to help us 
better understand the European Union's emissions trading 
policy.
    I would like to thank Dr. Delbeke for this courtesy, and I 
want to make it very clear to the members here that, and for 
the record, that his testimony and appearance today are 
voluntary.
    Second, Captain Sean Cassidy, First Vice President, Air 
Line Pilots Association; Mr. Edward Bolen, President and Chief 
Executive Officer, National Business Aviation Association; Ms. 
Annie Petsonk, International Counsel, Climate and Air, 
Environmental Defense Fund; Ms. Nancy Young, Vice President, 
Environmental Affairs, Airlines for America.
    With that, Mr. Director General, I would call on you.

STATEMENT OF JOS DELBEKE, DIRECTOR-GENERAL, DG CLIMATE ACTION, 
                      EUROPEAN COMMISSION

    Mr. Delbeke. Thank you, Mr. Chairman, and thank you for 
this opportunity to speak about the EU ETS. European citizens 
consider global climate change as a very urgent and important 
problem, and to date we have no silver bullet to combat climate 
change, so all the sectors of the economy should contribute and 
Europe has decided to address aviation emissions through a 
comprehensive approach. It covers a range of policy measures, 
including the EU ETS.
    So let me focus my introduction on five points. First, we 
are asked if we in Europe are committed to a global solution. 
We are. We fully share with the United States a strong 
commitment to work in ICAO on a global approach to reduce 
international aviation's climate impacts. We are pleased to see 
good progress in ICAO over the last few months, and let me 
state very clearly the EU is willing to modify its ETS in the 
light of a constructive outcome in ICAO.
    Second, I also want to state loud and clear that the EU ETS 
is not extraterritorial. It respects all rules and guidance 
developed by ICAO. This view was also confirmed by the European 
Court of Justice, which is our highest court in the EU. The 
reason is that no obligations are imposed in the territory of 
another state. The EU ETS regulates at the point of arrival or 
departure within the EU. It's thereby irrelevant how the 
precise obligations are calculated.
    I would like to state that this seems to be very similar to 
the very important post-9/11 security measures implemented by 
the United States on flights arriving or departing from U.S. 
airports.
    My third point is that the EU ETS is based on the principle 
of non-discrimination between airlines. So no differentiated 
requirements are applied to aircraft operators operating on the 
same route. Perhaps no other business sector is as 
international as aviation, so the EU ETS is non-discriminatory 
and applies to all airlines operating in the European market 
without any distinction to nationality.
    Fourth, Mr. Chairman, the EU emissions trading is neither a 
tax nor a charge. It is a market-based approach to incentivize 
cuts in greenhouse gas emissions. It sets a limit on emissions, 
let's the market determine on a daily basis the price for 
carbon, and gives companies the flexibility to manage their 
operations. Through that, it encourages innovation, new 
technology, and new jobs. So this makes it very distinct from a 
tax, where the price is set by law.
    By the way, the impact on the ticket price for a 
transatlantic flight would not be more than a few dollars.
    The member states from the EU expressed explicit commitment 
to spend all revenues from auctioning of aviation allowances to 
efforts to reduce emissions.
    Fifth and final point, Mr. Chairman: There is no prospect 
of simply suspending the EU legislation, but the EU is open to 
modifying it. It is strongly supported by all member states and 
as recently as the 15th of March 2012 the European Parliament 
plenary adopted a statement calling for the EU to continue to 
implement the EU ETS legislation. But, as I said, the EU ETS 
can be modified in two respects. The legislation explicitly 
allows for changes to take into account the global agreement, 
and on top of that also incoming flights can be exempted in 
exchange of efforts undertaken by other states.
    Let me conclude, Mr. Chairman, that the ICAO process 
provides a very good opportunity to develop a renewed momentum 
for substantive talks at the global level. However, countries 
must be clear on how they intend to deliver and when they 
intend to deliver. Through the ICAO process and by working 
together, the EU and the United States are presented with an 
excellent opportunity for leadership.
    Thank you very much.
    [The prepared statement of Mr. Delbeke follows:]

Prepared Statement of Jos Delbeke, Director-General, DG Climate Action, 
                          European Commission
Introduction
    For more than 15 years, the EU has been seeking global agreement 
through the United Nations to tackle aviation's increasing contribution 
to greenhouse gas emissions, in particular through the International 
Civil Aviation Organisation (ICAO). The EU remains committed to the 
multilateral process and reaching a global agreement within ICAO. ICAO 
is the right place to advance global action on measures, including 
market-based measures, to address the climate change impacts of 
international aviation and the EU strongly supports this work. The EU 
welcomes ICAO's ongoing and intensive work programme in 2012. The EU 
continues to constructively engage in full with ICAO to find a 
solution, and wants in particular to engage with all States that are 
willing to work together to find a global solution.
    The EU ETS is already applied by 30 sovereign states, with a 
combined population of over 500 million people, working together to 
implement a common approach to reduce aviation emissions as part of a 
comprehensive package of policy measures. Such a mechanism could serve 
as a building block for future global action.
    Although it is the focus of this testimony, aviation actually only 
comprises around one-tenth of the overall EU ETS. In fact, the EU ETS 
covers more than 10,000 industrial plants--power plants, oil 
refineries, steel mills and pharmaceuticals. Since it began operation 
in 2005, it has included some installations operated in the European 
Union of large U.S.-based companies such as Intel, IBM, Exxon-Mobil, 
U.S. Steel and General Electric.
    It is important to have an understanding of context. It is no 
longer generally questioned that human activities are affecting the 
composition of the atmosphere in a way that is expected to result in 
climate change. Climate change is an urgent problem and one that is 
important to EU politicians and to their constituents. The European 
Union is committed to transforming Europe into a highly energy-
efficient and low greenhouse gas-emitting economy and made a firm 
independent commitment for the EU to reduce its greenhouse gas 
emissions to at least 20 percent below 1990 levels by 2020. The EU ETS 
is a cornerstone of the EU's climate policy.
    The vast majority of countries in the world, including the United 
States, have agreed that average global temperature increase should be 
kept below 2 degrees Celsius as compared to pre-industrial levels.\1\ 
To achieve this goal, G8 leaders have as recently as last month 
``recognize[d] the need for increased mitigation ambition in the period 
to 2020'' \2\. To date there is no silver bullet to combat climate 
change. In order to achieve the global goal, all sectors of the economy 
should contribute.
---------------------------------------------------------------------------
    \1\ G8 summit: 13. We agree to continue our efforts to address 
climate change and recognize the need for increased mitigation ambition 
in the period to 2020, with a view to doing our part to limit 
effectively the increase in global temperature below 2 +C above pre-
industrial levels, consistent with science.
    \2\ http://www.whitehouse.gov/the-press-office/2012/05/19/camp-
david-declaration#.T7nkWPly1lw.
---------------------------------------------------------------------------
    Globally, CO2 emissions from the aviation sector have 
been growing rapidly and are forecast to continue to increase. By 2020, 
global international aviation emissions are projected to be around 70 
percent higher than 2005 levels. According to ICAO forecasts emissions 
could further grow by some 300 percent to 700 percent by 2050. Europe 
has decided to address these emissions through a comprehensive approach 
comprising a wide range of policy measures, including technical and 
operational measures, as well as through the inclusion of aviation in 
the EU ETS.
    For 2012, the expected reductions from application of the EU ETS to 
aviation are 27.9 million tonnes.\3\ Given growth in aviation 
emissions, over the period up to 2015, the emission cumulative 
reductions are expected to be 176.4Mt.\4\
---------------------------------------------------------------------------
    \3\ Expected growth in emissions beyond free allocation and 32.2m 
aviation allowances offered at auction, meaning reductions in other 
sectors or through international credits, calculated on basis of 
projections at http://europa.eu/rapid/
pressReleasesAction.do?reference=MEMO/11/631. Actual aviation emissions 
for 2012 may be lower. These projections do not include the reduction 
from reducing demand for aviation services. If costs of purchasing 
allowances and credits are passed on to consumers, future forecasted 
demand relative to business as usual levels has been estimated to be 
reduced by 1.7%-2.9% for an allowance price of =30, while the increase 
in revenue tonne kilometres would still be a minimum of 135 percent, 
http://ec.europa.eu/clima/policies/transport/aviation/docs/
sec_2006_1684_en.pdf.
    \4\ See http://europa.eu/rapid/
pressReleasesAction.do?reference=MEMO/11/631, sum of emission 
reductions calculated in accordance with footnote 3.
---------------------------------------------------------------------------
EU and the United States--A Shared Objective
    Both Europe and the US have clearly stated in the 2010 ICAO 
Assembly that they support global goals to limit global international 
aviation emissions at or below 2005 levels by 2020.\5\ For the EU to 
contribute to achieving such a global goal, the implementation of our 
domestic climate change policy is vital. All analysis shows that market 
based measures are needed in Europe if this goal is to be reached in a 
cost-effective way. All the technical and operational measures being 
implemented in the EU are insufficient to achieve such an ambition 
level.
---------------------------------------------------------------------------
    \5\ http://legacy.icao.int/icao/en/assembl/a37/wp/wp186_en.pdf.
---------------------------------------------------------------------------
    The EU values the important relationship with the United States on 
transport and climate change issues. In recent years, we made 
significant progress on a number of transport issues and particularly 
on aviation through the EU-U.S. air transport agreement. The EU 
recognises that the United States has strong concerns about the 
application of the EU ETS to aviation. The EU respectfully takes a 
differing view, seeing the EU legislation as a potential building block 
for a future agreement at international level.
    The EU shares with the United States a strong commitment to work in 
ICAO on a global approach to reduce international aviation's climate 
impacts. The EU is keen to make progress on the issue. If an agreement 
on a global solution can be found within ICAO, then the EU is ready to 
review the EU ETS legislation. A major obstacle to progress has been 
differences of view between countries on the concept of Common but 
Differentiated Responsibilities and Respective Capabilities (CBDRRC) 
that is included in the UN Framework Convention on Climate Change and 
whether this concept is at all relevant in the context of international 
aviation emissions. Last month's UN climate negotiation session in Bonn 
has shown that differences between countries' views continue to make 
progress difficult. The EU is committed to work with the US and other 
States to make progress on this issue.
    It should be noted that, in the absence of stronger action, the 
global goals that the EU and United States are aiming for in relation 
to international aviation emissions will not be met.
The EU ETS--An Introduction
    Europe's comprehensive approach to reducing emissions from aviation 
includes a major modernisation of the EU's airspace, research and 
development of clean aviation technology, development of sustainable 
biofuels and market based measures.
    As part of the EU's comprehensive approach, aviation is covered by 
the EU ETS from 2012. The legislation only applies to aircraft 
operators active in the EU market, i.e., to flights landing at or 
departing from European airports. Under the EU ETS, aircraft operators 
have been monitoring their CO2 emissions since 2010, and reported them 
for the first time in March 2011. Aircraft operators are required to 
surrender allowances in respect of their reported CO2 emissions on an 
annual basis, with the first compliance to take place by 30 April 2013 
in respect of 2012 emissions.
    The EU ETS is neither a tax nor a charge. It is fundamentally 
different from a tax or a charge, because airlines can meet their 
obligations by remaining within their caps or by purchasing additional 
allowances, either from government or on the open carbon market. Not 
only are allowances allowed in unlimited quantities from other sectors, 
but a proportion of international credits (JI and CDM credits) \6\ may 
be used to meet requirements under the system. The price of allowances 
is fixed by the market and not determined by a State. Even in respect 
of the small proportion of allowances which are offered at auction,\7\ 
the primary purpose is to limit emissions and not to increase revenues 
for the Member State Governments. Unlike taxes and charges where money 
is paid to the state funds or to cover the specific cost of a service 
provided, an operator who buys an allowance in an auction receives an 
allowance in return. An allowance has a value and can be bought and 
sold on the market for profit.
---------------------------------------------------------------------------
    \6\ For emissions in 2012 aircraft operators may use international 
credits up to 15 percent of the number of allowances they are required 
to surrender, for emissions in the period from 2013 to 2020 it may be 
not more than 1.5 percent.
    \7\ Fifteen percent of aviation allowances are offered at auctions 
in 2012 and in the period from 2013 to 2020.
---------------------------------------------------------------------------
    The EU ETS is a cost effective measure, inspired in part by one of 
the most successful pieces of United States environmental legislation 
ever designed, the SO2 allowance trading system under the 
Clean Air Act. Cap and trade systems such as these incentivise cuts in 
emissions by setting a limit but allowing companies to freely manage 
their operations in the light of these limits. These types of measures 
are commonly referred to as market based measures (MBMs) because of the 
market (or carbon pricing) element inherent in their design. The 
benefit of emissions trading is that it enables reductions in emissions 
across the economy in the most cost-effective manner (at least cost). 
Reductions are incentivised where costs of abatement are lowest while 
the environmental outcome is guaranteed by the overall emissions 
ceiling. Hence, it allows the sector to continue to grow by becoming 
more efficient and by purchasing offsets and allowances from other 
sectors where emission reductions are more cost-effective. Market-based 
measures also have the potential to generate revenue that can be used 
for climate change mitigation and adaptation within and/or outside of 
the sectors covered by the measure.
    Market-based measures also encourage technology improvements as 
they strengthen the business case for making investments in new 
technology that can reduce emissions. The EU ETS, as a market-based 
measure, improves the rate of return and reduces the payback period for 
technology investments that reduce fuel consumption. The EU ETS also 
incentivizes commercial use of sustainable biofuels for aviation. This 
is because the system gives a long term, predictable price incentive 
for take-up of these fuels because they count as zero emissions.
    That means, for example, that to the extent sustainable biofuels 
are used by airlines, aircraft operators do not need to surrender any 
allowances or international credits in respect of the proportion of 
biofuels used during their flights. This also incentivises fuel 
producers to invest in the production of sustainable biofuels.
EU ETS and International Law
    Aircraft operators operating flights to or from EU airports are 
subject to the rules of the EU ETS. The EU legislation contains no 
regulation of how aircraft operate, either within or outside EU 
airspace, and there is no constraint on activities except for flights 
that arrive at or depart from EU airports.
    The EU ETS uses an approach based on the total emissions from a 
given flight, as a parameter applicable to flights which take off and 
land in the EU. This approach was identified by ICAO as one of the 
options States should consider when implementing market based measures.
    ICAO has previously identified an approach based on the nationality 
of airspace to allocate responsibility for emissions as 
``impracticable.'' \8\ The same conclusion was also reached by the 
United Nations Framework Convention on Climate Change (UNFCCC) as early 
as 1998.\9\ Moreover, allocating responsibility for emissions on the 
basis of nationality of airspace has not subsequently been proposed by 
any country in discussions in ICAO or in the UNFCCC.
---------------------------------------------------------------------------
    \8\ ICAO Doc 9885, para 3.2.34: ``. . . delimitation of 
geographical scope based on national airspace appears impracticable.''
    \9\ Report of the Subsidiary Body for Scientific and Technological 
Advice on the work of its fourth session, Geneva 16-18 December 1996, 
Item IV.B.2.--conclusions.
---------------------------------------------------------------------------
    Regular commercial flights between the United States and Europe are 
operated not only by EU and US airlines, but also by other airlines 
such as Air India, Jet Airways based in India and even by airlines from 
our least developed country partners, such as Ethiopian Airways. In 
addition, US carriers like UPS and Fedex operate substantial flights 
within the EU. It is clear that applying differential requirements on 
aircraft operators of different nationalities would distort competition 
between those operating on the same routes. Hence, the EU ETS is non-
discriminatory and applies to all airlines operating in the European 
market without distinction as to nationality.
    The EU ETS is fully consistent with the Chicago Convention and 
bilateral air service agreements which clearly state that Contracting 
States have the sovereign right to determine the conditions for 
admission to or departure from their territory and require all airlines 
to comply. There is no extra-territorial effect because no obligations 
are imposed in the territory of another State. The EU fully recognizes 
that this is a fundamental principle of international aviation law, and 
should be fully respected. The requirement to report emissions and to 
surrender allowances under the EU ETS only arises when an aircraft 
enters or departs from an airport in an EU Member State.
    Perhaps no other business sector is as international as aviation, 
and non-discrimination between aircraft operators is crucial. Creation 
of any distortive effect for airlines operating in a global competitive 
marketplace must be avoided. In line with this, the EU is working for 
climate measures to be agreed in ICAO or applied by States that are 
non-discriminatory for all airlines.
    In December 2011, the European Court of Justice, the highest court 
in the EU, reached a final judgement in light of a challenge by several 
airlines based in the United States against the EU legislation. The 
Court confirmed that the EU ETS law is fully compatible with the 
relevant principles of customary international law and with the 
provisions of the EU/US Open Skies Agreement.
    In addition to the principle of non-discrimination, which is key 
under the Chicago Convention, equal treatment is important for 
effective policy. Many airlines based outside the EU and the United 
States fly to and from US and EU destinations.
The EU and ICAO
    ICAO has long recognised the role that market-based measures can 
play in achieving environmental goals cost-effectively and in a 
flexible manner.
    ICAO first endorsed the use of ``open emissions trading'' for 
international aviation in 2001. It has long been recognised in ICAO 
that offsetting emissions growth in aviation through reductions in 
other business sectors by means of an open system is an attractive 
option. This is due to the high growth in demand forecast in the 
aviation market and the limited number of cost-effective abatement 
opportunities within aviation.
    Following on from this endorsement in 2001, ICAO studied three 
options for implementation. In 2004, this work led ICAO, with United 
States' backing, to conclude that implementation of a unified global 
system based on a new legal instrument under ICAO auspices should not 
be pursued further. Instead, ICAO States unanimously agreed to pursue 
implementation through other avenues, one of which was ``to incorporate 
emissions from international aviation into Contracting States' 
emissions trading systems.'' \10\
---------------------------------------------------------------------------
    \10\ http://legacy.icao.int/env/a35-5.pdf.
---------------------------------------------------------------------------
    This is precisely the avenue that the EU followed. Legislation to 
include aviation in the EU ETS was first proposed in 2006 and entered 
into force in 2009. This legislation was developed, negotiated and 
adopted with complete transparency.
    In the intervening years, discussions on aviation and climate 
change have continued at ICAO and UNFCCC. A breakthrough has not yet 
been achieved in ICAO and the States represented there have been unable 
so far to agree on binding global goals and measures to address 
emissions from international aviation.
    An aspirational goal to limit emissions was adopted in ICAO's 2010 
Assembly Resolution on international aviation and climate change. 
However, the medium-term goal is only in respect of limiting emissions 
from 2020 onwards at 2020 levels. As such, this goal falls short of 
both the EU and US goals for global aviation emissions in 2020 to be no 
higher than 2005 levels. The 2010 ICAO Assembly Resolution also 
recognises that some States may take more ambitious action before 2020, 
and includes 15 principles for the application of market-based measures 
by States. The EU ETS is fully consistent with these principles.
    In recent months ICAO has re-started its discussions on aviation 
and climate change. In January 2012, the President of the ICAO Council, 
Mr Roberto Kobeh, initiated a process to develop options for global 
market-based measures to address aviation emissions. His aim is to come 
forward with a proposal by the end of 2012. To that end, a working 
group of six ICAO Council members (one from each ICAO region) and an 
aviation industry representative was set up to define and develop a 
shortlist of possible options for global market based measures for 
international aviation. The EU strongly supports this ICAO process and 
is actively engaged in this work together with experts from the United 
States and other countries.
    The EU ETS is the world's largest market based measure for GHG 
mitigation. While the EU ETS legislation is an important step, the EU 
seeks greater global reductions to be agreed through ICAO. The EU has 
also made it clear that it is willing to employ flexibilities in its 
legislation, in light of meaningful action in ICAO.
    In terms of what the EU wants to achieve in ICAO, there are three 
key elements.\11\
---------------------------------------------------------------------------
    \11\ http://ec.europa.eu/clima/news/docs/speech_en.pdf.

   The first is that what is agreed on market-based measures in 
        ICAO should deliver environmental benefits in terms of 
        emissions reductions, equal to or beyond those delivered from 
        the measures currently in place in third countries and in the 
---------------------------------------------------------------------------
        30 countries applying the EU emissions trading system.

   The second point is that, whether market-based measures 
        involve taxes, levies or emissions trading, the system adopted 
        by ICAO or applied by States must be non-discriminatory for all 
        airlines. Non-discrimination is one of the most important 
        principles of international aviation law, and should be fully 
        respected. We must avoid creating any distortive effect for 
        airlines operating in a global competitive marketplace.

   Third, a robust worldwide system should contain targets and 
        measures for ICAO member countries.
Flexibility in EU legislation
    The EU fully supports global action on aviation emissions. The EU 
legislation therefore contains two flexibilities.
    First, the legislation foresees that it could be amended to take 
into account any future agreement adopted at global level. Indeed, 
given our commitment to finding a global solution, it is not 
overstating the case to say that our legislation is designed to be 
amended in the event of an agreement on global measures to reduce 
greenhouse gas emissions from aviation. The European Commission is 
required by the law to review the EU ETS legislation in light of such 
an agreement on global measures in ICAO. Pending the entry into force 
of such a global agreement, the EU legislation will continue to apply.
    Second, the legislation contains provisions to recognise the 
measures by other States to reduce the growth of aviation emissions. 
This would allow for the exemption of all incoming flights operating 
from those countries to the EU on a non-discriminatory basis. This 
flexibility contained in the EU law can be exercised on the basis of 
action by other countries, which could include measures set out in 
state Action Plans that are submitted to ICAO.
    There is no prospect of suspending the EU legislation. The 
legislation to include aviation in the EU ETS has been adopted after 
three years of intensive public debate and negotiation. It has been 
adopted unanimously by the 27 Member States that are represented in the 
Council of Ministers and with a more than 90 percent majority in the 
European Parliament. Any significant amendment to the legislation other 
than exempting incoming flights, as outlined above, would need to 
undergo the same legislative process. Aviation in EU ETS is strongly 
supported by all Member States, and as recently as 15 March 2012, the 
European Parliament adopted a statement calling for the EU to continue 
to implement the EU ETS legislation.
Compliance Costs
    In the EU ETS, the large majority of emissions allowances are 
allocated to individual aircraft operators free of charge. All 
commercial airlines with significant operations to or from EU airports 
submitted applications for free allocation in early 2011.
    For administrative ease, each aircraft operator is administered by 
a single Member State for all of their aviation activities covered by 
the system. Under this approach, most U.S.-based airlines are regulated 
by either the United Kingdom or Germany.\12\ Comparing the published 
\13\ free allocation figures with recent emissions (e.g., in 2010) 
indicates that for major aircraft operators based in the United States 
these free allowances do not deviate substantially from expected needs. 
On top of these free allowances a certain amount of international 
credits can be used for compliance.\14\
---------------------------------------------------------------------------
    \12\ Aircraft operators based in the United States are administered 
by Belgium, Denmark, France, Germany, Ireland, Romania and the United 
Kingdom, see http://eur-lex.europa.eu/LexUriServ/
LexUriServ.do?uri=OJ:L:2012:039:0001:0132:EN:PDF.
    \13\ http://ec.europa.eu/clima/policies/transport/aviation/
allowances/links_en.htm.
    \14\ See footnote 6.
---------------------------------------------------------------------------
    The level of free allocation is fixed in the legislation for all 
future years up to 2020, subject to adjustments if any incoming flights 
were to be exempted from the system. Allocations to aircraft operators 
are based on their respective flight activity in 2010 (measured in 
terms of the total distance travelled and the total mass of passengers 
and freight carried). Allocations are therefore based on activity and 
not emissions, and thus reward those that are more efficient and those 
that have already invested in fuel efficiency.
    In 2012, 85 percent of aviation allowances will be distributed to 
airlines for free and 82 percent in subsequent years (up to 2020). This 
high free allocation of allowances also means that the costs for the 
aircraft operators should be modest. For example, using the ICAO carbon 
calculator,\15\ 0.448 tonnes of CO2 is emitted per passenger 
on a typical flight from Brussels to Washington, D.C. As airlines will 
receive the majority of their allowances for free, the cost per 
passenger would be less than $2 each way at current carbon prices. This 
is less than most airport taxes and charges. Many airlines, like 
several major United States airlines, have included a $3 fee to 
compensate for the EU ETS in their ticket prices.
---------------------------------------------------------------------------
    \15\ http://www2.icao.int/en/carbonoffset/Pages/default.aspx.
---------------------------------------------------------------------------
    The EU ETS allows for additional flexibility as it enables the 
aviation sector to increase its emissions by offsetting a portion with 
international credits. As part of a comprehensive approach, it makes 
sense to enable aviation to fund emissions reductions through other 
sectors to allow for further continued growth in aviation activity.
    There have been some exceptionally high estimates of costs, which 
are unfounded. The degree of costs passed through to passengers depends 
inter alia on the commercial decision of airlines. An IATA study in 
2007 \16\ suggested cost pass through of 75 percent of the marginal 
cost onto airfares, and a MIT study \17\ has also looked into this 
issue, concluding that in case of full pass through all costs, 
including the opportunity costs associated with free allowances, to 
consumers, profits for United States carriers would increase. Reports 
have also been prepared by the U.S. Government Accountability Office 
\18\ and the U.S. Congressional Research Service. Other publicly 
available analyses include one by Bloomberg New Energy Finance.\19\ 
Given the inconclusive nature of studies, empirical evidence in this 
area is useful to progressing on market-based measures in ICAO.
---------------------------------------------------------------------------
    \16\ IATA--Financial impact of extending the EU ETS to airlines--
9th January 2007.
    \17\ http://www.sciencedirect.com/science/article/pii/
S0969699711001268.
    \18\ http://www.gao.gov/new.items/d09554.pdf.
    \19\ http://www.newenergyfinance.com/free-publications/white-
papers/, ``Including aviation in the EU ETS--the burning question.''
---------------------------------------------------------------------------
    Revenue from auctioning aviation allowances
    The EU Member States agreed in the legislation that all revenue 
from EU ETS auctions of aviation allowances should be used to tackle 
climate change in the EU and in third countries. This includes the 
funding of research and development in the fields of aeronautics and 
air transport. This degree of commitment is unprecedented in EU 
legislation. In addition, the legislation requires Member States to 
publicly report the use of revenues for these purposes. No auctions of 
aviation allowances have yet taken place, so no revenues have yet been 
generated.
    The extent to which the EU ETS will raise revenue in the future for 
EU Member States has sometimes been overstated. Accurate figures have 
been published online.\20\
---------------------------------------------------------------------------
    \20\ http://europa.eu/rapid/pressReleasesAction.do?reference=MEMO/
11/631&format=HTML&
aged=1&language=EN&guiLanguage=fr.

------------------------------------------------------------------------
              Year                  2012      2013      2014      2015
------------------------------------------------------------------------
Number of aviation allowances       32.2 m    31.6 m    31.6 m    31.6 m
 auctioned (rounded)
------------------------------------------------------------------------

    In terms of the quantities of revenue likely to be generated, this 
will of course depend on the carbon price, which varies according to 
supply and demand. Over the period 2013-2020, 31.6 million aviation 
allowances will be auctioned each year. At current carbon prices of 
approximate =6.32 ($7.81), less than =200 million ($247m) per year 
would be generated across 30 countries. The majority of flights covered 
by the EU ETS are between airports in the EU or by airlines based in 
the EU. The proportion of flights operated by airlines based in the 
United States is less than 10 percent of the total.
    Airlines make up around 10 percent of the total EU ETS, and auction 
revenues from aviation allowances are estimated to make up a small 
fraction (only 6 percent) of overall EU ETS auction revenue that Member 
States have agreed should be used to tackle climate change, inter alia 
to fund research and development for mitigation and adaption, including 
in particular in the fields of aeronautics and air transport.\21\
---------------------------------------------------------------------------
    \21\ http://europa.eu/rapid/pressReleasesAction.do?reference=MEMO/
11/631&format=HTML&
aged=1&language=EN&guiLanguage=fr; an independent estimate of 
auctioning shares has been made by the German Aerospace Centre: http://
www.trforum.org/forum/downloads/2010_14
_Economic_Impact_EU_Emissions_Airlines.pdf.
---------------------------------------------------------------------------
    Nor does any aircraft operator have to participate in auctions. It 
is their decision how to comply, including by reducing emissions, 
acquiring aviation allowances from other airlines, acquiring allowances 
from other companies from the other 90 percent of the system, or 
acquiring international credits.
    If an airline wants to buy allowances from an auction and be sure 
that the revenues are used to tackle climate change, then this can be 
done today with certainty from any auction by Germany. According to 
existing German legislation, all revenues from auctioning of 
allowances, including aviation allowances, go directly into the Energy 
and Climate Fund and are dedicated by law to climate purposes.\22\
---------------------------------------------------------------------------
    \22\ http://www.bundesfinanzministerium.de/nn_3380/DE/
BMF_Startseite/Aktuelles/Aktuel
le_Gesetze/Gesetze_Verordnungen/
005_a,templateId=raw,property=publicationFile.pdf; http://www.bmu-
klimaschutzinitiative.de/en/news.
---------------------------------------------------------------------------
    Related to the introduction of aviation in EU ETS, Germany reduced 
its Air Passenger Duty as of 1 January 2012.\23\
---------------------------------------------------------------------------
    \23\ http://www.buzer.de/gesetz/10010/a174272.htm.
---------------------------------------------------------------------------
Conclusion
    The EU wants to see a comprehensive and non-discriminatory 
multilateral agreement in ICAO on aviation emissions as soon as 
possible, and the US, EU and other players now need to work together to 
develop renewed momentum for substantive talks in ICAO at global level.
    The European Union and the United States have a key role to play in 
crafting such an international consensus. Our strategic partnership on 
aviation issues has produced positive results before, with Open Skies 
and Aviation Safety agreements being just two examples, and we should 
build on this. Working together also requires respecting each others' 
rules and regulations.
    We very much look forward to continued cooperation with the United 
States to tackle the important challenges ahead of us in ICAO and to 
working together with the goal of achieving an effective global 
agreement.
                                 ______
                                 
Further to Mr. Delbeke's testimony at the hearing on June 6, the EU 
Delegation submitted an additional document to substantiate Mr. 
Delbeke's statements, the impact assessment of the Commission proposal 
to include aviation in the EU Emissions Trading System:
                 COMMISSION OF THE EUROPEAN COMMUNITIES
                          Brussels, 20.12.2006
                             SEC(2006) 1684
                   COMMISSION STAFF WORKING DOCUMENT
                      Accompanying document to the
                             Proposal for a
        DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL
 amending Directive 2003/87/EC so as to include aviation activities in 
                             the scheme for
     greenhouse gas emission allowance trading within the Community
Impact Assessment of the inclusion of aviation activities in the scheme 
                             for greenhouse
          gas emission allowance trading within the Community
                         (COM(2006) 818 final)
                            (SEC(2006) 1685)

This document can be found at http://ec.europa.eu/clima/policies/
transport/aviation/docs/sec_2006_1684_en.pdf.

    The Chairman. Thank you very much, Director General.
    I call now on Captain Cassidy.

 STATEMENT OF CAPTAIN SEAN CASSIDY, FIRST VICE PRESIDENT, AIR 
                    LINE PILOTS ASSOCIATION

    Mr. Cassidy. Good afternoon, Chairman Rockefeller and 
members of the Committee. I'm proudly here representing the 
53,000 pilots in the United States and Canada from 37 different 
airlines. I heard your comments about making comments a little 
bit more brief. I'll try to apply a little bit of NextGen 
technology to my emissions during my speaking here.
    The European Union's emissions trading scheme is an ill-
advised, legally questionable job-killer for U.S. airline 
industry employees. Because the EU's unilaterally implemented 
tax scheme could cost billions of dollars in just the next few 
years, it could seriously compromise the economic viability of 
a very tenuous U.S. airline industry and threaten the tens of 
thousands of jobs of our workers.
    ALPA strongly supports reducing aircraft emissions, just as 
airlines do. The solution, however, is through investment in 
high tech engines and airframes, as well as NextGen's 
procedures, not regressive tax schemes concocted by foreign 
governments that will harm our employers' ability to sustain 
and create new jobs.
    In addition, proponents of the ETS are disingenuous in 
implying that the tax revenue it generates will be used for 
environmental purposes. In fact, no requirement exists for EU 
member states to use the revenue for an environmental purpose. 
They can use the revenue in any manner they wish.
    To this point, a May 2012 Council of the European Union 
conclusions paper makes clear the true purpose of the scheme. 
It encourages the EU and its member states to further engage 
effectively in negotiations at ICAO and the IMO to support 
carbon pricing schemes that primarily incentivize mitigation, 
but also have the potential to generate revenue.
    The scheme also dismisses the U.S. airline industry's 
significant emissions reductions accomplishments to date. By 
adding yet another cost for the already overtaxed U.S. airline 
industry, the ETS could also hinder airlines' future emissions 
reduction efforts by reducing available capital that is needed 
to purchase more fuel-efficient aircraft and invest in NextGen 
infrastructure.
    For these reasons and others, I appreciate the opportunity 
to express ALPA's adamant opposition to the EU emissions 
trading scheme and to state our gratitude to Congress for 
formally opposing the scheme in the recent FAA reauthorization. 
We encourage Congress to take further action to strongly urge 
the EU to seek a solution through ICAO.
    As this committee knows, U.S. commercial aviation 
contributed to $1.1 trillion in economic activity in 2010. It 
is responsible for more than 5 percent of the U.S. gross 
domestic product and drives the employment of more than 10 
million people. ALPA is keenly interested in making certain 
that the U.S. airline industry remains economically robust and 
competitive in the global marketplace.
    Fuel is the airlines' largest expense and our employers are 
already under tremendous pressure to reduce fuel consumption 
and emissions. According to the Environmental Protection 
Agency, U.S. commercial aviation contributes just 2 percent of 
domestic greenhouse gas emissions, which is a very small 
fraction of the 25 percent produced by the balance of the 
transportation industry.
    In this context, U.S. commercial airlines have made 
tremendous voluntary strides in reducing the environmental 
impact of aircraft operations. The Bureau of Transportation 
statistics confirms that the U.S. airlines burned almost 14 
percent less fuel in 2009 than they did in 2000, resulting in a 
14 percent reduction in CO2 emissions, even though 
they carried 7.3 more passengers and cargo on a revenue ton-
mile basis.
    As Senator Hutchison pointed out earlier, the aviation 
industry has had a tremendously successful record, in fact the 
most successful, in limiting its impact on the environment 
while increasing its productivity. Compared to aircraft used in 
1972, aircraft in the current U.S. inventory actually used 60 
percent less fuel per passenger seat mile. Along with this 
remarkable progress, the U.S. airline industry has also 
voluntarily committed to making additional improvements, 
including an average annual carbon dioxide efficiency 
improvement of 1.5 percent per year and an industry-wide cap on 
CO2 emissions from 2020 forward.
    As airline pilots, we are key players in the industry's 
success in safely reducing fuel burn, noise, and emissions 
through innovative technology, flight operations, and 
international cooperation. Examples include technology-enhanced 
departure and arrival procedures, optimal altitudes in speed 
and flight plans, continuous descent-arrival procedures, which 
are all aspects of NextGen.
    The true solution to reducing emissions is pursuing the 
voluntary efforts I have already mentioned and creating 
international emissions guidelines through ICAO. The Kyoto 
Protocol, the G-8, and the United Nations Framework Convention 
on Climate Change all make it clear that ICAO is the 
appropriate organization to guide the global airline industry's 
efforts.
    We urge Congress to explore every available option to 
support the administration's action to exclude U.S. airlines 
from this harmful and misguided scheme. As an important part of 
achieving this goal, we thank Senators Thune and McCaskill for 
their leadership on this issue and encourage all Senators to 
co-sponsor S. 1956, the European Union Emissions Trading Scheme 
Prohibition Act of 2011.
    Thank you for the opportunity to present our views.
    [The prepared statement of Mr. Cassidy follows:]

   Prepared Statement of Captain Sean Cassidy, First Vice President, 
                      Air Line Pilots Association
    Mr. Chairman, Ranking Member Hutchison and members of the 
Committee, I am Captain Sean Cassidy, First Vice President of the Air 
Lines Pilots Association (ALPA). It is a pleasure and an honor for me 
to be here today to testify on behalf of more than 53,000 pilot members 
who fly for 37 airlines in the U.S. and Canada. We appreciate the 
Committee's interest in the European Union's (EU's) emissions trading 
scheme (ETS) and the opportunity to present our views on it today.
The EU ETS is a Job Killer
    The EU ETS could have a significant adverse effect on U.S. airline 
employment. Commercial aviation contributed $1.1 trillion in economic 
activity in 2010 and is responsible for more than 5 percent of U.S. 
gross domestic product, and the employment of 10 million people. It is 
no exaggeration to say that commercial aviation is an important 
component of the very foundation of our Nation's economy--safely 
transporting people and cargo on millions of flights each year and 
generating enormous revenues for multiple sectors of the economy. For 
evidence of this fact, we need only remind ourselves of the tremendous 
damage done to our economy when the industry came to a standstill for 
just a few days following the 9/11 attacks.
    The ETS could be no more than a thinly disguised tax on commercial 
aviation as the proceeds of the scheme do not need to be used to reduce 
GHG emissions or for any other environmental purpose. Rather, the 
proceeds can go in to Member State treasuries to be used as that Member 
State pleases. The intent of the EU ETS as a revenue raiser is made 
clear by the Council of The European Union conclusions paper circulated 
May 15, 2012. The paper states ``ENCOURAGES the EU and its Member 
States to further engage effectively in negotiations at ICAO and IMO to 
support carbon pricing schemes which primarily incentivize mitigation 
and also have the potential to generate revenue.'' This clear statement 
once again demonstrates that for the EU, this is nothing more than 
another revenue raising tax.
    It is our strong contention that the industry already pays more 
than its fair share of taxes. According to A4A, the industry's non-
income tax burden has grown from $3.7 billion in 1993 to approximately 
$17 billion now. In 1972, the taxes on a $300 domestic round-trip 
ticket totaled $22, or 7 percent of the total. In 1992, the tax bite on 
that same $300 ticket had nearly doubled to $38, or 13 percent of the 
total. Today, the taxes on a $300 airfare are $61, or 20 percent of the 
fare and represent nearly a 300 percent increase over the ticket taxes 
levied on the airlines in 1972.
    The EU ETS taxes will ultimately cost more American jobs at a time 
when unemployment is high and job creation is everyone's goal. The 
airlines simply cannot afford any new taxes and we must do all that we 
can to keep from losing any more jobs in this industry.
The EU ETS is Legally Questionable and Ill-Advised
    ALPA has a keen interest in ensuring the ongoing viability of the 
U.S. airline industry. Our employers are under tremendous stress to 
reduce fuel consumption and corresponding emissions; fuel is the 
airlines' largest expense and unless managed properly, can threaten the 
very existence of an airline. Since 1978, U.S. commercial airlines have 
made great progress in reducing the environmental impact of aircraft 
operations, improving fuel efficiency by more than 115 percent. 
Moreover, the U.S. industry has committed voluntarily to making 
additional improvements including an average annual carbon dioxide 
(CO2) efficiency improvement of 1.5 percent per year and an 
industry-wide cap on CO2 emissions from 2020 forward. The 
industry is also promoting the creation of international emissions 
guidelines through the International Civil Aviation Organization 
(ICAO).
    It is most unfortunate, therefore, that the EU has decided to 
unilaterally implement a stand-alone taxation scheme, ostensibly for 
the purpose of reducing aircraft emissions. This emissions trading 
scheme (ETS) would cap emissions at a set amount per airline per year, 
and then allocate a specific number of free emissions allowances to 
individual airlines. By April 30 of each year, an airline would be 
required to surrender a number of allowances equivalent to the amount 
of its total emissions during the preceding calendar year. An airline 
that does not surrender sufficient allowances will be held liable for 
paying a penalty of 100 Euros for each ton of carbon dioxide emitted 
for which the airline has not surrendered allowances. These penalties 
could amount to thousands of dollars per flight. All emissions from 
flights to and from the EU are covered including emissions from those 
parts of the flights that are outside the territories of the EU member 
states.
    The cost to U.S. airlines for acquiring allowances sufficient to 
cover their projected emissions could be several billion dollars 
between 2013, when the first allowance surrender is scheduled, and 
2020.
    The EU ETS is legally questionable on many grounds. First, to the 
extent that the EU seeks to regulate activities occurring outside the 
territories of its member states, it is at odds with the principle of 
customary international law that each state has complete and exclusive 
sovereignty over the airspace above its territory, with several 
provisions of the Chicago Convention, and with the Air Transport 
Agreement between the EU and the United States. Second, the ETS is 
inconsistent with the obligation imposed by the Kyoto Protocol of 1997 
to address aircraft emissions issues through ICAO. Third, the ETS runs 
afoul of the prohibitions on fuel taxes or charges set forth in the 
Chicago Convention and the Air Transport Agreement.
    Another significant concern with the ETS is that it may spawn 
conflicting or redundant emissions schemes in other countries. The ETS 
permits the exclusion of a country's aircraft from the scheme if that 
country adopts measures that have ``an environmental effect at least 
equivalent to'' those of the ETS. If multiple countries attempt to 
craft emissions reduction programs that satisfy the EU, airlines may be 
confronted with a range of schemes that will be complex, costly and 
perhaps redundant. Such a result must be avoided.
    We greatly appreciate the clear statement in the FAA 
Reauthorization Act that Congress views the ETS as ``antithetical to 
building international cooperation to address effectively the problem 
of greenhouse gas emissions by aircraft'' and that the European Union 
and its Member States should work through ICAO to develop a consensual 
approach to address such emissions. We believe that Congress' strong 
position in this regard is in part responsible for the recent 
indications from the EU that it would be willing to dismantle the ETS 
if ICAO were to develop appropriate emissions standards. Unfortunately, 
the EU and its Member States have not yet committed to working through 
ICAO to develop those standards.
Industry Progress in Reducing Emissions
    As stated above, the commercial airline industry has made 
significant and meaningful emissions improvements for decades. Airlines 
have an inherent economic incentive to reduce fuel consumption and 
greenhouse gas (GHG) emissions because fuel accounts for a significant 
and volatile part of an airline operating budget. According to the 
Department of Transportation, in March 2012 the average cost of a 
gallon of jet fuel was $3.09 per gallon, not including taxes, which 
represents more than a 10 percent increase compared to its cost in 
March 2011 (i.e., $2.80) and more than a 41 percent increase over 
February 2010 (i.e., $2.15). Fuel prices have been trending upward over 
the last several years and can be rather volatile while doing so. 
According to Airlines for America (A4A), a one-penny-per-gallon 
increase in the cost of jet fuel results in an additional cost to the 
airlines of $175 million over the course of a year. One airline has 
even resorted to buying an oil refinery to bring some stability to 
their fuel costs.
    The commercial aviation industry improved fuel efficiency by more 
than 115 percent between 1978 and 2010, and saved an amount of 
CO2 that would be equivalent to taking approximately 20 
million cars off the road each year. Between 2000 and 2010, GHG 
emissions and fuel burn were reduced by 10 percent while transporting 
15 percent more passengers and cargo.
    These impressive efficiency and GHG-reduction improvements have 
come about, not from the unilateral and ill-advised actions of a 
consortium of foreign governments, but through the research, 
development and implementation of new engine and airframe technology by 
the airline industry. If the EU's planned imposition of expensive, new 
taxation on the airline industry is enacted, we would expect several 
unintended consequences to result, including a reduction of capital 
available to be invested in new technology, and older, more-polluting 
aircraft being kept in use longer.
    Not content to rely solely on new aircraft technology, the airlines 
are also helping develop and implement renewable energy sources and 
cutting-edge operational procedures and navigation technologies, 
described further below. Seven U.S. airlines have signed letters of 
intent with a synthetic fuel production company for a future supply of 
jet fuel derived exclusively from biomass. It is expected that by 2015 
the company's facility in Northern California will be able to produce 
up to 16 million gallons of jet fuel to support airline operations in 
California. The FAA, along with A4A and other industry organizations, 
have worked since 2006 in a consortium called the Commercial Aviation 
Alternative Fuels Initiative (CAAFI) to enhance energy security and 
environmental sustainability for aviation through alternative jet 
fuels. CAAFI is promoting the development and deployment of alternative 
fuels that offer equivalent levels of safety and compare favorably with 
petroleum-based jet fuel on cost and environmental bases. CAAFI has 
several notable accomplishments to date, which include development of a 
new American Society for Testing and Materials International (ASTM) 
specification for a drop-in alternative aviation fuel. ALPA is fully 
supportive of the CAAFI effort.
    As an indicator of where these kinds of initiatives are leading, in 
November 2011, United Airlines flew the first U.S. commercial 
passengers on a Boeing 737 powered partly with biofuel made from algae. 
Also that month, Alaska Airlines made its first biofuel-powered 
passenger flights. New research suggests that plant-based biofuels 
could meet 30 percent of global demand for transportation fuel and 
slash the greenhouse gas emissions that come from burning fossil fuels.
The Pilot's Perspective
    Pilots literally sit at the intersection of new technology, 
operational measures, air traffic control procedures, and varying 
aircraft capabilities. Pilots and the airline industry as a whole 
continue to make great strides toward reducing total fuel burn, noise, 
and tailpipe emissions. These gains have been realized through 
technological advances and implementation of operational efficiencies.
    Airlines and the aviation industry face unique challenges in making 
these improvements. First are the long and expensive lead times for the 
research, development, design, and certification implementation for new 
technologies to improve operational efficiencies and realize 
significant fuel reductions. Second is the immediate lack of any 
economically viable alternative to fossil-based fuel.
    Aviation arguably has the most successful record of limiting its 
impact on the environment, while increasing its productivity, of any 
industrial sector. Airlines have greatly reduced carbon-based emissions 
through engine technology which reduces fuel burn and emission of 
undesirable gases and particulates. Compared to aircraft in use in 
1972, the U.S. airline industry now carries six (6) times more payload 
using 60 percent less fuel and has reduced by 95 percent the number of 
people significantly impacted by aircraft noise. This outstanding 
record of environmental achievement has resulted in large measure from 
the airlines continually demanding new aircraft from the manufacturers 
that burn less fuel, carry greater payloads, and create less noise. 
Boeing's new 787 is designed to use 20 percent less fuel-and thereby 
create 20 percent less greenhouse gas (GHG) emissions-than current 
aircraft of the same size. This aircraft is just one example of the 
kinds of investments that the airlines make in a very heavily 
capitalized industry.
    It should be noted that according to the Environmental Protection 
Agency (EPA), U.S. commercial aviation contributes just 2 percent of 
domestic GHG emissions; a small fraction of the 25 percent produced by 
the balance of the transportation industry.
    Airline pilots can, and do, save fuel and emissions through various 
operating techniques. Safety is our utmost concern, of course, but 
where safety is not impacted, airline pilots will reduce fuel usage 
through such measures as:

   Single-engine outbound taxi--Under certain conditions, it is 
        not necessary that all aircraft engines be operated to taxi on 
        the ramp or on taxiways. When conditions permit, only one 
        engine may be started out of two or more available engines 
        until reaching the end of the runway for takeoff.

   Engine shut-down during inbound taxi--Once the aircraft has 
        exited the landing runway and is headed to the gate or parking 
        stand, one or more operating engines may be shut down, as 
        conditions permit, either in the taxiway environment or on the 
        ramp.

   Technology enhanced departure and arrival procedures; new 
        procedures are being developed with the aid of satellite-based 
        navigation. Area Navigation (RNAV) and Required Navigation 
        Performance (RNP) technology permit shortening the distance and 
        time traveled during departure and arrival.

   Optimal altitude--Each jet aircraft, based on weight and 
        ambient conditions, has an optimum altitude where fuel burn is 
        minimized. To the extent that conditions and circumstances 
        permit, pilots often request that optimal altitude in order to 
        conserve fuel, which reduces emissions.

   Optimal-speed flight plans--Planning and operating a flight 
        at an efficient speed can save fuel. Pilots can optimize fuel 
        burn based on aircraft weight, winds, and atmospheric 
        conditions.

   Continuous Descent Arrival (CDA)/Optimized Descent Procedure 
        (OPD)--Normal approach and landing procedures require an 
        aircraft to reduce power, descend to a new altitude, and then 
        add considerable power to level off, before descending again in 
        stair-step fashion. That process may be repeated several times 
        during any approach and landing. A new approach procedure, the 
        CDA, or what we refer to as an OPD, is being developed that 
        permits pilots to reduce power on all engines and not use 
        significant thrust until safety concerns dictate establishing a 
        stabilized approach configuration prior to landing. This 
        procedure cannot work at all airports at all times due to 
        operational constraints, but at those locations where it can be 
        used, it can save substantial fuel on a single approach.

   Reduced Vertical Separation Minimum (RVSM)--Taking advantage 
        of improved technology, appropriately equipped aircraft can now 
        fly within 1,000 feet--compared with 2,000 feet previously--
        vertical separation at higher altitudes. This operational 
        change added six additional useable altitudes increasing the 
        opportunity for pilots to fly their aircraft at the optimal, 
        most fuel efficient altitude, in addition to permitting much 
        greater airspace utilization.

    We anticipate that if the European ETS is fully implemented, 
airlines will take measures to avoid flying through European airspace 
whenever possible. Measures may even include an intermediate stop prior 
to entering EU airspace. This could result in situations where 
operational and safety decisions are made on the basis of purely 
economic considerations. The irony in such a situation would be that to 
avoid ETS charges, airlines may well fly longer, less fuel-efficient 
routes and actually emit more GHG than would otherwise be required. In 
addition, when European taxes are paid, those expenditures will affect 
airlines' abilities to make capital investments in more fuel-efficient 
aircraft or develop time-and fuel-saving procedures.
Recommendations
    As pilots, we deal with facts, and the facts clearly show that 
while aviation is a contributor of greenhouse gas and other emissions, 
it plays only a very small role in the overall issue. Indeed, we could 
ground the entire world's fleet, and not make any significant impact on 
climate change. The industry is poised to continue to make great 
strides in reducing emissions through technology and operating 
procedures. We believe that the best way to achieve those results is 
the same way that we have made such great advances thus far, namely, 
through industry's investments in increasingly advanced technology, 
alternative fuels and better operating procedures. Allowing the EU to 
impose an ETS will have very little, if any, actual impact on the 
amount of GHGs released into the atmosphere by U.S. airline aircraft. 
However, it will take away from investments in new fuel-efficient 
aircraft and infrastructure while adding to an already high tax burden.
    The EU's ETS is a job killer that has the potential to do severe 
economic harm to the U.S. economy and U.S. airlines at a time when 
taxation of the airline industry and unemployment are already very 
high. Congress should determine what it can do to support the 
Administration's effort to obtain an exclusion of U.S. carriers from 
the scheme and act accordingly.
    Thank you, again, for the opportunity to testify today. I would be 
pleased to address any questions that you may have.

    The Chairman. Thank you very much, Captain.
    I call now upon Mr. Ed Bolen, President and Chief Executive 
Officer, National Business Aviation Association.

  STATEMENT OF EDWARD M. BOLEN, PRESIDENT AND CHIEF EXECUTIVE 
              OFFICER, NATIONAL BUSINESS AVIATION 
                          ASSOCIATION

    Mr. Bolen. Thank you, Mr. Chairman.
    Mr. Chairman, there is a lot wrong with the European 
Union's emissions trading scheme. In fact, I would submit that 
it's fatally flawed. This afternoon you're going to hear a lot 
from the aviation community about what is specifically wrong 
with it, and as a part of that aviation community we certainly 
agree with much of what you're going to hear.
    But I want to be very specific in my comments today 
because, as unfair as the EU ETS is on commercial aviation, it 
is even more onerous and more unfair to non-commercial 
aviation. And as closely as we work with the commercial 
aviation industry, we do not represent them.
    Our members at NBAA are thousands of U.S. companies, small, 
medium, and large, from a wide variety of industries. Our 
members manufacture tractors, they install restaurant 
equipment, they sell plumbing supplies, they build computers, 
they're in construction, they're in farm operations. About the 
only thing that our members have in common is that they rely on 
non-commercial aviation to get people and equipment to places 
where they need to be, when they need to be there. That's how 
they survive in a very unforgiving global marketplace.
    The planes that our members fly are built in the United 
States or they have most of their components built in the 
United States. So make no mistake about it, business aviation 
is predominantly a U.S. industry. It's a U.S. industry that 
helps create jobs and spurs economic development. It's a U.S. 
industry that enhances productivity and assists in humanitarian 
efforts. It's a U.S. industry that connects people in the 
global marketplace.
    As I mentioned before, with the EU ETS the Europeans have 
singled out business aviation for especially onerous and unfair 
treatment. As badly as the commercial airlines are treated, 
non-commercial operations are treated worse. Let me give some 
specific examples building on a question that Senator Cantwell 
asked earlier.
    A commercial airline based in South America can fly from 
Chile to Europe twice a day using an Airbus A340, a large 
commercial transport airplane. Yet they are not subject to the 
requirements of the EU ETS. Why? Because commercial carriers 
who operate only two flights per day are exempt as ``small 
emitters.'' They enjoy a small emitter exemption from the EU 
ETS requirements.
    A European-based airline that flies less than two flights 
per day in Europe is also exempt, also deemed a small emitter, 
not big enough to worry about.
    Yet a U.S.-based company that builds farm equipment in the 
Midwest, that flies one flight per year to Europe, is subject 
to all of the requirements of the EU ETS. Why? Because it's 
non-commercial aviation and the EU treats non-commercial 
aviation differently than commercial aviation.
    How can this be? How did they set a threshold where they 
have different threshold standards for commercial aviation and 
non-commercial aviation? I don't know. But I do know it also 
applies to ground-based systems. There's a small emitter 
exemption for factories in the EU. They are not considered as 
big enough to be part of the EU ETS unless they emit more than 
25,000 metric tons per year. And yet a U.S. company flying one 
flight on a U.S.-based airplane, a U.S.-built airplane, is part 
of these requirements. We think that that's wrong.
    Why is it a big deal to be made part of the EU ETS 
requirements? It's because it creates a lot of onerous 
administrative burdens. You've got to submit records. You've 
got to submit bank files. You've got to put forward a lot of 
private information that then becomes public. So there's an 
administrative burden to it, as well as the cost of flying.
    Now, we appreciate all that the U.S. Government has been 
doing to date, but we think more needs to be done. We're 
excited about the bill that is being considered by this 
committee. We support it. We think it is important that the 
aviation community not be treated differently and we think that 
everyone within the aviation community ought to be treated 
similarly.
    Thank you for the opportunity to talk here today.
    [The prepared statement of Mr. Bolen follows:]

 Prepared Statement of Edward M. Bolen, President and Chief Executive 
            Officer, National Business Aviation Association
    Chairman Rockefeller, Ranking Member Hutchison, members of the 
Committee, on behalf of the more than 9,000 members of the National 
Business Aviation Association (NBAA), we appreciate this opportunity to 
provide our views on the European Union's Emissions Trading Scheme (EU 
ETS) and its impact on general aviation aircraft operators based in the 
United States.
    We commend the Committee for holding this important hearing. NBAA 
and the entire industry believe that when it comes to aviation 
operations, environmental stewardship is an imperative. The industry 
continually works to develop reasonable, effective and balanced 
policies that support the twin goals of promoting the mobility and 
growth of aviation while safely minimizing its environmental footprint. 
While business aviation has steadily reduced its emissions and 
represents only 0.04 percent of global man-made carbon emissions (as 
illustrated by the chart below), the industry has developed aggressive 
and measurable goals to achieve further reductions (which will be 
described in more detail later in the testimony).


    Chart courtesy of IBAC and GAMA

    Aviation is an inherently global industry. Aircraft are routinely 
flown across borders and from continent to continent. Given the global 
nature of aviation and the prevalence of international operations, a 
critical need exists for globally harmonized policies, rules and 
procedures to ensure safe, efficient and balanced operations. A global 
approach is needed to avoid a costly, cumbersome and divisive patchwork 
of differing national and regional requirements. The efficient movement 
of aircraft between countries and the need to globally mitigate the 
impact of greenhouse gas (GHG) emissions demands a global sectoral 
approach to further emissions reductions and monitoring.
    Despite these facts and the industry's clear progress and 
environmental commitment, the EU made a decision to move forward in a 
unilateral and divisive fashion with the ETS. Business aviation is 
aligned with the rest of the aviation community in strongly opposing 
the ETS's application to international aviation and in reiterating our 
belief that resolution through a global sectoral approach will best 
advance our shared environmental goals. The International Civil 
Aviation Organization (ICAO) is the appropriate body to establish the 
targets and mechanisms.
Facts About Business Aviation
    From creating growth opportunities and global connectivity for 
America's small towns and rural areas to supporting the Nation's 
productivity, business aviation is an important economic engine, 
creating jobs and investment, while contributing to the world's leading 
aviation system. Business aviation is absolutely essential as U.S. 
companies work to compete in a global marketplace. Simply put, business 
aviation is a vital part of the Nation's economy and transportation 
system.
    Business aviation is defined by the FAA as the use of any general 
aviation aircraft (piston or turbine) for a business purpose. NBAA was 
founded 67 years ago to represent companies that utilize general 
aviation aircraft as a tool for meeting some of their transportation 
challenges. While NBAA member companies purchase billions of dollars 
per year in commercial airline tickets, there are critical situations 
where the use of a general aviation aircraft is indispensable. For U.S. 
companies to be successful in these challenging economic times, every 
business tool must be available--including general aviation aircraft.
    General aviation is an essential economic generator, contributing 
more than $150 billion to annual U.S. economic output, and employing 
more than one million people. Most general aviation aircraft operating 
around the world are manufactured and/or completed in the U.S., and our 
industry is continuing to build a strong American manufacturing and 
employment base that contributes positively to our national balance of 
trade.
    General aviation includes diverse operations, with business uses 
that range from agriculture, to law enforcement, to fire and rescue 
services, to varied government, educational, nonprofit organizations 
and businesses of all sizes. Servicing and supporting these 
organizations are FBO's, maintenance technicians, suppliers and service 
providers.
    Business aviation is not only an economic lifeline for thousands of 
our Nation's smaller communities; it also supports people and 
communities in times of crisis in the U.S. and around the world.
    General aviation has snapped into action when there's a need to 
confront floods in the Midwest, fires in the West, or a whole host of 
other natural disasters. The business aviation community--working 
mostly on a volunteer basis--has always been quick to help assess 
damage, rescue those affected by these disasters, and carry in 
lifesaving support and supplies to the affected regions.
    In addition, hundreds of GA operators carried thousands of 
passengers and over a million pounds of supplies to and from Haiti 
after the devastating earthquake there. In fact, Congress passed a 
resolution commending general aviation for its response to the crisis.
    The people who rely on a general aviation aircraft for business are 
also dedicated to helping provide lifesaving flights to the communities 
in which they live and work. Operations like the Corporate Angel 
Network arrange free air transportation for cancer patients traveling 
to treatment using the empty seats aboard business airplanes. Angel 
Flight America's seven member organizations and 7,200 volunteer pilots 
arrange flights to carry patients to medical facilities.
    The Veterans Airlift Command uses business airplanes and unused 
hours of fractional aircraft ownership programs to provide free flights 
for medical and other purposes for wounded service members, veterans 
and their families. Veterans Airlift finds volunteers in the business 
aviation community to fly missions on request and contribute the full 
cost of their aircraft and fuel for the missions flown.
Economic Challenges Facing Business Aviation
    Unfortunately, the people and businesses in general aviation, like 
other industries, are weathering one of the worst economic storms 
anyone has ever seen. The impact of the flagging economy on the 
companies and communities that rely on general aviation is visible in 
all parts of the country.
    Over the past few years, we saw business aviation flying decrease 
by as much as 35 percent in some locations--which unfortunately led to 
thousands of layoffs across the industry and country. While we have 
seen some uptick in flight activity in recent months, activity is still 
below the 2008 levels and experts agree that the recovery will be slow 
and gradual over the next several years.
Business Aviation's Commitment On Climate Change
    While much has changed for the industry as a result of the 
recession, one constant is our commitment reducing the industry's 
already small environmental footprint. Business aviation's global 
CO2 emissions are a small fraction of global man-made carbon 
emissions (less than one half of 1 percent). Nevertheless, business 
aviation has established an excellent record of constantly improving 
fuel efficiency and lowering emissions.
    As previously mentioned, business aircraft are operated for 
specific missions and fly efficient, direct routes between airports. 
Modern navigation equipment combined with the latest technologies in 
aircraft and engine design and operational improvements provide for 
ever-improving fuel efficiency and reduced GHG emissions.
    Business aviation has made substantial progress in lowering 
emissions, but we are resolved to do more. Together, the business 
aviation manufacturing and operating communities have developed an 
aggressive program for further improvement.
    To this end, the business aviation community has publicly committed 
to the following specific targets:

   Carbon-neutral growth by 2020;

   An improvement in fuel efficiency of an average of 2 percent 
        per year from today until 2020, and;

   A reduction in total CO2 emissions of 50 percent 
        by 2050 relative to 2005.

    Achieving the above targets will require not only sustained effort 
on the part of the entire business aviation community, but will also 
require partnership between industry and government to develop 
solutions that balance economic growth and environmental goals. We 
anticipate reaching these objectives through advances in the following 
areas:

   Technology. Improvements in aircraft frames through 
        aerodynamic design changes and weight reductions with composite 
        materials. Engine advances will also reduce emissions.

   Operational Streamlining. Through collaboration with air 
        traffic management, fully implement efficient procedures and 
        modernize ATC.

   Alternative Fuels. The aviation industry is driving the 
        research, development and deployment of commercially viable, 
        sustainable alternative aviation fuels. Based on current 
        research and the encouraging results already demonstrated in 
        flight, business aviation anticipates a CO2 
        reduction of 40 percent in absolute terms from biofuels by 
        2050. This is an area that holds huge promise for significant 
        GHG reductions, but will require a sustained commitment to fund 
        research and development.

   Market-based measures. The successful achievement of carbon 
        neutral growth by 2020 will be challenging. During this interim 
        period, business aviation operators are open to offsetting 
        their emissions through market-based economic measures. 
        Conceptually, market-based emissions should be limited in their 
        focus and duration. They should not create onerous 
        administrative burdens or excessive costs. These measures 
        should also treat all segments of aviation in equivalent 
        measures (unlike the ETS, which clearly singles out certain 
        segments for punitive and discriminatory treatment). And, most 
        important, they must be developed in the context of a global 
        sectoral approach to aviation emissions.

    NBAA would like to again recognize the efforts of this Committee to 
complete the important multi-year FAA reauthorization legislation that 
will undoubtedly expedite the transformation to the Next Generation Air 
Traffic Control technology--or NextGen. In fact, when implemented, 
NextGen has been projected to reduce emissions by an additional 12 
percent.
    In addition, Section 509 of the FAA reauthorization bill included a 
Sense of the Congress provision that accurately sums up the issue:

    It is the sense of Congress that--

    1.  The European Union directive extending the European Union's 
            emission trading proposal to international civil aviation 
            without working through the International Civil Aviation 
            Organization (in this section referred to as ICAO) in a 
            consensus-based fashion is inconsistent with the Convention 
            on International Civil Aviation, completed in Chicago on 
            December 7, 1944 (TIAS 1591; commonly known as the Chicago 
            Convention), and other relevant air services agreements and 
            antithetical to building international cooperation to 
            address effectively the problem of greenhouse gas emissions 
            by aircraft engaged in international civil aviation;

    2.  The European Union and its member states should instead work 
            with other contracting states of ICAO to develop consensual 
            approach to addressing aircraft greenhouse gas emissions 
            through ICAO; and

    3.  Officials of the U.S. Government, and particularly the 
            Secretary of Transportation and the Administrator of the 
            Federal Aviation Administration, should 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 aircraft registered by the 
            United States or the operators of those aircraft, including 
            the mandates that the United States carriers provide 
            emissions data and purchase emissions allowances from or 
            surrender emissions allowances to the European Union Member 
            States.
Aviation Requires A Global Sectoral Approach
    In 1944, the first Convention on International Civil Aviation was 
convened in Chicago. It was clear that aviation would change the world 
with its global reach and that the promise of aviation for all 
countries could only be realized through global coordination and 
cooperation. At that meeting in Chicago (now referred to as the Chicago 
Convention), 52 nations formed the International Civil Aviation 
Organization (ICAO). According to ICAO's website, ``the International 
Civil Aviation Organization was created in 1944 to promote the safe and 
orderly development of international civil aviation throughout the 
world. It sets standards and regulations necessary for aviation safety, 
security, efficiency and regularity, as well as for aviation 
environmental protection. The Organization serves as the forum for 
cooperation in all fields of civil aviation among its 191 Member 
States.''
    What was true in 1944 is magnified today--the world is truly a 
global marketplace, and aviation is the physical connector. And today, 
aviation is a safer and more secure mode of transportation due to ICAO 
and its harmonized approach international aviation operations.
    ICAO seeks to harmonize aviation regulations from one country to 
another and facilitate aircraft movements across borders. The ICAO 
process has a proven track record of success. Just as the ICAO process 
has worked for safety and security advances; it is working for the 
environment.
    Contrary to almost 70 years of international collaboration, 
treaties and precedent, the EU's ETS is a unilateral, regional dictate 
that does not promote harmonization and instead sets in motion a 
patchwork of separate, distinct and potentially conflicting 
regulations.
    The ETS creates a series of onerous reporting, monitoring and 
verification requirements that are costly to administer. This also 
raises serious privacy and business confidentiality concerns, because 
the scheme requires U.S. companies to provide a huge amount of 
sensitive data, including bank account information, flight data, 
personal information and other disclosures--all of which would be made 
available to the public. These intrusive, administratively burdensome 
and expensive requirements are all before the actual cost of the ETS is 
even assessed on operators.
    As wrong as the EU ETS is for the airlines, its impact is even more 
significant and overwhelming for non-commercial operators. Under the 
ETS structure, non-commercial operators are singled out for 
discriminatory treatment because businesses that utilize general 
aviation are not eligible for carbon allowances. As a result, non-
commercial GA flights will not receive any allowances and must pay on 
every flight, while commercial operators will receive 85 percent of 
their allowance free of charge.
    To illustrate the disproportionate and punitive treatment of 
business aviation operators, consider that under the ETS, the EU has 
said that a commercial operator that emits less 25,000 TONS per year of 
CO2 or operates fewer than 243 flights in 3 consecutive 4 
month periods is classified a ``small emitter'' with ``de minimus'' 
emissions, and is exempted from the ETS--while a single general 
aviation flight from the U.S. is required to comply with the excessive 
administrative requirements and pay this extraterritorial tax. 
According to the European Commission's September, 2011 presentation to 
ICAO, foreign-based airlines from 23 countries ``have commercial 
operations which fall under the de minimus provisions in the EU ETS and 
are thus exempted from EU ETS.''
    Contrast this to a US-based non-commercial GA operator with only 
one flight per year that is required to register, monitor, verify, 
report and pay for allowances.
    And, it is not just commercial airplane operators that are eligible 
for the ``small emitter'' exemption. Ground-based emitters in Europe 
have a 25,000 ton emissions threshold. So if a hypothetical European 
manufacturer of widgets operates from a facility that annually spews 
24,000 tons of emissions through its smoke stack--it is exempt from the 
EU-ETS requirements. It has been deemed a small emitter--apparently too 
insignificant to be bothered with the onerous EU ETS requirements.
    But, again, any U.S.-based company that uses a general aviation 
airplane to fly a single non-commercial flight to Europe will be 
subject to the EU ETS.
    Let me be clear. The European factory with its smokestack is 
putting hundreds of times more emissions into the environment than the 
U.S. company flying a single non-commercial flight to Europe, but it is 
the U.S. company that is subject to the EU ETS requirements rather than 
the European factory.
    How does this make sense? It does not. It is unfair. It is 
discriminatory. It singles out a great American industry for 
discriminatory treatment.
    In addition, the ETS taxes flights outside of EU airspace, which is 
a clear violation of the U.S. sovereignty and international law. Taxing 
any activity beyond the EU borders is a dangerous precedent and a 
violation of the sovereignty of nations across the world.
    Finally, in our opinion, the ETS will not advance environmental 
objectives. The EU has no authority to require member states to 
reinvest revenues from the ETS into aviation research and development 
or other emission-abatement initiatives.
    In other words, the EU-ETS would have anyone who flies from the 
U.S. into European airspace directly subsidizing foreign governments at 
the expense of aviation.
    This is an urgent situation with dire consequences for U.S. 
aircraft operators. While we appreciate the efforts of the U.S. 
Government to date, it is time to intensify and expand our government's 
response, protect all U.S. aviation operators and their employees, and 
return to the appropriate internationally driven process for addressing 
aviation emissions--ICAO. We again urge the EU to work collectively 
with the 191 ICAO members to develop worldwide emissions strategies.
    NBAA asks the U.S. Government to use every tool available to get 
the EU and its member states to the table at ICAO to develop and 
implement the global sectoral approach discussed in 2010.
    Given that to date, the EU continues to ignore long-standing 
international procedures and insists on including international 
aviation in the ETS, NBAA also supports S. 1956, The European Union 
Emissions Trading Scheme Prohibition Act Of 2011. As noted in the 
legislation, it is important to ensure that operators are not penalized 
financially or through airspace restrictions when this prohibition 
takes effect. In addition, we urge that implementation of the 
legislation clarify that the prohibition extends to the registering, 
monitoring, reporting and verification requirements, as well as paying 
the ETS taxes. NBAA thanks the bill's sponsor (Senator Thune) and 
cosponsors (Senators Boozman, Enzi, Isakson, Johanns, McCaskill, Rubio 
and Wicker), and we look forward to working with all members of the 
Senate to expedite consideration of S. 1956.
    Mr. Chairman, Ranking Member Hutchison and members of the 
Committee, the general aviation community is grateful for the 
tremendous leadership this committee has provided as we collectively 
work to address environmental challenges. We look forward to continuing 
to work with you to ensure that aviation climate issues are addressed 
in a constructive and appropriate global forum.
    Thank you.

    The Chairman. Thank you very much, Mr. Bolen.
    Now Ms. Annie Petsonk, EDF, Environmental Defense Fund, 
plus charts.

      STATEMENT OF ANNIE PETSONK, INTERNATIONAL COUNSEL, 
                ENVIRONMENTAL DEFENSE FUND (EDF)

    Ms. Petsonk. Thank you very much. Good afternoon, Mr. 
Chairman and distinguished members of the Committee. Thanks for 
your invitation to speak today. I'd like to make three points 
regarding the EU ETS for aviation.
    First, it's modest, effective, and reasonable.
    Second, it can create jobs here in the United States 
without significant cost to the industry. Analyses indicate 
that the industry may even be able to profit from it.
    And third, it intrudes into U.S. sovereignty no more than 
similar U.S. laws intrude into the sovereignty of other 
nations.
    Aviation today emits a fairly small slice of global carbon 
pollution, about as much as the total emissions of Canada. But 
aviation is one of the fastest growing sources of that 
pollution. U.S. airlines say that they have cut emissions 15 
percent, but, as this chart shows, their emissions dropped with 
the financial crisis and they're starting to grow again, and 
FAA forecasts that that growth will continue.
    As the next chart shows, global aviation emissions are also 
forecasted to grow. On this chart, the top red line is the 
projected growth in global aviation emissions. The purple line 
below is emissions within Europe from aviation and flights to 
and from European nations.
    The industry has proposed voluntary emissions reductions 
that are indicated by the top pale green line, a very small 
reduction from business as usual. The EU ETS cuts emissions 3 
percent the first year and then 5 percent for the remaining 
years, as shown by the bottom blue line on this chart. That's a 
modest cut, but it's still the equivalent of taking 30 million 
cars off the road each year.
    The next chart talks about gains in efficiency in the 
industry. The airlines will tell you that because fuel costs 
money, they have every incentive to save fuel and boost 
efficiency. But the fact is that the efficiency of new jet 
aircraft has been essentially flat for the past 20 years, the 
decade of the 1990s and post-2000 shown there. And as the 
number of flights increases, total emissions will continue to 
grow if they're not capped.
    My second point is that capping aviation pollution can 
create good jobs here in the United States, making the 
technologies and hardware to help planes fly more efficiently 
do better. Airbus's decision to source efficient airframes from 
West Virginia's Ravenswood Aluminum plant is just one example 
of the potential for job growth if there is a target and that 
target is to cut emissions.
    Contrary to some of what you've heard today, compliance 
with the EU law is projected to be very cheap. Next chart, 
please.
    The FAA supported MIT to do an analysis of how much this 
would cost the U.S. aviation industry, and it found that the 
costs to U.S. carriers are projected to be very small, six 
dollars on a round trip air fare. Here's a chart of the cost of 
my flight to Denmark that I took in April. You can see the 
biggest blue bar is $1,350. That's the airline's. That's what 
United charged me as the base fare.
    The next, light purple area is what United charged me as 
the airline fuel surcharge, almost $500, $496. Then you have 
the U.S. arrival and departure tax at $33.40; other U.S. taxes; 
and United raised my fare $6 round trip to cover the cost of 
the EU ETS. They did that in January of this year after the MIT 
study became public. That tiny line down there is the estimated 
cost of the EU ETS, and our calculation is that, even with the 
$6 increase, United is making money on those tickets because 
the cost of compliance is substantially less.
    Six dollars is the cost of a beer on a United flight, just 
to be clear. I don't know the cost in relation to how much a 
family is charged to sit together, but I'll find out soon 
because my family and my son want to travel together this 
summer.
    I want to be clear. Under this law, no airline is required 
to send a nickel to the treasury of a foreign government. 
Senator Cantwell, I know this was a concern of yours in 
particular. No airline is required to send a nickel to a 
European government treasury under this law if it doesn't want 
to. Airlines can cut their own emissions, they can purchase 
allowances from any of 12,000 other participants in the EU 
trading market, and none of that sends any money to foreign 
treasuries.
    My third point is that the EU law is no more an intrusion 
into U.S. sovereignty than America's own aviation laws intrude 
into the sovereignty of other nations. Our country does tax 
everyone who boards a plane in the United States heading 
overseas and we tax people in other countries who are getting 
onto planes in their countries. We collect a tax on foreign 
soil and we bring it here. We're not alone in doing this. We 
posted on our website a list of these laws. Some of them 
specifically vary the tax depending on how long the flight, 
what the flight distance is.
    To those who say that a better solution would be in ICAO, 
we agree. We want to share our ideas with government, with 
industry, and with all the stakeholders about how to get an 
effective limit in aviation pollution in ICAO, and we think it 
can be done. But ICAO has wrangled with this issue for 15 
years. It's only because of the EU ETS that ICAO has made more 
progress this year than ever before.
    Until ICAO reaches an agreement, the EU's program is 
reasonable, affordable, and it makes sense.
    I want to close with a cautionary note. After the airlines 
lost their court case against the EU, challenging the EU's law, 
they came here and asked the Senate to ban their participation 
in the EU system. That could have some unintended consequences. 
If you pass a bill authorizing the Secretary to prohibit the 
airlines from participating and he does so, that could trigger 
compliance liabilities for them in the jurisdictions where 
they're required to obey the EU law.
    Their insurance policies likely will not cover that 
liability. We have reviewed their policies. Senator Thune's 
bill directs the Secretary to hold the airlines harmless, but 
doesn't give a path forward for how to do that. How would he? 
Would he ask U.S. taxpayers to foot the bill? I hope not. I'd 
be interested to hear, through you, from our friends in the 
airlines whether they would still want the ban if the Secretary 
cannot hold them harmless.
    Mr. Chairman, Senator Cantwell, thank you. I would be happy 
to answer questions.
    [The prepared statement of Ms. Petsonk follows:]

      Prepared Statement of Annie Petsonk, International Counsel, 
                    Environmental Defense Fund (EDF)
    Good morning, Mr. Chairman and distinguished members of the Senate 
Committee on Commerce, Science, and Transportation.

    Thank you, Chairman Rockefeller, for your invitation to provide the 
views of
    Environmental Defense Fund on the European Union Emissions Trading 
System (EU ETS), its expansion to cover the emissions of flights 
landing at and taking off from EU airports, and S. 1956, a bill that 
would give the Secretary of Transportation authority to prohibit U.S. 
air carriers from participating in the EU ETS, and that would direct 
the Secretary of Transportation to ensure that U.S. carriers so 
prohibited are held harmless from any consequences of their non-
participation.
    My name is Carol Annette (Annie) Petsonk, and I am international 
counsel at the Environmental Defense Fund, EDF. EDF is a leading 
national nonprofit organization representing more than 800,000 members. 
Since 1967, we have linked science, economics and law to create 
innovative, equitable and cost-effective solutions to society's most 
urgent environmental problems. We are guided by scientific evaluation 
of environmental problems, and by the recognition that common-sense 
economic tools can tap human ingenuity powerfully in combining 
environmental protection and economic well-being.
    I am honored to have had the opportunity to provide counsel on 
these kinds of approaches in my career at EDF, and prior to that, at 
the U.S. Department of Justice and the Office of the U.S. Trade 
Representative in the administrations of Presidents Bill Clinton and 
George H.W. Bush, as well as legal representation of a range of private 
companies and substantial experience in the developing world.
    I come to aviation issues having grown up with a father who was a 
pilot and an engineer, who during World War II helped develop the first 
reversing propeller for the blimp. Our dad gave my brothers and me a 
love of flight and a great appreciation for the innovative engineers 
who make flight possible and who improve it continually. One of the Boy 
Scouts my father mentored became an avionics industry leader, inventing 
among other things the static discharger which you see on the trailing 
edge of most aeroplane wings. One of those dischargers sat proudly in 
our living room for many years.
    Later, after I moved to Washington, D.C., on one of my frequent 
visits to family in Morgantown, West Virginia, I had the opportunity to 
go with my father to an antique air show at Hart Field. Taking a test 
flight in an open cockpit biplane of the type my father flew (a 
Stearman) gave me renewed admiration for him and the other pilots of 
the time, who performed incredible aerobatic maneuvers in planes that 
you could literally fall out of, who risked and gave their lives in the 
sky every day. It also gave me greater appreciation of the advances in 
aviation in what is, in the human scheme of things, an incredibly short 
time.
    Today I am honored to be invited to present the views of the 
Environmental Defense Fund on the European Union's Emissions Trading 
System for aviation,\1\ its potential costs and benefits, its 
competitiveness effects, and S. 1956, proposed legislation addressing 
the ETS.
---------------------------------------------------------------------------
    \1\ Directive 2008/101/EC of the European Parliament and of the 
Council of 19 November 2008 (Official Journal of the European Union L 
8/3, 13 January 2009) amending Directive 2003/87/EC so as to include 
aviation activities in the EU ETS (``the EU law'').
---------------------------------------------------------------------------
    Background. First, a word of background on the EU ETS and the 
aviation emissions it has been extended to address.

   The EU ETS is the world's largest program to limit global 
        warming pollution.

   Its emissions caps cover some 12,000 large stationary 
        sources.

   Its carbon market makes up over 80 percent of the more than 
        $140 billion annually that carbon markets have mobilized in 
        emissions-cutting technologies and processes.\2\
---------------------------------------------------------------------------
    \2\ State and Trends of the Carbon Market (World Bank 2011) 
(hereinafter ``State and Trends'') at 9.

   While the system has had some notable growing pains, overall 
        it is succeeding in bringing emissions down, driving technology 
        change, and focusing innovation on low-carbon development, even 
        during recessionary times in Europe,\3\ with minimal impact on 
        competitiveness.\4\
---------------------------------------------------------------------------
    \3\ State and Trends at 41; see also Frank Watson, ``EC 
CO2 data shows that EU carbon trading is working: 
analysts,'' EU Energy, April 11, 2011, available at http://
www.platts.com/NewsFeature/2011/emissionsdata/index. (accessed 04/24/
12); and see Denny Ellerman, Frank Convery, and Christian de Perthuis. 
Pricing Carbon (Cambridge Press 2010); see also European Commission, 
``Climate change: Progress report shows EU on track to meet or over-
achieve Kyoto emissions target.'' Press Release, Brussels, November 12, 
2009, http://europa.eu/rapid/pressReleasesAction.do?reference=IP/09/
1703&format=HTML&aged=0&language=EN&guiLanguage=en. (accessed June 3, 
2012); and see Emissions trading: annual compliance round-up shows 
declining emissions in 2011, http://europa.eu/rapid/
pressReleasesAction.do?reference=IP/12/477 (accessed June 3, 2012).
    \4\ ``Europe's emissions trading forum has `tiny' impact as 
companies prepare for auctions'', ClimateWire Dec. 9, 2010, available 
at http://www.eenews.net/public/climatewire/2010/12/09/1 (access April 
2012). For prospective analyses, see McKinsey and Company and Ecofys, 
``EU ETS Review: Report on International Competitiveness,'' European 
Commission, December 2006, available at http://origin.mckinsey.com/
clientservice/sustainability/pdf/Report_on_Interna
tional_Competitiveness.pdf. (access April 2012), and Julia Renaud, 
``Industrial Competitiveness under the European Union ETS,'' IEA 
Information Paper, International Energy Agency, December 2004, 
available at http://194.245.121.74/fileadmin/gruppen/bdz/Themen/Umwelt/
IEA-Studie_11-2004.pdf. (access April 2012).

    The global warming impacts of aviation emissions have been a 
subject of concern since at least 1994.\5\ While aviation is not the 
largest source of greenhouse gases, the sector's global warming 
pollution has grown rapidly and is slated to increase dramatically in 
the years ahead. The U.S. Congressional Research Service calls aviation 
``one of the fastest growing sources of emissions.'' \6\ It's already 
the second-largest emissions grouping covered by the EU ETS (after 
electric power generation). Aviation emissions from international 
flights almost doubled from 1990 to 2006.\7\ As Chart 1 on edf.org/
aviation/testimony indicates, emissions from flights into and out of 
the United States are predicted to grow by about 75 percent by 2020, 
compared with 2005 levels.\8\ Without limits, emissions from aviation 
globally are expected to quadruple.\9\
---------------------------------------------------------------------------
    \5\ Oppenheimer, M. & Vedantham, A. (1994). Aircraft Emissions and 
the Global Atmosphere. EDF Special Report. New York: Environmental 
Defense Fund; see also Vedantham, A., & Oppenheimer, M. (1998). Long-
term scenarios for aviation: Demand and Emissions of CO2 and 
NOX. Energy Policy. Vol. 26. No. 8.
    \6\ Congressional Research Service, Aviation and the European 
Union's Emission Trading Scheme, March 7, 2012, at 5.
    \7\ Group on International Aviation and Climate Change (GIACC) 
Report, ICAO, 2009, http://www.icao.int/environmental-protection/GIACC/
GiaccReport_Final_en.pdf, at 7.
    \8\ EDF calculation, based on Inventory of U.S. Greenhouse Gas 
Emissions and Sinks: 1990--2010 (USEPA April 2012), http://epa.gov/
climatechange/emissions/usinventoryreport.html (historical emissions 
data); FAA Aerospace Forecast: Fiscal Years 2012-2032 (FAA 2012), 
http://www.faa.gov/about/office_org/headquarters_offices/apl/
aviation_forecasts/aerospace_fore
casts/2012-2032 (forecasts); and Aviation and Emissions: A Primer (FAA 
2005), http://www.faa.gov/regulations_policies/policy_guidance/
envir_policy/media/aeprimer.pdf (fuel efficiency improvements).
    \9\ See, e.g., Aviation and the Global Atmosphere, J.E. Penner, 
D.H. Lister, D.J. Griggs, D.J. Dokken, M. McFarland (Eds.), 
Intergovernmental Panel on Climate Change (Prepared in collaboration 
with the Scientific Assessment Panel to the Montreal Protocol on 
Substances that Deplete the Ozone Layer), Cambridge University Press, 
1999 (hereinafter ``IPCC Special Report on Aviation''), Summary for 
Policymakers available at http://www.ipcc.ch/pdf/special-reports/spm/
av-en.pdf (accessed June 3, 2012); and see Commission of the European 
Communities. Summary of the Impact Assessment: Inclusion of Aviation in 
the EU Greenhouse gas Emissions Trading Scheme (EU ETS). 2006.


    Moreover, aviation's global warming impact may be even greater 
given the other gases emitted by planes flying at high altitudes, and 
given the contrail clouds formed by aviation pollution.\10\
---------------------------------------------------------------------------
    \10\ See Meeting the UK Aviation target--options for reducing 
emissions to 2050 (UK Committee on Climate Change, December 2009), 
http://www.theccc.org.uk/reports/aviation-report.
---------------------------------------------------------------------------
    In addition to greenhouse gases, airplanes emit a wide range of 
pollutants, including carbon monoxide, sulfur and nitrogen oxides, 
VOCs, and even toxic air pollutants.\11\ Pollution from aircraft causes 
hundreds of premature deaths each year.\12\ Those impacts are 
particularly severe in Southern California.\13\ Takeoffs and landings 
are associated with increased concentrations of ultrafine particulates, 
pollutants not regulated by EPA, in areas close to airports.\14\ In 
addition, carbon monoxide emissions for aviation have been found to 
have significant impacts on asthma, respiratory, and cardiac health in 
populations living near airports.\15\ As aviation continues to grow, 
and the population exposed to airplane pollution ages and grows, the 
health effects from aircraft pollution are expected to increase by as 
much as 6 times by 2025.\16\ To ensure that aviation does not become a 
growing health problem, we must find ways of reducing emissions. 
Airplanes cause pollution when they burn fossil fuels--policies that 
drive improvements in fuel efficiencies bring the added benefit of 
reducing exposure to health-harming and toxic pollutants from aircraft.
---------------------------------------------------------------------------
    \11\ FAA, Aviation and Emissions: A Primer, 2005.
    \12\ Aircraft Impacts on Local and Regional Air Quality in the 
United States, PARTNER Project 15 final report, Ratliff et al., October 
2009, Report No, PARTNER-COE-2009-002 at 44.
    \13\ Id.
    \14\ Hsu et al., 328 50 Atmosphere Environment (2012).
    \15\ Schlenker, Wolfram & Walker, W. Reed, ``Airports, Air 
Pollution, and Contemporaneous Health,'' NBER (Dec. 2011) at 29, 30.
    \16\ Levy et al., ``Current and Future Particulate-Matter-Related 
Mortality Risks in the United States from Aviation Emissions During 
Landing and Takeoff'', 32 Risk Analysis 237 (2012).
---------------------------------------------------------------------------
    The Parties to the United Nations Framework Convention on Climate 
Change (UNFCCC), including the United States, began considering as 
early as 1995 ways to address the global warming pollution from 
aviation. At their first meeting of the Conference of the Parties, the 
UNFCCC's Subsidiary Body on Scientific and Technological Advice (SBSTA) 
initiated a discussion on greenhouse gas emissions from the aviation 
and maritime sectors.\17\ In 1996, SBSTA, in which all UNFCCC Parties, 
including the U.S. and the EU, participate, considered eight different 
methodologies for accounting for the emissions of flights traveling 
between different countries.\18\ The eighth option was to account for 
the emissions based on a ``sovereignty'' approach, with responsibility 
for emissions occurring in the airspace of any particular sovereign 
resting with that sovereign. In discussing this option, the Parties 
agreed that it would lead to perverse results: the emissions of a 
flight would ``belong'' to a nation simply because the vessel had 
transited that nation's airspace, even though the flight had never 
landed in the country. Pollution from flights passing through airspace 
over the high seas would be ``orphaned.'' Because of the ``orphan 
emissions'' and perverse results problems, SBSTA formally dropped from 
consideration the eighth option--i.e., the airspace-based methodology. 
In 1998, the Climate Treaty's supreme body, namely the Conference of 
the Parties to the UNFCCC (including the United States), endorsed 
SBSTA's decision,\19\ rejecting the airspace-based methodology.
---------------------------------------------------------------------------
    \17\ See Environmental Defense Fund, The Long Road Toward Reducing 
Greenhouse Gas Emissions from Aviation (hereinafter ``The Long Road''), 
http://www.edf.org/sites/default/files/EU_aviation_ETS_timeline.pdf 
(accessed June 3, 2012). See also A New Flight Plan: Getting Global 
Aviation Climate Measures Off the Ground (Transport & Environment, 
Environmental Defense Fund, The International Council on Clean 
Transportation and the Aviation Environment Federation, February 2012) 
(hereinafter ``New Flight Plan''), http://www.transporten
vironment.org/sites/default/files/media/
Aviation%20Conference%20Background%20Report.pdf (accessed June 3, 
2012), at pages 13-14.
    \18\ See FCCC/SBSTA/1996/9/Add.1, paras. 27-30.
    \19\ See Report of the Subsidiary Body for Scientific and 
Technological Advice on the work of its Fourth Session, Geneva, 16-18 
December 1996, Item IV B.2 Conclusions, Endorsed by the UNFCCC 
Conference of the Parties at its Third Session, see UNFCCC COP Decision 
2/CP.3, reprinted in FCCC/CP/1997/7/Add.1 (25 March 1998) at page 31. 
The ICAO has also effectively rejected the airspace-based methodology. 
In 2004, the ICAO Executive Committee asked ICAO to provide guidance 
for ICAO Contracting States on incorporating emissions from 
international aviation into the States' emissions trading programs. In 
so doing, the ICAO Executive Committee specified that the guidance be 
``consistent with the UNFCCC process.'' See www.icao.int/icao/en/
assembl/a35/wp/wp352_en.pdf at page 15-30. So, as a practical matter, 
ICAO has also rejected the ``sovereign airspace'' approach, since the 
UNFCCC Parties have rejected it. Resuscitating the ``sovereign 
airspace'' methodology now, as some in industry have suggested, would 
contravene decisions of both the UNFCCC and ICAO and lead to the same 
perverse results and orphan emissions that led the UNFCCC to reject it 
a decade and a half ago.
---------------------------------------------------------------------------
    In 1997 the Climate Treaty Parties adopted language stating that 
industrialized nations ``shall'' pursue limitation and reduction of 
these emissions in ICAO.\20\ In the ensuing years, ICAO has been unable 
to reach agreement on an effective mechanism for addressing these 
emissions.\21\
---------------------------------------------------------------------------
    \20\ See Kyoto Protocol on Climate Change, Article 2.2.
    \21\ See The Long Road, supra, for a summary of ICAO activities.
---------------------------------------------------------------------------
    After a decade of discussion without action in ICAO, elected 
officials in Europe in 2008 decided to start by enacting modest caps on 
the emissions of flights coming in and out of their airports, bringing 
aviation emissions under the EU ETS. This year, 2012, is the first year 
that aviation's emissions caps have come into effect under the EU law.
    It is important, in understanding the EU law, to know which 
emissions are covered by the system and which are not. As Chart 2 on 
edf.org/aviation/testimony indicates, approximately 62 percent of all 
aviation emissions globally are from international flights, i.e., 
flights between two sovereign nations.\22\ Approximately half of those 
involve landings or takeoffs from EU airports.\23\
---------------------------------------------------------------------------
    \22\ International share of global emissions: ICAO. 2010. 
Environmental Report 2010. Available at http://www.icao.int/
environmental-protection/Documents/Publications/ENV_Report_2010.
pdf.
    \23\ Domestic share of Intra-EEA emissions: analysis based on 
domestic emissions from UNFCCC National Inventory Submissions 
(available at http://unfccc.int/national_reports/
annex_i_ghg_inventories/national_inventories_submissions/items/
6598.php) and projected total EEA emissions using growth projections 
used in EC's SEC(2006) 1684 Impact Assessment of the inclusion of 
aviation activities in the scheme for greenhouse gas emission allowance 
trading within the Community (http://ec.europa.eu/clima/policies/
transport/aviation/docs/sec_2006
_1684_en.pdf).
    Intra-EEA emissions and international cross-EEA boundary emissions: 
analysis based on EC's SEC(2006) 1684 Impact Assessment of the 
inclusion of aviation activities in the scheme for greenhouse gas 
emission allowance trading within the Community
    EU ETS scope as share of global emissions: Lee, David S. 2012. 
Aviation and Climate Change: Impacts and Trends. (Presentation at 
conference ``A New Flightplan--Getting Global Aviation Climate 
Measures'' at Norway House, Brussels, Belgium, February 7.) Available 
at http://www.transportenvironment.org/sites/default/files/media/
David_Lee_presentation.pdf.


    Importantly, the EU law gives airlines great flexibility to choose 
when, where and how to meet their caps. It allows them to reduce 
emissions within their operations, and to tender special aviation 
emissions allowances, over 80 percent of which they receive for free 
from European governments. It allows them to purchase more allowances 
at auction from those governments, but it also allows them full 
flexibility to purchase any emissions allowances valid in the larger EU 
ETS. This includes allowances from power plants, cement companies, the 
chemicals, steel, and other manufacturing sectors--basically, any of 
the roughly 12,000 installations covered by the system. And it allows 
them to tender valid emissions credits earned in projects in the 
developing world, focusing on the least developing and poorest 
countries.
    The EU law notes that all EU Member States are Contracting Parties 
to the Chicago Convention on Civil Aviation and members of ICAO, and 
that the EU Member States continue to support work in ICAO to develop 
market-based instruments to address the climate change impacts of 
aviation. The EU law requires, and EU officials have reiterated, that 
if ICAO adopts measures that are more environmentally effective than 
the EU ETS, the EU will review its law.\24\
---------------------------------------------------------------------------
    \24\ Jos Delbeke's speech during the conference ``A New 
Flightplan--Getting global aviation climate measures off the ground,'' 
European Commission, Feburary 7, 2012, http://ec.europa.eu/clima/news/
articles/news_2012020701_en.htm.
---------------------------------------------------------------------------
    It is true that a number of European member states have, as a 
matter of principle, been unwilling to forgo the power of the purse and 
earmark any governmental revenues raised from this system exclusively 
for addressing climate change. Their reluctance mirrors the general 
unwillingness of the U.S. Congress to earmarks. What's important to 
understand about this aspect of the system is that no airline 
participating in the ETS need send a dime into European government 
coffers if it doesn't want to. And if it does want to ensure that any 
dime so spent will be dedicated to addressing climate change, it can 
preferentially purchase allowances from the German Government, which 
has so earmarked any revenues it receives from the auction of aviation 
emissions allowances. According to existing German legislation, all 
revenues from auctioning of allowances, including aviation allowances, 
go directly into the Energy and Climate Fund and are dedicated by law 
to climate purposes around the globe.\25\
---------------------------------------------------------------------------
    \25\ http://www.bundesfinanzministerium.de/nn_3380/DE/
BMF_Startseite/Aktuelles/Aktuelle_Gesetze/Gesetze_Verordnungen/
005_a,templateId=raw,property=publicationFile.pdf; http://www.bmu-
klimaschutzinitiative.de/en/news.
---------------------------------------------------------------------------
    While the ETS emissions caps for aviation are modest--a 3 percent 
reduction from a 2004-2006 baseline in 2012, the first year, and a 5 
percent reduction for the years 2013-2020--the benefits of the program 
are significant: comparable to taking 30 million cars off the road each 
year through 2020.\26\ The law challenges airlines to move beyond the 
efficiency gains that occur simply because aviation fuel costs money, 
and the law achieves reductions greater than what the industry has 
voluntarily proposed through the International Air Transport 
Association (IATA) (see Chart 3 on edf.org/aviation/testimony).
---------------------------------------------------------------------------
    \26\ Commission of the European Communities. Summary of the Impact 
Assessment: Inclusion of Aviation in the EU Greenhouse Gas Emissions 
Trading Scheme (EU ETS). 2006.


    Because the EU law is so flexible, and because it stimulates good 
old-fashioned competition to get results as cost-effectively as 
possible, the costs are minimal.\27\ In fact, according to an FAA-
supported study by the Massachusetts Institute of Technology,\28\ the 
cost to U.S. carriers is forecast to be no more than $3 per 
transatlantic segment. As Chart 4 on edf.org/aviation/testimony 
illustrates, such a cost is a tiny fraction of the overall price of the 
ticket. It is less than a fifth of the tax that the U.S. Government 
levies on each passenger arriving or departing from the U.S. on an 
international flight. It's less than half the cost of a beer on a 
domestic U.S. flight. And it's a small fraction of the amount airlines 
are charging for baggage these days.
---------------------------------------------------------------------------
    \27\ Cite to Sam Grausz/CAP/Climate Advisers study.
    \28\ Robert Molina et al., The Impact of the European Union 
Emissions Trading Scheme on U.S. Aviation, 19 Journal of Air 
Transportation Management 36-41, 2012.


    Moreover, it's our assessment, and the assessment of other experts, 
from Bloomberg to Deutsche Bank, that at $3/segment, U.S. carriers can 
make money on the system.\29\ Overall, emissions in the EU are 
substantially below capped levels, due in part to the success of the 
ETS, and due in part to the recession. Consequently, prices in the EU 
carbon market are extremely low. U.S. carriers hiked their 
transatlantic segment fares by $3 within hours after the MIT study went 
up on the web. If savvy carriers use those fare increases to purchase 
allowances in the carbon market today, they can potentially turn 
environmental compliance into a profit center. Plus, the free 
allowances awarded to participating airlines constitute a significant 
new asset. So, far from predictions of doom and gloom from the 
carriers' participation in the ETS, the fact is that the ETS can 
encourage them to fly more efficiently and make money doing so.
---------------------------------------------------------------------------
    \29\ See www.edf.org/aviation and sources cited therein.
---------------------------------------------------------------------------
    Further, the most responsible and forward-looking business jet 
companies are seeking not only to comply with the EU ETS but to do 
better, because it's their philosophy and responsive to customer 
demand. A primary exemplar of this is Ohio-based and Berkshire 
Hathaway-owned NetJets, whose European operations have pledged to 
become 100 percent carbon neutral by October 2012.\30\
---------------------------------------------------------------------------
    \30\ NetJets Environment Update Report UK Final Version, 4.
---------------------------------------------------------------------------
    Nonetheless, U.S. airlines argue that the EU law intrudes into our 
sovereignty. That's not the case. To argue that a nation's authority to 
address the emissions of a flight landing or taking off from its 
airports extends only to its sovereign airspace, ignores the fact that 
the flight only occurs because travelers wish to fly to or from that 
country. If the flight never took off to go to that country, then none 
of the emissions would occur. But the entire emissions of the flight 
occur precisely because the flight is going to that country.
    The Aviation Directive does not dictate behavior outside of EU 
territory. It simply holds airlines accountable for their emissions, 
and it uses total distance flown as a metric to determine each 
aircraft's emissions. The FAA itself measures emissions this way for 
purposes of calculating the international aviation emissions of the 
United States. ICAO does too for the purposes of its own carbon offset 
program.\31\ And while the U.S. arrival and departure tax, which 
applies to the entire continuum of flight (in fact, arriving passengers 
pay the tax at the point of their departure in the foreign 
jurisdiction), uses a flat fee, many nations' international arrival and 
departure levies are explicitly calculated on the basis of 
distance.\32\ Moreover, limiting a sovereign's authority to regulate 
flight emissions only to the country in whose sovereign airspace they 
occur, would lead to a regulatory patchwork with some gaping holes over 
the high seas.\33\
---------------------------------------------------------------------------
    \31\ Conversation with FAA; http://www.icao.int/environmental-
protection/CarbonOffset/Pages
/default.aspx.
    \32\ Nations as diverse as India and the United Kingdom maintain 
differential levies on international flights based on distance flown.
    \33\ This would also contradict the long-ago rejection by ICAO of 
airspace-based methodology, supra note 19.
---------------------------------------------------------------------------
    The EU ETS is non-discriminatory. It provides a level flying field 
for all airlines flying the same routes. In fact, U.S. carriers are 
slated to receive a slightly higher percentage of their allowances for 
free than European carriers overall. So to the extent there is any 
competitiveness issue in the law, it redounds in favor of the U.S. 
carriers.
    Moreover, the ETS exempts from its coverage flights arriving in 
Europe from nations that have adopted equivalent measures. Far from 
imposing its regulations on other countries, the EU system invites them 
to promulgate equivalent regulations. It appears from news reports that 
a number of countries, including China, are considering doing just 
that.
    To those who claim the ETS intrudes in U.S. sovereignty, it's worth 
noting that the ETS is far less intrusive than many U.S. laws and 
regulations that intrude into other nations' sovereignty. The U.S. has 
many such laws in a range of fields, from financial regulation to 
criminal law, from national security law to human rights. In the 
aviation field alone, the history of U.S. unilateral extraterritorial 
regulation is substantial. For example, following the tragedy of the 
September 11, 2001 attacks, the U.S. unilaterally imposed a suite of 
extraterritorial security regulations on all flights coming into the 
United States. These included requiring reinforced cockpit doors,\34\ 
limiting liquids and gels,\35\ adding U.S.-run checkpoints in foreign 
airports, and performing onsite security assessments of foreign 
airports. Many of these measures were first implemented unilaterally, 
and only subsequently were they ratified through bilateral air services 
agreements and ICAO.
---------------------------------------------------------------------------
    \34\ William Karas and Carol Gosian, Recent U.S. Regulation of 
Foreign Airline Practices: Impermissibly Unilateral or Not?, Air and 
Space Lawyer, 2002.
    \35\ 3-1-1 Gains International Acceptance, TSA, June 5, 2007, 
available at http://www.tsa.gov/press/happenings/
311_intl_acceptance.shtm. The U.S. implemented a liquids and gels rule 
in 2006, and while the EU shortly followed suit, ICAO did not approve 
liquids and gels guidelines until 2007.
---------------------------------------------------------------------------
    More recently, the FAA has promulgated a rule requiring airlines 
operating in the U.S. to retrofit fuel tanks on their planes, 
regardless of the carriers' nationality.\36\ These rules apply to all 
aircraft landing at or taking off from U.S. airports, regardless of the 
citizenship of the carrier.\37\ While the industry has argued for 
exemptions from these rules, arguing that the rules could create 
distortions between and among airlines depending on the type of 
aircraft flown,\38\ the industry has not raised any issue of 
discrimination on the basis of citizenship of the carrier--even though 
the FAA's rules apply to all flights landing in and departing from U.S. 
airports. The fuel tank rules apply throughout the continuum of flight. 
They require foreign as well as U.S. airlines to retrofit their planes 
if they wish to maintain their certificates of airworthiness.
---------------------------------------------------------------------------
    \36\ 14 CFR Section 121.1117.
    \37\ Id..
    \38\ http://www.airlines.org/Pages/Gilligan-FRM-Letter.aspx.
---------------------------------------------------------------------------
    The airlines may argue that a degree of intrusion into national 
sovereignty is acceptable where security is concerned. It should be 
kept in mind, however, that global warming is a security issue 
deserving of no less attention than aviation security as that is 
conventionally conceived. As Secretary of Defense Leon Panetta stated 
just 4 weeks ago, ``In the 21st century, the reality is that there are 
environmental threats that constitute threats to our national 
security,'' and this reality forms the strategic framework for how the 
military thinks about and is acting on long-term environmental and 
energy issues.\39\ It should for the civil aviation industry as well.
---------------------------------------------------------------------------
    \39\ ``Panetta links environment, energy and national security in 
groundbreaking speech,'' Annie Snider, E&E reporter, Thursday, May 3, 
2012.
---------------------------------------------------------------------------
    The EU ETS has been upheld by Europe's highest court as fully 
consistent with international law, and no one has found 
differently.\40\ In the absence of a more effective global solution, 
managing this environmental security problem in a reasonable, 
affordable way, now, before it gets much bigger, makes sense.
---------------------------------------------------------------------------
    \40\ See, e.g., In significant victory, Europe's highest court 
upholds EU law that curbs aviation pollution, EDF Blog, Dec. 21, 2011, 
at http://blogs.edf.org/climatetalks/2011/12/21/european-court-of-
justice-decides-eu-aviation-directive-legal/.
---------------------------------------------------------------------------
    Bringing aviation into the EU ETS can also be a pro-growth move. 
Aviation is a major employment generator.\41\ Participating in the EU 
ETS, or in a program under ICAO auspices, can generate jobs here at 
home, as experience in other nations has demonstrated.\42\ The industry 
has shown that it can make strong technical strides and transfer those 
to other sectors. In 2009, the FAA estimated that the aviation industry 
supports 10.2 million jobs and contributed $1.3 trillion in total 
economic activity.\43\ The single largest share of U.S. exports in 2009 
was civilian aircraft, engines, equipment and parts, comprising $75 
billion.\44\ Five states have aircraft-related manufacturing industries 
topping $10 billion, and in California the figure tops $25 billion. And 
the United States dominates global aviation manufacturing: Boeing's 
planes represent 75 percent of the global fleet;\45\ Pratt and 
Whitney's engines are on 30 percent of the global fleet.\46\ Rockwell 
Collins has introduced its Ascend flight information solutions product 
to help airlines comply with EU ETS reporting requirements;\47\ 
Universal Aviation has a similar reporting product that guides U.S. 
operators through the registration and reporting process and helps 
reduce fuel consumption through sophisticated monitoring software.\48\ 
Reducing emissions from aviation means increased demand for new 
aircraft bodies and engines, for more efficient ground-based power 
systems at airports, for new software that allows airlines to track 
their fuel usage and find ways to reduce idling, and technologies that 
are currently only on the drawing board. This demand in turn creates 
new skilled jobs and increases economic output.
---------------------------------------------------------------------------
    \41\ See The Economic Impact of Civil Aviation on the U.S. Economy, 
U.S. Department of Transportation Federal Aviation Administration 
(December 2011).
    \42\ See, e.g., German Federal Environmental Ministry, ``Renewably 
employed: Short and long-term impacts of the expansion of renewable 
energy on the German labour market,'' July 2011, at 5 and 42, available 
at http://www.germany.info/contentblob/3179136/Daten/1346894/
BMU_RenewablyEmployed_DD.pdf, accessed April 2012.
    \43\ http://www.faa.gov/air_traffic/publications/media/
FAA_Economic_Impact_Rpt_2011
.pdf at 1.
    \44\ http://www.faa.gov/air_traffic/publications/media/
FAA_Economic_Impact_Rpt_2011
.pdf at 11.
    \45\ http://www.boeing.com/companyoffices/aboutus/brief.html.
    \46\ http://www.pw.utc.com/about_us/assets/pw-overview.pdf.
    \47\ http://www.rockwellcollins.com/sitecore/content/Data/News/
2011_Cal_Yr/CS/FY11CS
NR36-EU_RTS.aspx.
    \48\ http://www.universalweather.com/aviation-emissions/eu-ets/.
---------------------------------------------------------------------------
    But the ETS, or a similar system under ICAO auspices, is needed 
because voluntary programs simply aren't getting the job done. 
Improvements in aircraft fuel efficiency have stalled over the last 
twenty years. The International Council on Clean Transportation (ICCT) 
has found that ``Since 2000 [aviation] fuel efficiency has remained 
flat on a seat-km basis and improved only 0.29 percent annually on a 
ton-km basis,'' a conclusion corroborated by research by the Dutch 
Aerospace Laboratory (NLR), which has found that the last piston 
powered aircraft (Lockheed Super Constellation and Douglas DC-7) of the 
late 1950s were as fuel efficient as today's modern aircraft.\49\ In 
fact, as Chart 5 on edf.org/aviation/testimony illustrates, ``fuel 
price alone has failed to continuously promote new aircraft efficiency 
since 1960.'' \50\ To maintain our lead in an era of growing global 
concern over climate change, America's aviation sector must focus on 
low-carbon development. Many technologies are available. Voluntary 
efforts help, but are not sufficient. A target focuses the industry 
like nothing else.
---------------------------------------------------------------------------
    \49\ New Flight Plan, supra, at 9.
    \50\ New Flight Plan, supra, at 9.
    
    
    Crafting that target under ICAO auspices makes sense, and it is do-
able. In fact, if there's anything on which the Obama administration, 
European administrations, the industry and environmentalists agree, 
it's that this issue would be best tackled by a global program under 
ICAO auspices, and that ICAO is finally starting to look at the issue 
seriously. It is surely no coincidence that serious discussions at ICAO 
would finally occur in tandem with the advent of the EU-ETS.
    We believe that ICAO can reach agreement by the end of next year 
(2013) on a non-discriminatory framework of market-based measures that 
achieves more emissions reductions than the EU ETS, and we would be 
happy to share with the Committee our thoughts on how ICAO can do so. 
But rather than increasing ICAO's chances for reaching such an 
agreement, S. 1956 would turn U.S. airlines into scofflaws and upend 
progress at ICAO. The Senate should instead require regular reports to 
it on ICAO's progress. If by the end of 2013 ICAO has not reached 
agreement, the Senate should consider steps that don't involve S. 
1956's unintended adverse consequences for aircraft operators and for 
U.S. taxpayers.
    It's important for this Committee to consider carefully those 
unintended consequences. The EU law, like the U.S. Clean Air Act acid 
rain trading program signed into law in 1990 by President George H.W. 
Bush, pairs caps on emissions with broad flexibility on how to comply 
with those caps, and backstops the caps with tough penalties for any 
emitter that fails to tender emissions allowances to cover its 
emissions. Were the Secretary to exercise his authority under S. 1956 
to prohibit U.S. operators from participating, then aircraft operators, 
under EU law, would be liable for billions of dollars in emissions 
penalties. While, as discussed above, the cost of compliance for 
aircraft operators with the EU ETS is minimal, and for the most 
efficient operators, compliance could turn into a profit center, non-
compliance with the EU ETS has the potential to be extremely costly.
    Under the EU law, carriers that do not tender, by April 30th of 
each year, emissions allowances sufficient to cover their actual 
emissions in the prior year, will automatically be subject to a penalty 
of $125 per ton. And they will still be liable for their emissions.
    That such penalties apply is very clear under the EU law. For 
example in February 2012, ExxonMobil was fined 3 million euros for 
failing to report carbon dioxide emissions from a Scottish chemical 
plant. ExxonMobil paid the fine.\51\ But if U.S. carriers don't pay the 
fines because they are prohibited from participating in the ETS, then 
under the national laws of nations implementing the ETS, their aircraft 
can be impounded and sold to pay the penalties.\52\ Moreover, the 
airlines could be liable for breach of any aircraft leases that contain 
(as is typical) clauses requiring the lessors to comply with the law of 
the jurisdictions in which they operate--and many commercial carriers 
lease at least some portion of their fleet.\53\
---------------------------------------------------------------------------
    \51\ http://www.businessgreen.com/bg/news/2153536/exxonmobil-hit-
record-eur33m-penalty-failing-report-co2.
    \52\ See United Kingdom Statutory Instrument 2010 No. 1996, CLIMATE 
CHANGE: The Aviation Greenhouse Gas Emissions Trading Scheme 
Regulations (2010), http://www
.legislation.gov.uk/uksi/2010/1996/pdfs/uksi_20101996_en.pdf, at PART 
9, Detention and sale of aircraft.
    \53\ See, e.g., Watson, Farley & Williams Aviation Briefing 2011, 
available at http://www
.wfw.com/Publications/Publication938/$File/WFW-Aviation-
EUETSEuropewide-2011.pdf.
---------------------------------------------------------------------------
    Altogether, these penalties make non-participation in the EU ETS 
far more costly than compliance. We conservatively estimated the costs 
of non-participation for the five largest U.S. passenger airlines that 
fly to Europe--United, Continental (since merged with United), 
American, Delta, and U.S. Airways. Together, they emitted almost 16 
million tonnes of carbon dioxide on flights between the U.S. and Europe 
in 2010.\54\ \55\ Using the U.S. Federal Aviation Administration (FAA) 
official projections for aviation growth,\56\ at today's exchange 
rate,\57\ the financial liability of these carriers would be $2 billion 
in 2012, growing to $2.8 billion in 2020, and totaling $22 billion for 
the 2012-2020 period.\58\ Moreover, by imposing an enforceable duty--
the statutory excess emissions penalty of $125/tonne of emissions, 
enforced by the impound-and-sell authority--on U.S. carriers, S. 1956 
would impose an unfunded private sector mandate far in excess of the 
$142 million threshold for such mandates under Section 7 of the 
Unfunded Mandates Reform Act (UMRA). \59\ And if the legislation would 
impose a private sector mandate in excess of the UMRA threshold, then 
there should, at a minimum, be a qualitative and a quantitative 
assessment of costs and benefits anticipated from the Federal mandate 
(including the effects on health and safety and the protection of the 
natural environment).
---------------------------------------------------------------------------
    \54\ United Kingdom Department of Energy and Climate Change. 
Downloaded on January 11, 2012 from http://www.decc.gov.uk/en/content/
cms/emissions/eu_ets/aviation/aviation.aspx.
    \55\ German Emissions Trading Authority. 2012. Allocation of 
Emission Allowances to Aircraft Operators for Trading Periods 2012 and 
2013-2020. Available at http://www.dehst.de/SharedDocs/Downloads/EN/
Publications/Aviation_Allocation_report.pdf?_blob=publication
File.
    \56\ United States Federal Aviation Administration. 2012. FAA 
Aerospace Forecast: Fiscal Years 2012-2032. Available at http://
www.faa.gov/about/office_org/headquarters_offices/apl/
aviation_forecasts.
    \57\ 1.24 as of May 31, 2012, using Oanda's Currency Converter at 
http://www.oanda.com/currency/converter/.
    \58\ In nominal terms at a constant exchange rate.
    \59\ The UMRA provides: ``(7) FEDERAL PRIVATE SECTOR MANDATE.--The 
term `Federal private sector mandate' means any provision in 
legislation, statute, or regulation that----

    ``(A) would impose an enforceable duty upon the private sector 
except--``(i) a condition of Federal assistance;'' or ``(ii) a duty 
arising from participation in a voluntary Federal program;'' or

    ``(B) would reduce or eliminate the amount of authorization of 
appropriations for Federal financial assistance that will be provided 
to the private sector for the purposes of ensuring compliance with such 
duty.''
---------------------------------------------------------------------------
    Moreover, not only does S. 1956 provide authority to the Secretary 
of Transportation to prohibit an operator of a civil aircraft of the 
United States from participating in the EU ETS if the Secretary 
determines it to be in the public interest to do so, but also provides 
that ``The Secretary of Transportation, the Administrator of the 
Federal Aviation Administration, and other appropriate officials of the 
U.S. Government shall, as appropriate, use their authority to conduct 
international negotiations and take other actions to ensure that 
operators of civil aircraft of the United States are held harmless'' if 
the Secretary exercises his authority to ban their participation. So, 
S. 1956 presents a stark choice to the Secretary: if he imposes the 
ban, he either subjects the airlines to an unfunded mandate whose only 
resolution is either convincing the European Union and its member 
states to amend their laws, or, if the Europeans are unwilling to do 
so, he must pass the multibillion dollar liability to the U.S. 
taxpayer, bailing the airlines out of a problem that is of their own 
making.
    In other words, S. 1956 sets the Secretary up to make U.S. airlines 
into scofflaws, visit a multi-billion dollar liability on them, and 
then somehow send the bill to U.S. taxpayers. Those are policies that 
our economy can ill afford.
    Moreover, should the U.S., by enacting S. 1956, encourage or 
require U.S. corporations to violate the laws of other nations, the 
good will of other nations may be less forthcoming in the future. 
Beyond aviation, this has implications for national security (the 
PATRIOT Act), financial regulations (antitrust law, Dodd-Frank, 
Sarbanes-Oxley, the FCPA, trademark law, tax evasion), criminal and 
human rights law (ATCA, Victims of Trafficking and Violence Protection 
Act, Controlled Substances Act), and other U.S. laws where the 
cooperation of other governments, and the participation of their firms, 
is crucial. Balking over the EU Aviation Directive is not worth the 
loss of comity in all of these other areas.
    Mr. Chairman, while we continue to work in ICAO on an effective 
global framework for limiting global warming pollution from aviation, 
an objective we believe is achievable during 2013, the EU ETS makes a 
modest and reasonable start. Participating in it can drive technology 
innovation and job creation here at home, while cutting pollution and 
potentially opening new profit centers for airlines, or at least 
achieving these goals at minimal cost. The competitiveness impacts, if 
any, favor U.S. carriers over their European competitors. And the 
substantial unintended adverse consequences--for airlines and for 
American taxpayers--of enactment of S. 1956 call for extreme caution in 
considering that bill. Ultimately, the best option would be for the 
Secretary to negotiate a strong and effective framework in ICAO.
    We hope this discussion will be of assistance to you and all the 
Committee members as you together undertake your consideration of how 
best to address the issue of global warming pollution from aviation, in 
the context of an interconnected and interdependent world. We thank you 
and all the Committee members for your careful consideration. We would 
be happy to answer any questions.

    The Chairman. Thank you very much.
    Ms. Young. 

  STATEMENT OF NANCY N. YOUNG, VICE PRESIDENT, ENVIRONMENTAL 
              AFFAIRS, AIRLINES FOR AMERICA (A4A)

    Ms. Young. Thank you for the opportunity to testify 
regarding the unilateral and extraterritorial European 
emissions trading scheme, a scheme that poses a threat to our 
nation's airlines, exports, and the economy, and also to 
advancing the right kind of measures to further address 
aviation greenhouse gas emissions.
    My name is Ms. Nancy Young. I'm Vice President for Airlines 
for America, and I'm representing major passenger and cargo 
carriers. A4A is joined in its opposition to the EU scheme by 
an extensive bipartisan constituency in the United States and 
around the world. This deep and abiding opposition is 
warranted.
    Since 2009 the scheme has required U.S. airlines to monitor 
and report their emissions for all flights to and from the EU 
over the entirety of the flight. But beginning on January 1, 
the burden increased exponentially. Since then, our airlines 
have been obligated to acquire special emissions allowances 
covering the whole of each flight.
    Consider the example of an actual A4A member flight from 
San Francisco to London. Once the aircraft engine is engaged, 
the EU emissions rules apply. As a percentage of total 
emissions, 29 percent take place in U.S. airspace, 37 percent 
in Canadian airspace, 25 percent over the high seas. Less than 
9 percent of the emissions take place in the EU airspace.
    The imposition of this unilateral cap, tax, and trade 
scheme on U.S. citizens and U.S. companies is a clear violation 
of our nation's sovereignty and treaties governing 
international aviation and commerce.
    The EU tries to argue that if the U.S. just adopts 
equivalent measures, the EU will exempt our airlines on one leg 
of the flight. That our government should take orders from the 
EU on how to fashion U.S. law is an astonishing proposition. 
Moreover, it's a recipe for chaos.
    While significant, this dispute is not really about the 
amount of the exorbitant tax U.S. airlines and consumers have 
to pay into European coffers. It is about the implications of 
the EU jurisdictional grab. Simply put, if the EU can tax the 
emissions over the entirety of a flight merely because it 
touches down in Europe, what is to keep the EU from imposing 
greenhouse gas emissions import taxes on U.S. autos, 
pharmaceuticals, chemicals, and other goods? And on what basis 
will the U.S. stand up against other countries that seek to do 
the same?
    Unfortunately, the EU has thumbed its nose at diplomacy, 
just as it did when it adopted an illegal ban on aircraft 
fitted with hush kit technology in the early 2000s. I know you 
remember that one. As the U.S. did then, so must it now take 
concrete legal action to overturn the application of the ETS to 
U.S. airlines.
    Make no mistake. The ETS is not about the environment. It's 
about a new source of revenue for cash-strapped Europe. Indeed, 
none of the monies collected are required to be used for 
environmental purposes. By contrast, the initiatives U.S. 
airlines are undertaking are resulting in real environmental 
improvements.
    By investing billions of dollars in fuel-saving aircraft 
and engines, innovative technologies and avionics, the U.S. 
airline industry improved its fuel efficiency by 120 percent 
between 1978 and 2011, resulting in emissions savings 
equivalent to taking 22 million cars off the road each of those 
years. That is why our industry represents just 2 percent of 
the U.S. greenhouse gas emissions, while driving over 5 percent 
of the nation's GDP.
    And we're not stopping there. A4A and its members are part 
of a worldwide aviation coalition with an aggressive proposal 
for further carbon emissions reductions at the appropriate 
international body, ICAO. ICAO has put many elements of this 
global framework in place. In addition, it is developing a 
CO2 standard for aircraft and undertaking work on 
potential market-based measures, work that is slated to be 
completed in 2013.
    Ironically, the ETS has been a roadblock to finalizing full 
agreement at ICAO. Urgent concrete action by the United States 
is needed to overturn the application of the ETS to U.S. 
airlines and to bring the EU back to the table in support of 
this global framework.
    As it has done before, the U.S. in its role as a world 
leader must wield the tools it has to remove the wrong measure 
in favor of the right one. This should include the filing of a 
legal challenge to the ETS under Article 84 of the Chicago 
convention.
    We thank Senators Thune and McCaskill for their leadership 
in sponsoring the European Union Emissions Trading Scheme 
Prohibition Act, and we urge the Senate to approve this 
legislation. This will convey the seriousness of the Senate's 
concerns about the unilateral EU actions, their effects on U.S. 
airlines, consumers, exports, and our economy. Moreover, it 
will spur the administration to go beyond diplomatic talk to 
concrete action and will serve as a critical catalyst for 
finalizing a global agreement at ICAO.
    Thank you for the opportunity to testify.
    [The prepared statement of Ms. Young follows:]

  Prepared Statement of Nancy N. Young, Vice President, Environmental 
                  Affairs, Airlines for America (A4A)
Introduction
    Airlines for America (A4A) appreciates this opportunity to share 
its concerns regarding the unilateral and extraterritorial application 
of the European Union Emissions Trading Scheme (EU ETS) to our 
airlines.
    We are joined in our opposition to this scheme by an extensive, 
diverse and bipartisan constituency, including the Obama 
administration, manufacturers, labor unions, travel-service providers, 
a broad array of aviation trade associations and countries around the 
world. We are appreciative that the U.S. Congress has also expressed 
opposition to the unilateral EU scheme in the recently approved FAA 
reauthorization legislation, H.R. 2954 as approved in the U.S. House of 
Representatives, and bipartisan legislation pending here in the Senate.
    This deep and abiding opposition to the EU tax scheme is warranted. 
The unilateral imposition of the cap-tax-and-trade scheme on U.S. 
citizens and U.S. companies is a clear violation of U.S. sovereignty 
and the treaties governing international aviation and commerce.
    Of course, it may not come as a big surprise that A4A and its 
member airlines are raising concerns about such a broad-based tax and 
regulatory scheme. While significant, however, this dispute is not 
really about the amount of the exorbitant tax--$3.1 billion--that U.S. 
airlines, aircraft operators and consumers will have to pay into 
European coffers through 2020. It is about the implications of the EU 
jurisdictional grab over worldwide aviation. Simply put, if the EU can 
tax the emissions over the entirety of a flight merely because it 
touches down in Europe, despite U.S. sovereignty and international 
agreements, what is to keep the EU from imposing greenhouse gas (GHG) 
import taxes on U.S. automobiles, pharmaceuticals, chemicals and other 
goods the EU imports from the United States? And on what basis will the 
United States stand up against other countries that seek to cover 
global aviation emissions or emissions from the production of U.S. 
imports with multiple, unilateral, overlapping, worldwide GHG taxation 
schemes?
    Through direct and coalition diplomatic efforts, the Obama 
administration has given the EU every chance to withdraw or stay its 
unilateral scheme. But the EU has snubbed these diplomatic efforts, as 
it did when they adopted an illegal ban on aircraft fitted with 
``hushkit'' technology in the early 2000s. As it did with the 
unilateral hushkit ban, the United States must now take concrete legal 
action to overturn the application of the EU ETS as to U.S. airlines 
and operators.
    Doing so is critical to preserving fair and open international 
aviation and trade. It also would be beneficial to the environment, as 
it would remove a significant roadblock to implementing an 
international agreement on aviation and climate change at the 
International Civil Aviation Organization (ICAO), the United Nations 
body charged by treaty with setting standards and recommended practices 
for international aviation. Make no mistake: the EU ETS is not about 
the environment. It is about a new source of revenue for Europe. None 
of the monies collected by the Europeans are required to be used for 
environmental purposes.
    By contrast, the initiatives that U.S. airlines are undertaking to 
enhance our already strong record of fuel-efficiency advances and GHG 
emissions savings are resulting in real environmental improvements. 
Moreover, we have an ambitious proposal on the table for an 
international framework of aviation-specific emissions measures and 
targets at ICAO, on which full agreement could be reached at the next 
ICAO Assembly in September 2013.
    Urgent, concrete action by the United States is needed to overturn 
the application of the EU ETS to U.S. airlines and aircraft operators, 
and to bring the EU back to the table in support of a global framework 
under ICAO. The U.S. Senate can and should help in this regard, by 
approving S. 1956, the ``European Union Emissions Trading Scheme 
Prohibition Act.''
America's Airlines: Green and Getting Greener, A Catalyst for U.S. 
        Economic Growth
    For generations, flying has contributed to a better quality of 
life. Commercial aviation has been essential to the growth of our 
economy, yielded breakthrough technologies, brought people together and 
transported critical cargo--all while achieving an exceptional 
environmental track record. No industry is better positioned to 
stimulate the Nation's economy while constantly enhancing its 
environmental performance.
    Today's airplanes are more technologically advanced--they are 
quieter, cleaner and use less fuel than ever--and airlines are flying 
them in ways that make maximum use of the technology to reduce fuel 
burn and environmental impacts. That's why our industry represents just 
2 percent of all GHG emissions in the United States (see Figure 1) 
while driving 5 percent of the Nation's GDP. Commercial aviation is a 
tremendous enabler of the U.S. and global economies. In the United 
States, aviation drives over $1 trillion in annual economic activity. 
Airlines are at the heart of this, responsible for nearly 10 million 
U.S. jobs. And every 100 airline jobs help support some 360 jobs 
outside of the airline industry.


    For the past several decades, commercial airlines have dramatically 
improved fuel and GHG efficiency by investing billions in fuel-saving 
aircraft and engines, innovative technologies like winglets (which 
improve aerodynamics) and cutting-edge route-optimization software. As 
a result, between 1978 and 2011, the U.S. airline industry improved its 
fuel efficiency by 120 percent, resulting in 3.3 billion metric tons of 
carbon dioxide (CO2) savings--equivalent to taking 22 
million cars off the road on average in each of those years. Further, 
data from the Bureau of Transportation Statistics confirms that U.S. 
airlines burned 11 percent less fuel in 2011 than they did in 2000, 
resulting in an 11 percent reduction in CO2 emissions, even 
though they carried almost 16 percent more passengers and cargo on a 
revenue-ton-mile basis.
    And we are not stopping there. The initiatives that our airlines 
are undertaking to further address GHG emissions are designed to 
responsibly and effectively limit our fuel consumption, GHG 
contribution and potential climate change impacts, while allowing 
commercial aviation to continue to serve as a key contributor to the 
U.S. economy. For example, A4A and its airlines are dedicated to 
developing commercially viable, environmentally friendly alternative 
jet fuel, which could be a game-changer in terms of aviation's output 
of GHG emissions while enhancing U.S. energy independence and security. 
To these ends, A4A is a founder and co-lead of the Commercial Aviation 
Alternative Fuels Initiative (CAAFI), a consortium of airlines, 
government, manufacturers, fuel suppliers, universities, airports and 
others working to hasten the development and deployment of such fuels. 
Moreover, we are central stakeholders in partnering efforts to 
modernize the outdated air traffic management (ATM) system on a 
business-case basis and to reinvigorate research and development in 
aviation environmental technology, both of which can bring additional 
and extensive emissions reductions.
America's Airlines Have Put Forward an Affirmative, Global Plan for 
        Even More Greenhouse Gas Emissions Savings
    Because A4A opposes the unilateral application of the EU ETS to 
U.S. airlines and aircraft operators, some have tried to assert that 
A4A and its member airlines oppose regulation altogether. This could 
not be farther from the truth. What we seek is what the Future of 
Aviation Advisory Committee (FAAC) recommended in December 2010, a 
``harmonized sectoral approach for aviation CO2 emissions 
reductions.'' \1\ As recognized by the FAAC, ``disparate and 
conflicting requirements imposed at the state, Federal, and/or 
international levels can undercut necessary investments and progress.'' 
\2\ To address this, the FAAC found that ``[t]here is a strong need for 
a rationalized, harmonized approach to aviation GHG emissions, as 
opposed to the myriad of often counterproductive proposals--
particularly those involving emissions taxes, charges, and trading.'' 
\3\
---------------------------------------------------------------------------
    \1\ See U.S. DOT, Future of Aviation Advisory Committee (FAAC) 
Recommendations, at 5 (Dec. 15, 2010).
    \2\ U.S. DOT, Future of Aviation Advisory Committee, Final Report, 
at 19 (April 11, 2011), available at http://www.dot.gov/faac/docs/faac-
final-report-for-web.pdf.
    \3\ Id.
---------------------------------------------------------------------------
    A4A and its members are part of a worldwide aviation coalition with 
a significant proposal on the table for further addressing aviation 
CO2 through a harmonized approach, under ICAO. Our focus is 
on getting further fuel efficiency and emissions savings through new 
aircraft technology, sustainable alternative aviation fuels and air 
traffic management and infrastructure improvements.
    Our ``global sectoral approach'' proposal for aviation GHG 
emissions includes an aggressive set of measures and emissions targets. 
Under this approach, the framework for both international and domestic 
aviation emissions would be established internationally. All airline 
emissions would be subject to emissions targets requiring industry and 
governments to do their part. As proposed by the industry, these would 
be an annual average fuel-efficiency improvement of 1.5 percent through 
2020 and carbon-neutral growth from 2020, subject to critical 
government infrastructure and technology investments such as air 
traffic control modernization, with an aspirational goal of a 50 
percent reduction in CO2 by 2050 relative to 2005 levels.
    Significantly, at its 2010 Assembly, ICAO adopted much of the 
industry's framework. While more work is needed to flesh out this 
framework, as U.S. Government representatives to ICAO have recognized, 
the opposition of many countries to the unilateral EU ETS has been a 
roadblock. Nonetheless, the airlines remain committed to seeing the 
framework implemented and are moving forward with fuel-efficiency and 
emissions-reducing measures in the meantime.
    The EU seeks to justify its unilateral approach to regulating the 
world's airlines on the grounds that ICAO has not taken action on 
aviation and climate change. This is ironic, given that the EU ETS 
itself has been a roadblock to the most recent work at ICAO, but it is 
also inaccurate, as ICAO has taken many steps to address the climate 
change impacts of international aviation, including, but not limited 
to, the following:

   When climate change concerns first began to emerge, ICAO 
        called on the Intergovernmental Panel on Climate Change (IPCC) 
        to undertake a sector-specific study of the climate change 
        impacts of aviation. The resulting study, ``Aviation and the 
        Global Atmosphere,'' remains the only sector-specific study 
        ever prepared by the IPCC and continues to be recognized as a 
        seminal work.

   In 2003, ICAO published ICAO Circular 303, ``Operational 
        Opportunities to Minimize Fuel Burn and Reduce Emissions.'' 
        This comprehensive guidance document provides state-of-the-art 
        information on a wide range of operational measures that 
        airlines, air-navigation service providers and airports can 
        take to reduce fuel burn and resulting GHG and local air 
        quality emissions of concern. ICAO has held several workshops 
        around the world to raise awareness about the content of the 
        document and to promote the implementation of its 
        environmentally friendly procedures.

   ICAO has developed and published a template voluntary 
        agreement on voluntary measures that may be taken by aviation 
        stakeholders to limit or reduce GHG emissions. In the Assembly 
        Resolution adopted in 2004, ICAO urged States and aviation 
        stakeholders to adopt voluntary GHG reduction measures. The 
        aviation industry has done that through our ``global sectoral 
        approach'' program.

   The 2004 ICAO Assembly also directed that the ICAO Council 
        conduct further work on open emissions trading while agreeing 
        that States should ``refrain from unilateral environmental 
        measures that would adversely affect the orderly development of 
        international civil aviation.'' \4\
---------------------------------------------------------------------------
    \4\ The EU often asserts that the 2004 ICAO Assembly endorsed the 
approach the EU has taken, to unilaterally include the world's airlines 
in its emissions trading system. This assertion is inaccurate. What 
ICAO endorsed was ``further development of an open emissions trading 
system for international aviation,'' under certain conditions. See ICAO 
Assembly Resolution A35-5, Consolidated statement of continuing ICAO 
policies and practices related to environmental protection, 2004. 
Specifically, while agreeing that States should refrain from unilateral 
measures that would harm aviation, the ICAO Assembly requested that the 
ICAO Council conduct further work on a voluntary emissions trading 
approach and provide guidance on how States with existing emissions 
trading schemes might incorporate emissions from international aviation 
into those schemes ``consistent with the UNFCCC process,'' and to the 
extent ``appropriate,'' while addressing ``the structural and legal 
basis for aviation's participation in an open emissions trading 
system.'' Id. As noted herein, ICAO has done the requested work on how 
mutually agreeing countries may include international aviation in 
emissions trading.

   In response to the 2004 ICAO Assembly request, the ICAO 
        Council has prepared and adopted guidance on the participation 
        of international aviation in open emissions trading systems. 
        Finalized in 2007, this guidance provides the basis for 
        agreeing States to address GHG emissions from their airlines' 
        international flights through emissions trading.\5\
---------------------------------------------------------------------------
    \5\ The ICAO work shows how two or more countries may employ 
emissions trading through mutual agreement. Thus, to the extent that 
European States wish to employ emissions trading among their own 
airlines, the ICAO provisions allow for and provide guidance on this. 
However, the EU has overstepped these provisions by unilaterally 
imposing the EU ETS on non-agreeing countries.

   In October 2009, ICAO held a special ``High Level Meeting on 
        Climate Change.'' At that meeting, the ICAO Member States 
        adopted a ``Programme of Action'' and Declaration on aviation 
        and climate change. In addition to adopting a worldwide, 
        aviationwide fuel-efficiency target through 2020, the States 
        agreed to work more on ``goals of greater ambition,'' a 
        framework for market-based measures, and initiatives to foster 
        the development of more energy-efficient aircraft, sustainable 
        alternative fuels and operational measures, ATM improvements 
---------------------------------------------------------------------------
        and airport improvements to reduce emissions.

   In 2010, the ICAO Committee on Aviation Environmental 
        Protection completed work on how countries with domestic 
        emissions trading schemes might mutually agree to link them and 
        include international aviation in that linkage. The resulting 
        ``Report on Scoping Study of Issues Related to Linking Open 
        Emissions Trading Systems Involving International Aviation'' 
        was approved by the ICAO Council in June 2010.

   The 2010 ICAO Assembly Resolution took another significant 
        step toward a full framework on aviation GHG emissions. It 
        confirmed that the appropriate approach for addressing aviation 
        GHG emissions through 2020 is through fuel-efficiency goals and 
        established a sectorwide goal of carbon neutral growth from 
        2020. Through the resolution, States agreed to track their 
        aviation emissions and to submit ``Action Plans'' by the end of 
        this June that describe the steps they are taking to help 
        achieve the global emissions goals.\6\ Further, after adopting 
        a set of principles for market-based measures, the States 
        directed ICAO to further assess the potential for market-based 
        measures that might be agreed on a global basis and a framework 
        (or more detailed ``playbook'') for such measures. This work is 
        going on now, as is work on a first-of-its-kind CO2 
        standard for aircraft (work that is being co-led by the U.S. 
        Environmental Protection Agency with support from the Federal 
        Aviation Administration), which also was agreed at the ICAO 
        Assembly.
---------------------------------------------------------------------------
    \6\ In fact, the United States is poised to file its Action Plan 
later this month.

    Significant pieces of a global framework are in place, and A4A 
continues to support the stepwise approach the international community 
is taking toward a fully harmonized global aviation framework on GHG 
emissions. With the aviation industry supporting a global sectoral 
approach at ICAO and the many countries who oppose the EU ETS 
recommitting themselves to further address aviation GHG emissions 
through ICAO, implementation of this framework could be agreed, as 
hoped, at the ICAO Assembly in September 2013. Contrary to what the EU 
asserts, this timing would not be ``late.'' Rather, it would be ahead 
of the United Nations Framework Convention on Climate Change (UNFCCC) 
efforts to replace the Kyoto Protocol (whose terms expire at the end of 
this year), now aimed at completion of a climate change agreement by or 
in 2015, with the view of having emissions targets from 2020 and 
beyond.
The Unilateral and Extraterritorial Application of the EU ETS to U.S. 
        Airlines Violates U.S. Sovereignty and Is a Recipe for Chaos in 

        Aviation and Global Trade
    International aviation is governed by treaty, customary 
international law and air-services agreements between countries. In 
addition to imposing requirements directly on international flights, 
these international and bilateral agreements set forth rules and limits 
on the types of regulations that individual countries can impose on the 
airlines of other countries. This makes sense. If one country or a set 
of countries could unilaterally impose any requirements they wanted on 
international flights, it would be very difficult--if not impossible--
for flights from country to country to occur. Thus, the treaty, 
customary international law and air-services agreement rules are very 
important to ensuring freedom to travel and enabling international 
commerce.
The Extraterritorial Reach of the EU ETS and U.S. Sovereignty
    Although the EU ETS violates international law in many respects, 
perhaps the most egregious is its regulatory overreach into other 
nations, including into the United States. By its terms, the EU ETS 
applies to airlines that fly to, from and within the EU, placing a cap 
on the total quantity of emissions for such flights. Since 2009, the EU 
ETS legislation has required U.S. airlines with flights to European 
States and territories to monitor and report to the EU their emissions 
for the entirety of each individual flight to, from and within the 
EU.\7\ Beginning on January 1, 2012, that legislation imposed on our 
airlines an obligation to acquire allowances to cover the emissions 
over the whole of these flights.\8\ That includes emissions while at 
the gate or taxiing on the ground at U.S. airports, in U.S. airspace, 
over Canada or other non-EU countries, over the high seas, as well as 
within the airspace of EU Member States.
---------------------------------------------------------------------------
    \7\ Notably, U.S. airlines long have been subject to the world's 
most comprehensive aviation-related data reporting obligations, 
reporting to the U.S. Department of Transportation Office of Airline 
Information (OAI). That ``Form 41'' data provides detailed fuel-burn 
data that is translated into GHG emissions data. Thus, the United 
States has long had the most comprehensive aviation GHG data of any 
country in the world. Although A4A urged the EU to recognize the Form 
41 data when adopting rules to implement the EU ETS with respect to 
aviation, the EU chose instead to create a whole new emissions 
reporting regime, subjecting U.S. carriers with EU flights to 
overlapping and differing reporting requirements.
    \8\ Although airlines do not have to ``pay up'' until 2013, the 
liability is very real, triggering securities disclosures and 
significant expenditures for U.S. airlines to be prepared to pay the 
bill in 2013.
---------------------------------------------------------------------------
    The example of an actual A4A member airline flight from San 
Francisco to London Heathrow illustrates this well (see Figure 2). From 
the time the aircraft engine is engaged, even before the aircraft 
begins to taxi from the gate in San Francisco, the EU emissions rules 
apply. As a percentage of total emissions, 29 percent take place in 
U.S. airspace, including those on the ground at the airport. A further 
37 percent take place in Canadian airspace, and a further 25 percent 
over the high seas. Less than 9 percent of emissions from this flight 
take place in EU airspace. Yet the EU ETS emissions-allowances 
requirement applies to the emissions for the entire flight from start 
to finish. And should the U.S. airline not purchase and surrender to 
the EU the amount of allowances required by the scheme, that airline 
will be subject to an ``excess emissions penalty'' of 100 euros per 
metric ton of carbon dioxide equivalent.


    By asserting EU jurisdiction over U.S. airlines and emissions on 
the ground in the United States and in U.S. airspace, the EU and its 
States are in violation of Article 1 of the Convention on International 
Civil Aviation, referred to as the ``Chicago Convention'' and customary 
international law, which state that every country has jurisdiction over 
its own airspace. Further, by asserting EU jurisdiction over U.S. 
airlines and their emissions over the high seas, the EU and its States 
are violating the Chicago Convention and customary international law, 
which provide that only the country of registry and ICAO may regulate 
aircraft over the high seas.
    Reducing these violations to mere legal citations does not do them 
justice. What is at issue here is nothing less than U.S. sovereignty.
The EU and EU States' Unilateral Action Threatens International 
        Aviation and International Commerce
    The Chicago Convention is intended to establish ``certain 
principles and arrangements in order that international civil aviation 
may be developed in a safe and orderly manner and that international 
air transport services may be established on the basis of equality of 
opportunity and operated soundly and economically.'' To carry out this 
important mandate, ICAO was created and authorized to adopt and amend 
``international standards and recommended practices and procedures'' 
dealing with various aspects of safety, operation and efficiency of air 
navigation and environment. ICAO authority extends to setting 
international standards, policy and recommended practices for 
international aviation and climate change.
    The EU's unilateral act is in breach of ICAO authority and the 
agreement of parties to the Chicago Convention ``to collaborate in 
securing the highest practicable degree of uniformity in regulations, 
standards, procedures and organization'' regarding international 
aviation. Further, the EU unilateral scheme violates Article 2.2 of the 
Kyoto Protocol, to which the EU and its Member States are parties, 
which expressly recognizes ICAO as the proper body through which 
countries may agree to a framework for further addressing GHG emissions 
from international aviation. This unilateral and piecemeal approach can 
only lead to chaos in international travel and trade.
    As noted, the EU ETS imposes a cap on the total quantity of 
aviation emissions for flights to, from and within the EU. This cap is 
set at a level lower than ``historical aviation emissions,'' defined as 
the average of aviation emissions from 2004 to 2006. For 2012, the cap 
is set at 97 percent of the 2004-2006 average; for 2013 the cap is set 
at 95 percent. Although the current EU ETS legislation--which by its 
own terms is to be reviewed and subject to amendment after 2014--calls 
for up to 85 percent of aviation emissions allowances under the cap to 
be distributed ``free of charge,'' 15 percent are only available by 
auction by EU States. Further, airlines must purchase emissions 
allowance to cover any emissions above the historic cap.
    The language of the EU ETS Directive reflects the reality of the 
situation; while some allowances may be distributed ``free of charge,'' 
the remainder may only be procured upon payment of a charge, making the 
EU ETS a cap, levy and trading scheme. The levy aspect of the scheme 
violates provisions in the Chicago Convention and in the US-EU 
bilateral air services agreement that govern the conditions under which 
one country may impose taxes and charges on the airlines of another.\9\
---------------------------------------------------------------------------
    \9\ Specifically, the EU ETS breaches Article 15 of the Chicago 
Convention, which prohibits the levying of ``fees, dues or other 
charges'' on international aircraft ``solely of the right of transit 
over or entry into or exit from'' the EU. While Article 15 allows for 
charges to be applied under certain circumstances, such charges must be 
``cost-based and related to the provision of facilities and services 
for civil aviation.'' However, payments by airlines for emissions 
allowances under the EU ETS are not cost-based and do not have to be 
used specifically to address the impact of aviation emissions. Further, 
by basing the levy on an airline's fuel consumption, the EU ETS 
violates Article 24 of the Chicago Convention and Article 11(2) of the 
U.S.-EU bilateral air-services agreement, which prohibit countries from 
taxing fuel onboard an aircraft or uplifted for an international flight 
absent the express consent of the airline's country of registry.
---------------------------------------------------------------------------
    The EU ETS imposes a steep levy on U.S. airlines. Moreover, given 
that carbon prices are volatile, the EU ETS exposes U.S. airlines to 
increasing and varying costs that are difficult to predict and 
incorporate into business planning. In light of the sustained economic 
downturn in Europe and uncertainty regarding negotiations to replace 
the Kyoto Protocol, which expires in 2012, carbon-allowance prices in 
the EU currently are about a third of what they were just 3 years ago. 
However, even projecting forward from the current cost of carbon, the 
U.S. airlines will be required to pay into EU coffers more than $3.1 
billion between 2012 and year-end 2020.\10\ That outlay could support 
over 39,200 U.S. airline jobs. Now consider that the costs could be 
twice as high if the cost of carbon allowances in Europe returns to 
where it was within the past 3 years. That cost outlay would represent 
over 78,500 U.S. airline jobs.
---------------------------------------------------------------------------
    \10\ While different analysts may come up with different numbers, 
in November 2011, Bloomberg Government put the cost between $2.1 
billion and $4.2 billion through 2020, depending on the cost of carbon 
allowances. See Bloomberg, Europe's Overreach on Plane Emissions Won't 
Clean the Sky, (Dec. 21, 2011) (available at http://www.bloomberg.com/
news/2011-12-22
/europe-s-overreach-on-airplane-carbon-emissions-won-t-clean-the-sky-
view.html). This is squarely within the range that A4A analysis 
suggests.
---------------------------------------------------------------------------
    And it could get even worse, as the cost of carbon is not the only 
variable here. These cost estimates are based on the amount of free 
allowances and the emissions caps established in the current EU ETS 
Directive. However, by its own terms, the Directive calls for a review 
in 2014 that could reopen the quantity of free allowances and emissions 
caps applicable to aviation.
    Notably, none of the monies collected by the European States under 
the scheme are required to be used for aviation environmental purposes 
in particular or even environmental purposes at all. And in fact, some 
European countries, such as the United Kingdom, have expressly 
denounced any obligation to earmark the collected funds for an aviation 
or environmental purpose.\11\ All the while taking U.S. airline, 
passenger and shipper dollars, the EU ETS will siphon away to European 
coffers the very funds that our airlines need to continue investing in 
the technological, operational and infrastructure improvements required 
to meet our emissions targets. This is truly anti-environment.
---------------------------------------------------------------------------
    \11\ See GreenAir Online, UK Says it Will Not Earmark Aviation 
Revenues from EU ETS Auctioning for Environmental Measures, (Aug. 14, 
2008), available at http://host1.bondware.com/GreenAirOnline/
news.php?viewStory=233.
---------------------------------------------------------------------------
    There is no question that A4A has significant concern about any tax 
or charge that may add to our airlines' and customers' financial 
burden. Indeed, the industry already pays more than its fair share of 
taxes--air travel and transport are taxed at a greater rate than 
alcohol and tobacco, products that are taxed at levels to discourage 
their use. However, taxes and charges imposed on a global basis despite 
treaties and trade agreements, as is the case with the EU ETS, should 
be of grave concern to us all.
    According to U.S. trade statistics, in 2011, the United States 
exported goods to the EU valued at more than $268 billion.\12\ If the 
EU and its States may impose a GHG emissions levy on emissions over the 
entirety of a flight merely because it touches down in Europe, what is 
to keep the EU from imposing GHG import taxes on the 9 billion dollars' 
worth of U.S. automobiles imported by Germany, the 4 billion dollars' 
worth of U.S. pharmaceuticals imported by the United Kingdom, the 7.2 
billion dollars' worth of U.S. civilian aircraft imported by France, or 
the 5 billion dollars' worth of U.S.-manufactured chemicals imported by 
Belgium last year? And if the EU can impose a tax reaching aircraft 
emissions around the world despite the limits in relevant treaties, on 
what grounds will we be able to keep other countries from imposing 
multiple, overlapping, worldwide taxation schemes on aircraft 
emissions? And what if the EU decides that the principles it has used 
to justify a unilateral assertion of jurisdiction over GHG emissions 
also apply to labor laws, health care policies or other regulatory 
matters attendant to a flight that might touch down in Europe or a 
particular product imported into the EU from the United States? To 
avoid such results, the United States must act to overturn the 
unilateral EU scheme.
---------------------------------------------------------------------------
    \12\ See http://www.census.gov/foreign-trade/balance/c0003.html.
---------------------------------------------------------------------------
The EU ETS ``Equivalent Measures'' Provision Is Not a Way Forward
    In answer to criticism regarding EU unilateralism raised by A4A, 
the U.S. Government and other countries and airlines around the world, 
the EU has suggested that the provision in its EU ETS Directive 
allowing for exemptions under certain circumstances allows for a way 
forward. The EU argues that if other countries adopt ``equivalent 
measures'' to the EU ETS it will withdraw application of its scheme on 
one leg of an international flight, allowing the other country's 
measures to apply on that leg.
    This provision, Article 25 in the EU ETS Directive, reveals the 
full extent of the EU breach of sovereignty and improper 
extraterritorial action. It says that the EU will continue to regulate 
the U.S. airlines on the ground in the United States, in U.S. airspace, 
over Canada, over the high seas and so on until the United States 
adopts some sort of measure that the EU, in its sole discretion, 
determines to be ``equivalent'' to the EU ETS. And even then, the EU 
will relinquish regulation over only the incoming flight of the U.S. 
airline.
    This is a recipe for further chaos. Although reserving for itself 
the authority to determine whether another country's measures are 
sufficiently ``equivalent'' to merit an exemption for its airlines, the 
EU has no criteria or transparent process for such a determination. 
This creates a tremendous prospect for competitive distortions and 
discrimination. Indeed, we have heard from sources around the world and 
it has been reported in the press that the EU may be offering variable 
``deals'' to certain countries, perhaps more on political bases than on 
objective criteria. The threat to U.S. aviation to be on the short end 
of this is palpable. Simply put, the unilateral and flawed EU ETS is 
the wrong starting point for discussions of what may be appropriate for 
U.S. or international aviation GHG policy.
U.S. Government Action to Turn Back This Extraterritorial Scheme Is 
        Essential
    Facing a statute of limitations, in December 2009 A4A brought a 
private legal action in European courts against the EU ETS. In December 
2011, the European Court of Justice (ECJ) upheld the application of the 
EU ETS to the world's airlines against this challenge, finding that 
A4A, as a private party, did not have standing to raise certain 
questions of international law and sovereignty, that the EU is not 
bound by the Chicago Convention even though each of its Member States 
is, and that the EU ETS could not possibly be considered a ``tax or 
charge,'' as is a ``market-based measure,'' despite the fact that 
economists recognize taxes and charges as types of market-based 
measures.\13\
---------------------------------------------------------------------------
    \13\ Notably, ICAO also recognizes taxes and charges as market-
based measures. See ICAO website at http://www.icao.int/environmental-
protection/Pages/market-based-measures.aspx (``Market-based measures 
include: emissions trading, emission related levies--charges and taxes, 
and emissions offsetting.'')
---------------------------------------------------------------------------
    With due respect, A4A believes that the ECJ decision was wrong,\14\ 
as do the many countries that continue to speak out and take action to 
oppose the application of the EU ETS to international aviation. That 
countries are now fully engaged in the fight is a good thing--there is 
no question that countries have standing to prosecute the violations of 
international law and sovereignty occasioned by the EU ETS. 
Accordingly, we applaud the declarations adopted by a set of States in 
New Delhi and Moscow and in the ICAO Council condemning the unilateral 
EU scheme. And we appreciate the steps that China, India and other 
countries have taken to push back against it.
---------------------------------------------------------------------------
    \14\ Many legal scholars join A4A in this view. See, e.g., B. Havel 
& J. Mulligan, The Triumph of Politics: Reflections on the Judgment of 
the Court of Justice of the European Union Validating the Inclusion of 
Non-EU Airlines in the Emissions Trading Scheme, Air & Space Law v. 37, 
no. 1, pp. 3-33 (2012).
---------------------------------------------------------------------------
    But most significantly, we appreciate the diplomatic steps the U.S. 
Government has taken to state its opposition to the EU ETS, from 
joining in multilateral declarations, to direct talks, to the December 
2011 letter from Secretaries Clinton and LaHood, to the Sense of the 
Congress language approved in the FAA reauthorization bill, and to 
President Obama raising his concerns directly with EU President 
Barroso. There can be no question that the administration has given 
diplomacy every chance. But the EU and its Member States have snubbed 
these diplomatic efforts, as they did when they adopted an illegal ban 
on aircraft fitted with ``hushkit'' noise technology in the early 
2000s.
    As the United States did with the unilateral ban on noise-
hushkitted aircraft, the United States now must take concrete legal 
action to overturn the application of the EU ETS to U.S. airlines and 
aircraft operators. This should include the filing of a challenge under 
Article 84 of the Chicago Convention, just as the United States did as 
a mechanism to help resolve the hushkit dispute. Such a measure would 
not only call the EU and the EU States on their actions, but would get 
the EU and its Member States back to the table at ICAO to flesh out and 
implement the ``global sectoral approach'' framework provisionally 
agreed at the 37th ICAO Assembly in 2010. Significantly, when the 
United States brought the Article 84 challenge to the illegal EU ban of 
noise-hushkitted aircraft, ICAO also was working on a new noise 
standard for aircraft and on a new framework for addressing community 
noise exposure in the vicinity of airports under a ``balanced 
approach.'' The United States was able to work with the EU States and 
the remainder of the (then) 190 Member States to ICAO to agree to a new 
noise standard and the balanced approach framework and to come to a 
negotiated resolution of the hushkit dispute under which the Europeans 
withdrew their wrongful ban on noise-hushkitted aircraft and embraced 
the new ICAO noise provisions. With ICAO currently working on a 
CO2 standard for aircraft and on means of implementing the 
provisionally agreed global approach to aviation and climate change, 
the parallels to today's dispute regarding the EU ETS are palpable.
    Some have asked why the United States should engage in a legal 
challenge, given that the Chinese, Indians, Russians and others are 
already threatening retaliatory trade measures against the EU, and the 
United States itself has signaled the potential for such measures. It 
is precisely because a trade war is at hand that U.S. leadership is 
needed to help navigate a way through. The EU fired the first shot, 
with its unilateral measure that threatens international aviation and 
establishes an even broader threat to international trade. That others 
are retaliating is, unfortunately, necessary as diplomacy has not 
worked. As it has done before, the United States, in its role as a 
world leader, must wield the tools it has to remove the wrong measure 
in favor of the right one.
    The U.S. Senate has an important role to play. We thank Senators 
Thune and McCaskill for their leadership in sponsoring S. 1956, the 
``European Union Emissions Trading Scheme Prohibition Act,'' and we 
urge the Senate to approve this legislation. Doing so would lend 
further support to the Obama administration in its efforts to overturn 
the EU ETS in favor of a global framework at ICAO. It would further 
convey to the EU and its Member States the seriousness of their 
breaches of U.S. sovereignty and international law and U.S. Government 
concerns about the effect of the EU ETS on U.S. airlines, aircraft 
operators, the U.S. economy and U.S. exports. Not only would it help 
the United States wield the tools necessary to work through this 
precedent-setting trade dispute, it would spur on work at ICAO to 
foster a truly international approach to aviation GHG emissions.
    Thank you for the opportunity to testify on this important issue.

    The Chairman. Thank you.
    Some time ago, you may remember that 29 coal miners were 
killed in an accident in West Virginia. Those families of those 
who died are waiting for me in my office, so I'm going to have 
to yield in a moment, and Senator Cantwell has been good enough 
to--and I think Senator Thune will be here also, but Senator 
Cantwell has thankfully agreed to chair the close of this 
committee.
    I apologize that we don't have the time for more questions 
for you. But I have to say--it may just be my view--the coal 
industry, which is obviously under pressure, has--what it does 
is that it attacks the President and attacks EPA, and the more 
it attacks them the better they feel, but, more importantly, 
the less they get done about improving cleaning up coal.
    There is just an overwhelming amount of television which 
attacks the President and attacks EPA, and that's sort of the 
self-satisfaction. That means it's OK to hate the government. 
But more importantly, it means it's OK not to do anything about 
cleaning up your product.
    I get a sense of that a little bit from some of this 
testimony, that you all took great pleasure in attacking the 
European Union and their efforts, but didn't talk particularly, 
except perhaps for the captain, about cleaning up more than 
just the technological approach. I mean, don't credit 
yourselves for the advanced technology we're going to have in 
aviation, because that's something that the Congress did and 
you will have to do as a result. That's not your initiative; 
that's our initiative.
    Second, I just have to say this. I've worked my way to 
reasonably good terms with the non-commercial sector of the 
airlines, but I think it used to be true and I think it's 
basically true that about two-thirds of the airplanes in the 
air at any given time over the United States, over North 
America, are non-commercial, and that's a lot of airplanes and 
therefore a lot of emissions.
    I note, Mr. Bolen--and you will be my only question and 
then I will beat a hasty retreat and try and comfort people who 
aren't getting any legislation because all good legislation 
seems to be stopped in this Congress. And, Senator Cantwell, I 
don't necessarily like that. But it appears to be a fact, 
according to the Environmental Protection Agency, their latest 
greenhouse gas inventory this year, that CO2 
emissions of general aviation aircraft in the U.S. have 
increased nearly 67 percent from 1990 to 2010.
    That's about 6.5 million metric tons. Now, some aircraft 
are extremely large. I just came back from a place in Texas 
where two or three people come in on absolutely enormous jets 
for recreation. I had the pleasures of United Express to fly 
on.
    But I want to know very distinctly what the general 
aviation community is doing to take the 67 percent increase and 
reduce it substantially. And that's some very basic questions, 
because that means very large corporate jets carrying very few 
people. And you can use the excuse, well, they have to do that 
because they have to fly nonstop to Beijing or something of 
that sort. But that's the kind of argument which is going to 
get weaker as more pressure is applied on your responsibility 
to reduce your emissions.
    Mr. Bolen. Mr. Chairman, I think that the entire aviation 
community and specifically the general aviation community has 
been very aggressive at looking for ways to make their 
airplanes and the system more efficient. It was the general 
aviation community that introduced winglet technologies, which 
makes airplanes 6 to 8 percent more efficient at cruise. It was 
the general aviation industry that introduced composite 
technologies, which make airplanes lighter and therefore more 
fuel efficient, which are the hallmark of the new Boeing 787.
    The general aviation community has supported RVSM, which 
allows efficient spacing of airplanes at higher altitudes, 
which are more efficient to fly. We have also been very 
supportive of adopting GPS technologies, which allow for more 
direct routing and more efficient operations.
    We recognize and applaud and support everything that this 
Congress has done, and specifically you and your leadership has 
done, to make NextGen a reality. I've just come from 2 days of 
meetings downtown involving the FAA and the industry on the 
specific steps we're taking to make that a reality, and we're 
very excited about that. Two weeks ago, we were in Seattle 
looking at a program called the Greener Skies Initiative at 
SEATAC and how operations there are becoming more efficient 
utilizing NextGen technology, a virtual laboratory for that 
program.
    So I would like to say that we have adopted technologies, 
we have been pioneers of technologies, and we're working in 
conjunction with you to adopt NextGen technologies as part of 
our system. We believe strongly that efficient flying, fuel 
efficient flying, is good for the economy and it's good for the 
environment, and we'll continue to support that, Senator.
    The Chairman. I'm not entirely satisfied with that answer 
because we passed NextGen, you didn't, and the 67 percent 
really stands out there, Mr. Bolen. It really stands out there. 
So what I'd like to have, with your permission, with your 
agreement, if you could write me a lengthy letter about some of 
the things that you just said and some of the things perhaps 
that you didn't say and would like to say, because the 67 
percent is stunning if two out of every three airplanes in the 
sky belonged to you, so to speak.
    Mr. Bolen. Senator, I will follow up on that. That number 
is new to me. It doesn't make intuitive sense to me because our 
flight operations have been going down, not up. But I do know 
this. I do know our total greenhouse emissions is less than 
one-half of 1 percent, and I do know that the airplanes that we 
have been introducing and the routes that we have been flying 
have been getting consistently more efficient.
    So I will understand the methodology used to calculate that 
number and I'll look forward to talking with you in very 
specific details about what we're doing.
    The Chairman. Write me first.
    Mr. Bolen. I'll write first.
    The Chairman. Thank you.
    And thank you all, and Senator Snowe is now--I'm sorry. 
Senator Cantwell. Look, that's not bad. She's a good person, 
too.
    Senator Cantwell. She's a great legislator.
    The Chairman. Come sit up here, Senator Cantwell.
    Senator Cantwell [presiding]. OK. Maybe Senator Thune would 
like to go while I reorganize.
    Senator Thune. Thank you, Ms. Chairman.
    My understanding is, though, that general aviation 
emissions as a percentage of the total are small relative to 
commercial airline emissions; is that correct?
    Mr. Bolen. We're less than one-half of 1 percent of the 
total emissions. We're the smallest part of the civil aviation 
community.
    Senator Thune. Right, OK. So notwithstanding the number of 
operations that are conducted by general aviation airlines--and 
I appreciate the answer that you gave to chairman's question is 
important, but relative to the problem that's supposedly being 
addressed here, it's very small relatively speaking?
    Mr. Bolen. Bolen: Less than one-half of 1 percent, 
absolutely.
    Senator Thune. Right.
    Mr. Bolen. And it would also be more important if in fact 
the EU was following the stated purpose of the EU ETS scheme, 
which is essentially to use it to reduce emissions. But 
everything I've heard today suggests that that's not 
necessarily the case; that those revenues could be used for any 
purpose by any of the member nations.
    Mr. Delbeke. Senator, can I comment on that? I think in our 
legislation there is a tradition that member states decide on 
the use of revenues from any form of taxation. But for once 
they made an exception and for the revenues generated to their 
benefit from auctioning aviation allowances, they have 
undertaken an explicit commitment to use all the revenues for 
efforts to reduce emissions.
    So it is the exception. It was done and hence the 
importance of the statement, because it is not done on any 
other elements of the ETS. It's not done on any other policy 
areas, but it was done for revenues generated through the 
auctioning of allowances for aviation.
    Senator Thune. Well, maybe that could--maybe I'm missing 
something here then, because, to clarify that point, that may 
be the suggested use or some sort of understanding, but I don't 
think there's anything that requires or stipulates that any 
member nation would use those penalties that would be assessed 
if somebody doesn't have allowances, the financial fees that 
would be assessed, that would then have to be used for reducing 
emissions.
    Ms. Petsonk. It's two different questions it sounds like 
you're asking, Senator. One is when emissions allowances are 
auctioned in the EU ETS, are there any requirements that 
revenues from those auctions, if airlines choose to buy 
auctions, buy allowances at auction, which they're not required 
to do--they could buy them from other places. But if they 
choose to buy them from an auction held by a sovereign 
government, is there anything that requires them, the sovereign 
government, to spend the money on climate change-related 
activities or on aviation-related activities.
    I would just point to page 9 of my testimony. Footnote 25 
cites the German legislation that requires the German 
government that any revenues raised from auctioning aviation 
emissions allowances must be spent on the energy and climate 
fund, which goes to climate purposes around the globe.
    Senator Thune. That sort of contradicts, I think, Ms. 
Young's testimony.
    Ms. Petsonk. Yes, it does.
    Ms. Young. If I may add, I think that there's fair 
distortion here. The legislation, as you know, directly makes 
it clear that the member states get to choose how they spend 
the funds, and we expect that to happen. But I'd actually 
encourage the discussion to get back to the extraterritorial 
nature of this scheme.
    Perhaps the use of funds in a different way makes it 
slightly less bad, but the fact that they're choosing to tax 
U.S. citizens in U.S. airspace to fund whatever Europe decides 
to spend the money on in European pet projects I think is a 
fundamental flaw with the scheme, and it violates our 
sovereignty.
    Senator Thune. Right, but so much of the discussion among 
my colleagues on the panel has been about the need to reduce 
emissions and focusing on domestic airlines, to Mr. Bolen, and 
points that were made by Captain Cassidy with regard to things 
that were happening in this country that actually are designed 
to reduce emissions.
    My point simply was, if in fact it is true that member 
states can use these revenues for whatever purpose they desire 
and there's no requirement that it be used, that then it does 
become the American people, American travelers, paying a tax to 
European countries, which, to borrow a phrase, would be 
taxation without representation.
    I mean, what we're talking about here is imposing a tax on 
the American public. Mr. Delbeke, you mentioned the fact that 
this really isn't a tax, but to the American airlines, the 
carriers, and to the American traveling public, I think it's 
going to be perceived as a tax. I mean, it's something that's 
going to be added.
    And, by the way, I would like to know the answer to this 
question, too. And, Ms. Young, if you can perhaps answer it. 
But what is the amount that we're talking about that would 
impact passenger ticket prices in this country, either in 
aggregate or maybe on a per passenger basis, if you have that 
sort of analysis that's been done.
    Second, are those costs already today being passed on? In 
other words, are we already starting to see the implication of 
this, the additional cost for American travelers?
    Ms. Young. Our estimates are that this scheme will cost 
U.S. airlines $3.1 billion between the beginning of 2012 when 
it went into effect for us and year-end 2020. That means that 
U.S. airlines will have less money to spend on new equipage, 
sustainable alternative fuels, which I hope we'll get a chance 
to get into since that's another measure, I think, that's 
really critical that we haven't gotten into today, and the 
like.
    To date, our airlines have advised us that they have not 
increased their fares to cover this. In fact, you saw a 30 
percent increase in fuel prices in 2011. I think that's pretty 
much to explain why fares may have gone up a fair amount in 
2012. So the bottom line being, there's going to be a $3.1 
billion cost to either the airlines or, if they can pass some 
of it on, to the consumers, and we get back to the key 
question: Should U.S. airlines and U.S. consumers be paying a 
tax to European coffers on an extraterritorial scheme where the 
EU will use the money however it will?
    Mr. Bolen. Senator, I'd like to follow up on that, because 
for the private companies that are caught up in this, they are 
already spending thousands of dollars per year simply to 
register with the Europeans. The United Kingdom requires copies 
of certificate of incorporation, names of principal company 
shareholders, names of individuals charged with administering 
company registry accounts, certified copies of passports, 
driver's license, proof of identity, criminal background 
checks, bank information, 3 months of statements, personal 
contact information. All of this stuff is being required from 
any U.S. company that plans to fly one flight to Europe.
    So we already have an administrative burden. We already 
have a cost of compliance, and on every flight we're going to 
pay thousands of dollars per flight. This is an enormous cost.
    Senator Thune. Have you done the same sort of analysis 
that--with the indulgence of the chair--that Ms. Young was 
talking about the commercial airlines having done, that 
quantifies over like a 10-year period what that cost may be? I 
know you've got specific examples of costs that are already 
being imposed as a result of the administrative burden 
associated with this.
    Mr. Bolen. We've not yet aggregated them, but we will.
    Senator Thune. OK.
    Yes?
    Mr. Delbeke. Thank you very much, Senator. If I can make a 
point. First of all, for the record, it is not a tax. The cap-
and-trade system has been recognized by ICAO as separate from a 
tax and a charge. So in that sense we cannot continue talking 
about a tax. It is not a tax, because an airline that needs 
allowances can buy these allowances on the market. It does not 
have to pay to the tax authorities. It has the option to go for 
the auctioning exercise, but the auctioning exercise is a tiny 
part of the entire exercise.
    And by the way, large American airlines get on average 90 
percent of their allowances for free. So I think that the cost 
calculations that have been advanced are wildly exaggerated, 
and I'm in your hands to contribute more evidence on this 
issue. According to our calculations, and we see that American 
airlines are taking precautions for that, we are talking about 
two, three dollars per transatlantic flight in terms of 
potential cost increase.
    The final point I want to make is to Mr. Bolen on the costs 
of administration related to the exercise. They are absolutely 
small and we have special provisions for small operators, below 
25,000 tons, and these provisions apply exactly in the same 
manner to European operators as to American or non-European 
operators. It is a very important principle not to create any 
discrimination or distortion based on nationality when it comes 
to registration or whether it comes to the other provisions of 
the law.
    Thank you very much.
    Mr. Cassidy. Sir, one of the things that we really need in 
this industry is consistency and stability. We really haven't 
known any kind of normalcy from 9/11 to present. We went 
through that crisis, the terrorism crisis, the wars, the global 
meltdown, gyrating fuel prices, et cetera, et cetera. This is 
yet another thing that introduces another level of instability 
into an industry which last year alone domestically didn't even 
come close to netting one billion dollars worth of profit. 
That's spread out right across the board.
    On any given time, just with the airlines that we represent 
in the Air Line Pilots Association, we have a few members that 
are going through bankruptcy, we have some who are trying 
desperately to avoid it. We have a few who are going through 
mergers. When you overlay the already very, very significant 
and profound impact that just energy costs alone have, when you 
start looking at the inconsistency of this kind of thing and 
the almost invariably unpredictable impact it's going to have 
on the industry, that's a most unwelcome development.
    I think the other thing that needs to be emphasized also is 
that pursuing something through ICAO does not preclude another 
solution from being achieved while the Article 84 process is 
playing out. That's merely a means of resolving a dispute 
between some of the members that form the ICAO, the group of 
about 190 member nations that comprise ICAO. ICAO has been a 
great agency for creating international standards of 
recommended practices with licensing, radio nomenclature, 
accident investigations. Most recently they've done some great 
stuff in terms of ensuring the safe transport of hazardous 
materials, such as lithium batteries, internationally, safety 
management systems, etcetera, etcetera.
    It may not be the most expeditious process by getting 
things done, but at least it has the gravitas of the entire 
world behind it. I think that we should be pursuing that 
instead of this ad hoc thing, which could actually have the 
opposite effect.
    Senator Thune. My time has expired, Madam Chair. But if I 
could just make a closing observation. I hear everything that 
you're saying. The thing I can't get around, to our friends 
from the EU, is why we didn't use that mechanism in the first 
place if you're going to go about doing this. This does appear 
to an American citizen, an American traveler, as, one, a 
violation of international law, a violation of American 
sovereignty, and an illegal tax.
    What I heard you saying today is that you're not going to 
suspend it, and I heard Secretary LaHood say we're discussing 
and debating it, what to do next. And at the same time, 
American airline carriers, commercial carriers and general 
aviation travelers are being hit with this. So what to me that 
suggests is the way to force some action on this is a 
legislative solution. I think that's going to be the only way, 
Madam Chair, that we're going to be able to force what should 
have happened in the first place to happen, and that is to go 
to ICAO and get this resolved, because otherwise it looks to me 
like there's just going to be a lot of discussing and debating 
on our end and no attempt to fix this on yours.
    Right now, the more I think the American people find out 
about this, the more upset they are going to be. So I hope we 
can move some legislation.
    I thank you all for your testimony.
    Senator Cantwell. Thank you, Senator Thune. I appreciate--
we went a little over there just to give you time to get this 
in. So I think I'm going to make this the last. I hope you 
don't have more questions.
    Senator Thune. No, that's fine.
    Senator Cantwell. OK, good.
    So I'm going to ask my questions and then we're going to 
adjourn the hearing. Everybody's got schedules here. We have a 
vote coming up.
    But, Mr. Delbeke, you touched on it briefly, this notion 
that there are different assessments out there, wildly 
different assessments, about what the impact of this is. Do all 
the parties agree on the underlying facts or is there some 
assumptions? Or how do we reconcile these numbers?
    Mr. Delbeke. Well, these numbers are based on a number of 
assumptions that I beg to differ about. I mean, the number of 
questions and the number of estimates that I have been hearing 
are not incorporating the fact that on average 90 percent of 
the allowances are handed out for free to the large American 
airlines.
    But may I take the opportunity to come back to one of the 
discussions we should have in ICAO, and we are fully committed 
to work in ICAO. In 2004, unfortunately, ICAO ruled that cap-
and-trade systems need to be developed by states and that ICAO 
themselves would not develop one single cap-and-trade system. 
We were surprised by that and we were upset by that, and that 
is the reason why the European legislature decided ultimately 
to go ahead and to force towards a global arrangement.
    Senator Cantwell. Let me ask you, if I can. What do you 
think is the sticking point at ICAO, then? I mean, do you think 
the sticking point is that they wanted individual states to 
come up with this? That's what you think the sticking point is?
    Mr. Delbeke. Well, in the assembly of 2004 all countries, 
all states regulated, that cap-and-trade systems are a 
preferred solution and that this preferred solution needs to 
build into systems developed by states, and that ICAO as a 
global administrator would not develop a global regime. From 
that moment on, the European Union first was surprised by that, 
and second then developed its own system.
    We were in ICAO at that time to explain what we were doing. 
We had discussions with all players around the globe, including 
with the United States, including with the airlines, and I 
think that that groundwork has been done, and we are more than 
happy to take that work up again and to revive the discussion. 
So we are committed for a global solution. You know that Europe 
is committed to a multilateral dealing with things of this 
nature, and that is not an exception for aviation.
    So what was----
    Senator Cantwell. Let me ask Ms. Young, then. So say it's 
September 2013 and there's a ICAO assembly and they come up 
with some targets for aviation. Can you agree to that? Let's 
just say--I'm not even talking about what the scheme is. I'm 
just saying there are some targets and there are some binding 
targets. Is there something there that you can support?
    Ms. Young. I'd like to clarify the record a little bit. 
ICAO already has adopted targets. They adopted annual average 
fuel efficiency improvements of 2 percent through 2020 and they 
adopted carbon-neutral growth from 2020. In large part, that 
was in response to the worldwide aviation industry, which is 
the U.S. airlines, the world's airlines, the manufacturers, 
Boeing and others from your district, the airports, and the air 
navigation service providers getting together and putting a 
proposal on the table for a global framework at ICAO.
    Pieces are there, including the carbon-neutral growth from 
2020 target. What we need to do is work within ICAO to get full 
agreement on how to implement the framework that was 
provisionally agreed in 2010, and that's the work that's going 
on now, to take technology, operations and infrastructure, the 
measures that really make real differences, that were all 
committed to, and bring them together in what ICAO can do.
    And to the extent that we're not able to meet the carbon-
neutral growth goal from 2020 by those types of measures, with 
the U.S. doing its part on NextGen, with the U.S. and other 
governments doing their part on sustainable alternative fuels 
and supporting the military and the commercial aviation joint 
effort that we're co-proposing with them, doing that, if we're 
not able to meet our targets through that, there may be a role 
for market-based measures.
    But those need to be under mutually agreed terms, under a 
play book that could be agreed at ICAO, and that's the work 
that's going on right now. In our strong view and our 
experience at the last ICAO assembly, and the U.S. Government 
has previously testified to this, the EU ETS itself is the 
roadblock to getting that full agreement, because the countries 
don't trust what's going on.
    The EU says it wants to work multilaterally, right. But 
it's done it unilaterally, and it says it will amend its scheme 
if there is a suitable agreement at ICAO that meets their 
version of what should be approved, arguably a worldwide cap-
and-trade system along the lines of the EU.
    Senator Cantwell. But I'm asking you, so now would you 
agree to further reductions besides the carbon neutral by 2020?
    Ms. Young. We have a commitment with the worldwide aviation 
community for carbon-neutral growth from 2020, building on a 
fuel efficiency platform up to 2020. And it includes the U.S. 
doing its part on NextGen, and we are very supportive of the 
FAA reauthorization.
    Senator Cantwell. If somebody said that wasn't enough and 
we needed to do more, would you be willing to do more? That's 
what I'm asking.
    Ms. Young. I think that the discussions at ICAO are ongoing 
and we'd like to see what that is. It's very difficult to talk 
about a hypothetical, more or more. We think, based on our 
record of fuel efficiency, 120 percent fuel efficiency 
improvement since 1978, and we are committed to continuing to 
do more, based on the work we're doing on sustainable 
alternative fuels and really the low greenhouse gas emissions 
we have, 2 percent relative to our contribution to the GDP, 5 
percent, we think carbon-neutral growth from 2020 is the right 
target and we're willing to continue to work toward that 
target.
    If there is a negotiated resolution as a package that makes 
sense that's slightly different, of course U.S. industry and 
others will take a look at it. We don't want a global trade 
war, but, frankly, I think it's important to point out the EU 
started this. They brought the unilateral scheme.
    Senator Cantwell. I can guarantee you my constituents don't 
care which side of Congress. It's like kids in the room; they 
just want us to stop and work together.
    I think on this, I think the issue is could ICAO go back to 
some of those targets of just saying, here's what we want to 
hit? It sounds like we've gotten caught up in whether we're 
going to go the EU route or not the EU route of cap-and-trade. 
As I expressed in my opening remarks, I have a great deal of 
concern about the approach that Europe has taken on a cap-and-
trade system.
    To me, I'm with you. The real issue is the reduction in 
emissions and the measurement of the reduction in those 
emissions, not a scheme that maybe moves a lot of money around 
on offsets and paying historic polluters, but actually reaches 
that goal.
    So, Mr. Bolen or Mr. Cassidy, Captain Cassidy, what do you 
think the sticking point is at ICAO and could we just go back 
to just focusing on getting that goal mandated and set and 
agreed to?
    Mr. Bolen. I want to be clear. General aviation has also 
accepted very specific targets at ICAO. We've put those 
forward, so I think we've got a unanimity within the aviation 
community on a public commitment to constantly reduce our 
environmental footprint through a lot of things like NextGen, 
alternative fuels, and so forth.
    I just want to take issue with the idea that this is a 
complicated thing at the EU and no one's really sure what's in 
it. The one thing that is very clear is that commercial 
aviation and non-commercial aviation are treated very 
differently. It's much more onerous for non-commercial 
aviation. We have not heard a justification of why. Like you, 
we believe that ultimately it is what is the amount of 
emissions, and we see no reason to treat non-commercial 
aviation differently than commercial aviation.
    Senator Cantwell. Captain Cassidy, do you have any idea on 
a sticking point at ICAO and what we could do to get back to 
focusing on real emissions reductions?
    Mr. Cassidy. Well, one of the things that we're involved 
with, ALPA is also a member of IFALPA, which is the 
International Federation of Air Line Pilots Associations. We 
have permanent observer status at ICAO, so we have a long and 
storied history with participating in that process. If it's 
taught us nothing else, it's taught us that patience is a 
virtue.
    But in the mean time, while the policy is coming along and 
that aspect of this ETS issue is being resolved, in some manner 
I think that we also still need to remain focused on that 
there's real significant achievements being made through the 
better use of not only technologies, but of policies and 
procedures.
    I happen to be an Alaska Airlines captain. There's probably 
a good chance that I've flown you on one of my flights over the 
last 16 years. I don't think that people appreciate enough some 
of the really significant changes that have been made, from the 
transition to an all-Boeing 737 Next Generation fleet and the 
tremendous fuel savings that come with that, as well as the 
profiles that you've flown in with some of the profiles, where 
we stay right over the middle of Elliott Bay, as opposed to fly 
over Capitol Hill on the way into Seattle.
    Those are the type of things that help us be good stewards 
of the environment, but also help us to preserve and enhance 
our jobs. I think that those things are compatible. I think 
it's possible to have an increasingly stable aviation sector 
and yet continue to improve--or minimize, I should say, our 
footprint with regard to carbon emissions. We've already 
demonstrated that through the use of technology, and especially 
through some of the things that we've been involved with as of 
late. I've been following Ed around to a couple of the 
meetings, looking for a better use of integrated operations, 
harmonized arrivals and departures, single-engine taxi, 
etcetera, etcetera.
    There's still an awful lot of low-hanging fruit on those 
trees that can be done while that other process is basically 
running itself out.
    Senator Cantwell. Well, Mr. Bolen mentioned the Greener 
Skies Initiative, which is a great example of a better glide 
flight path saving fuel, as opposed to current flight 
standards. The more that can be implemented, the better. I 
guess what the real issue is, you know, we want to set some 
goals. We want to set some goals to meet those goals and do so 
in a way that makes sense.
    So I hope that we can go back to ICAO and resolve these 
issues and come up with a plan that really does emphasize the 
technology that enables us to make the emission reductions.
    Mr. Cassidy. Right. But in the mean time, there are metrics 
that are already out there in the NextGen book that's already 
published by the FAA. They say by 2020 we're going to have 1.3 
billion saved gallons of fuel, 14 million metric tons worth of 
carbon saved, as well as a 38 percent reduction in delays.
    Senator Cantwell. But does that get us to this carbon-
neutral 2020?
    Mr. Cassidy. Well, it certainly gets us closer. I know that 
for a fact. That's probably a little more in Nancy's 
wheelhouse.
    Senator Cantwell. I think that's what people want to see. 
They want to see a plan that works, and I think short of that 
ideas are going to pop up from other places, and that's going 
to be the challenge. And so getting something that really helps 
us focus on this--and we're very proud in the Northwest of the 
great strides that have been made in aviation as it relates to 
composites and fuel reduction costs and all of those things.
    But what people are going to want to know is will this plan 
with NextGen and everything else get us to that 2020, or do we 
have to do additional things?
    With that, I think I'm going to close the hearing. But 
thank you all very much for being here. I think it was a robust 
discussion. Obviously, my colleagues care passionately about 
this, as does the chairman. So we'll take the cues from him on 
what he's going to do next.
    But this hearing is adjourned.
    [Whereupon, at 4:57 p.m., the hearing was adjourned.]
                            A P P E N D I X

    Response to Written Question Submitted by Hon. John F. Kerry to 
                            Hon. Ray LaHood
    Question. In S. 1956, the Secretary and the Executive are 
authorized to ``take any action necessary'' to hold American firms 
harmless if they have to comply with the EU ETS. How would the 
Department of Transportation hold firms harmless? What would that 
action look like? Is it possible that such action would place a burden 
on the American public to compensate airlines when they are found in 
violation of EU law?
    Answer. S. 1956 would call on us to ``conduct international 
negotiations'' as well as to ``take other actions in the public 
interest'' to ensure that U.S. aircraft operators are held harmless 
from the EU ETS. Our preferred outcome would be the path we are already 
pursuing, which is a successful, negotiated global solution in ICAO to 
address aviation emissions that would replace the EU ETS, at least 
insofar as ETS would apply to U.S. and other non-EU operators.
    That said, we have not taken anything off the table and have a 
number of tools at our disposal.
    The Department of Transportation has full regulatory authority to 
take proportional countermeasures, including the imposition of 
countervailing charges and restrictions on EU carrier operations.
    We have absolutely no intention of asking the U.S. taxpayer to pay 
any ETS fines incurred for non-compliance with EU-ETS, directly or 
indirectly.
                                 ______
                                 
   Response to Written Questions Submitted by Hon. Maria Cantwell to 
                            Hon. Ray LaHood
    Question 1. Mr. Secretary, as I mentioned in my opening statement, 
there is virtually unanimous agreement in the scientific community that 
human-caused global warming is real and there is not a single 
scientific body of national or international standing that does not 
support this conclusion. And while there may be some remaining 
uncertainty as to the timing and scope of climate change, I don't 
believe the United States can continue to ignore this threat to our 
environment and to America's future prosperity. Do you concur with the 
scientific consensus that human-caused global warming is real?
    Answer. Yes. Thousands of the best scientists in the world in their 
work with the Intergovernmental Panel on Climate Change (IPCC) 
concluded with 90 percent certainty that the burning of fossil fuels 
and other human activities are contributing to climate change.

    Question 1a. Do you agree that climate change will negatively 
impact the American economy and our citizens?
    Answer. Yes. In the U.S, a range of climate impacts is being 
observed, including rising temperatures, more heavy downpours, changing 
water supply, changes in snow and ice, and changing growing seasons. 
These trends are expected to continue. Because different regions may be 
affected differently, the economic effect of such changes may vary by 
region and by the kinds of impacts. Studies have found that 
transportation infrastructure will face climate impacts such as rising 
sea levels, changing precipitation patterns, and temperature 
fluctuations. The U.S. Global Change Research Program (USGCRP) has 
coordinated research among Federal agencies on observed and projected 
consequence of global change in this country. Their last National 
Climate Assessment reported that climate change will adversely affect 
various regions in the U.S., key economic sectors, ecological 
resources, and public health.

    Question 1b. How would you characterize the aviation industry's 
contribution to the build-up of greenhouse gases in the world's 
atmosphere? Is it a significant problem today and how will aviation's 
contribution change over time?
    Answer. Despite the sizeable role that aviation plays in the 
regional and global economy as well as mobility, aviation's current 
contribution to anthropogenic global greenhouse gas emissions is 
relatively low (3 percent). This relative contribution is expected to 
increase in the future, given the projected growth in aviation 
operations and the anticipated decrease in emissions from other 
sectors. According to an International Panel on Climate Change (IPCC) 
1999 report, Aviation and the Global Atmosphere, the aviation 
contribution to radiative forcing could be expected to increase to 5 
percent in 2050. While there have been more recent predictions, the 
IPCC study remains one of the most robust studies on aviation 
greenhouse gas emission.

    Question 2. Mr. Secretary, during the hearing, we discussed some of 
the voluntary commitments the aviation industry has made to reduce 
their greenhouse gas emissions beyond business-as-usual. How confident 
are you that these commitments will be met?
    Answer. The U.S. aviation industry has shown a strong commitment to 
improving fuel efficiency and reducing aviation's environmental 
footprint. This has resulted in an absolute decline in aviation fuel 
burn in the last 10 years. This is not surprising as fuel now 
represents 35-40 percent of airline operating costs. Going forward they 
are strong partners with us in NextGen, the Continuous Lower Energy, 
Emissions and Noise (CLEEN) technology program, the Commercial Aviation 
Alternative Fuels Program (CAAFI), and our efforts to find a global 
approach through ICAO. The Future of Aviation Advisory Committee (FAAC) 
that I established in 2010 identified aviation carbon dioxide emissions 
as the environmental issue needing priority action, given the 
significance of the climate change challenge and the linkage with the 
energy challenge. In December 2010, the FAAC provided recommendations 
to address and reduce aviation's carbon dioxide emissions through 
NextGen, alternative aviation fuels, advanced engine and airframe 
technologies, and a harmonized sectoral approach for global emission 
reductions.

    Question 2a. Do you believe that there are enough tools available 
to ensure that all major emitting nations and their carriers 
participate and will meet these commitments?
    Answer. Measures are available, although there are certainly 
challenges in selecting and agreeing on the best combination of tools 
and implementation efforts. The FAA is actively working through the 
International Civil Aviation Organization's Committee on Civil Aviation 
Environmental protection (ICAO/CAEP) and through multilateral public/
private partnerships to reduce aircraft emissions. These efforts 
include goals for increases in aircraft fuel efficiency and carbon 
neutral aviation growth. The FAA in conjunction with EPA is leading 
efforts for development of an aircraft CO2 standard as well 
as certification requirements. The FAA and other Federal agencies are 
working through ICAO with international partners on potential 
frameworks to better understand various aviation-related market-based 
measures. In addition, the FAA is working with domestic and 
international partners under initiatives such as AIRE (Atlantic 
Interoperability Initiative to Reduce Emissions) and ASPIRE (Asia and 
South Pacific Initiative to Reduce Emissions) which have demonstrated 
environmental benefits of overall reductions in fuel burn and 
emissions. Finally, through the Commercial Aviation Alternative Fuel 
Initiative (CAAFI), FAA is engaging international partners to develop 
and deploy alternative fuels.

    Question 2b. What do you think are the most cost-effective ways to 
reduce greenhouse gases from the aviation industry?
    Answer. Deployment of technologically advanced aircraft, renewable 
alternative jet fuels, and more efficient operational procedures offers 
promising avenues to reduce greenhouse gases from the aviation 
industry. With fuel costs representing 35-40 percent of operating 
costs, the aviation community is working on all of these fronts to 
reduce fuel consumption, aircraft emissions and their contribution to 
climate change. Traditionally, improvements in airframe and engine 
technologies have led to decreases in fuel consumption and emissions. 
The Continuous Lower Energy, Emissions and Noise (CLEEN) technology 
program, an FAA/industry partnership, is designed to accelerate 
maturation of aircraft technologies and qualification of commercial 
alternative fuels for quicker uptake by the industry. The CLEEN program 
has already shown remarkable progress with several aircraft 
technologies that are expected to be in the operating fleet over the 
next 3-4 years. The CLEEN program has also contributed to the 
demonstration and approval of renewable alternative fuels for use in 
commercial aviation. Over the entire lifecycle, relative to 
conventional fuels, renewable jet alternative fuels offer a net 
reduction in emissions of carbon dioxide.

    Question 2c. Are there particular efforts or case-studies, such as 
the Green Skies program at SeaTac Airport, you believe Congress should 
look at when considering how best to address this issue?
    Answer. The Greener Skies initiative is an excellent example of how 
the FAA and the aviation industry can work together to implement 
NextGen procedures to improve operational and environmental 
performance, achieving reductions in fuel burn and emissions. The 
implementation of NextGen across the national airspace system will 
produce more gains in aircraft energy consumption and emissions. The 
Continuous Lower Energy, Emissions and Noise (CLEEN) technology program 
is an important part of NextGen. Most of the historical leaps in 
aviation's environmental improvements have come from advances in 
technology. In addition, the Commercial Aviation Alternative Fuels 
Initiative (CAAFI) provides an outstanding example of success in 
advancing commercial renewable alternative jet fuels with government 
and industry collaborative efforts. NextGen, CLEEN, and CAAFI build on 
U.S. strengths of pioneering aviation innovations and illustrate the 
advantages of public/private sector partnerships. I sincerely thank the 
Congress for continuing to provide strong support for these programs.

    Question 3. Mr. Secretary, carbon emissions are ubiquitous within 
the U.S. economy and almost every economy around the globe. Isolated 
efforts to reduce greenhouse gas emissions will not alter or mitigate 
the devastating impacts of a warming planet. I believe this reality 
provides additional urgency for the United States, as the world's sole 
superpower, to act and lead the world to a clean energy future with 
innovative policies. Curbing carbon emissions to the level necessary to 
avert a climate crisis will require innovation within almost every 
sector of the economy. It seems to me that the global scope of carbon 
pollution poses a somewhat different challenge than more localized 
pollutants.
    Rather than regulating downstream at the point of emission such as 
an airplane's exhaust, would limiting carbon emissions upstream where 
fossil fuels are extracted possibly be a more efficient and technology-
neutral way to squeeze carbon out across the economy?
    Answer. DOT recognizes that there could be advantages as well as 
disadvantages to an upstream point of regulation to limit carbon 
emissions in the aviation context. We have not done the analysis 
required to assess which would be more cost-effective in the case of 
aviation emissions.

    Question 3a. Would an upstream carbon limit reduce the need for 
more monitoring, enforcement, and regulatory complexity?
    Answer. Whether an upstream approach would reduce the need for 
monitoring, enforcement, and regulatory complexity would ultimately 
depend on the design of the particular approach.

    Question 4. Secretary LaHood, on the second panel Ms. Petsonk will 
argue that in Congressman Mica's ``European Union Emissions Trading 
Scheme Prohibition Act'' that passed the U.S. House of Representatives, 
the phrase ``take other actions necessary to ensure that operators of 
civil aircraft of the United States are held harmless from any 
emissions trading scheme unilaterally established by the European 
Union'' could mean that the U.S Government will have to compensate U.S. 
commercial and non-commercial operators for any fines incurred as a 
result of non-compliance with the EU-ETS.
    When the Congressional Budget Office scored the Congressman Mica's 
bill it said ``enacting H.R. 2594 would have no significant impact on 
the Federal budget''. If Ms. Petsonk's assertion is true, though, there 
would budget impact.
    Mr. Secretary, what is the range of actions the Department can take 
to ``hold harmless'' U.S. commercial and non-commercial operators from 
EU-ETS?
    Answer. H.R. 2594 and Senator Thune's bill, S. 1956, would each 
call for us to ``conduct international negotiations'' as well as to 
``take other actions'' to ensure that U.S. aircraft operators are held 
harmless from the EU ETS. Our preferred outcome would be the path we 
are already pursuing, which is a comprehensive, negotiated global 
solution in ICAO to address aviation emissions that would replace the 
EU ETS, at least insofar as ETS would apply to U.S. and other non-EU 
operators. That said, we have not taken anything off the table and have 
a number of tools at our disposal. The Department of Transportation has 
full regulatory authority to take proportional countermeasures, 
including the imposition of countervailing charges and restrictions on 
EU carrier operations.

    Question 4a. Could these actions include the U.S. government paying 
EU authorities directly or compensating the operators for any fines 
incurred for non-compliance with EU-ETS? Under these circumstances, 
would the Department require new budget authority?
    Answer. We have absolutely no intention of asking the U.S. taxpayer 
to pay any ETS fines incurred for non-compliance with EU-ETS, directly 
or indirectly.

    Question 4b. Under any circumstance do you see the Federal 
government compensating U.S. commercial and non-commercial operators 
for fines incurred for non-compliance with EU-ETS?
    Answer. As stated in the answer to the previous question, we have 
absolutely no intention of asking the U.S. taxpayer to pay any ETS 
fines incurred for non-compliance with EU-ETS, directly or indirectly.

    Question 5. Secretary LaHood, do you believe the extra-territorial 
provision the European Union included when it expanded its Emissions 
Trading System to the global aviation sector to be consistent with the 
spirit if not the letter of the U.S.-EU Open Skies Agreement and its 
successor?
    Answer. We do not believe that the EU's ETS is consistent with our 
agreement with the EU.
                                 ______
                                 
   Response to Written Questions Submitted by Hon. Amy Klobuchar to 
                            Hon. Ray LaHood
    Question 1. Secretary LaHood--Under Senator Thune's bill, you would 
be given the discretion to determine if the U.S. aviation sector should 
comply or not comply with the EU ETS law. How would you go about 
evaluating any current or future impacts on U.S. carriers?
    Answer. The Department has required U.S. carriers to report certain 
ETS-related data. These data, along with other information, will be 
used in evaluating the impact of EU ETS.

    Question 2. If you were to be given this authority, how would your 
decision either way impact the work that ICAO is doing to come up with 
a global agreement?
    Answer. We are continuing to work hard with our partners in ICAO to 
achieve a comprehensive global solution. We hope that the EU will delay 
or suspend application of ETS to non-EU operators and make a commitment 
to work constructively to help the ICAO process to succeed. If, 
however, the EU does not show such flexibility, we will review all the 
options available to us.
                                 ______
                                 
     Response to Written Questions Submitted by Hon. John Thune to 
                            Hon. Ray LaHood
    Question 1. When do you see the critical deadline for resolution of 
EU ETS to ensure the unfair taxes don't hurt U.S. air travelers and 
operators?
    Answer. Under the ETS Directive, covered aircraft operators must 
surrender permits by April 30, 2013, to cover their 2012 CO2 
emissions. We hope the matter will be resolved well before that date. 
If it is not resolved by next April 30, and some operators do not 
surrender permits in accordance with the Directive, the EU member 
states that are responsible for enforcement of the ETS Directive will 
face some very difficult decisions about the extent and timing of any 
enforcement efforts.

    Question 2. Are you aware of comparable unilateral global tax 
schemes in other modes of transportation or do you know of any that are 
being considered?
    Answer. The European Commission (EC) has indicated that it will 
submit to the European Parliament and EU Member States a proposal to 
unilaterally regulate maritime emissions by the end of 2012 because the 
International Maritime Organization (IMO) did not reach a global 
agreement by December 2011. The EC is considering several possible 
options, including a fuel levy system implemented through an 
international organization (possibly the IMO), and an Emission Trading 
System (ETS). The EC is finalizing its unilateral proposal, which it 
intends to submit to the European Parliament and EU member states in 
the fall of 2012. The U.S. is continuing to work within the IMO to help 
find a solution for reducing emissions from the maritime sector.
                                 ______
                                 
 Response to Written Question Submitted by Hon. John D. Rockefeller IV 
                                  to 
                              Jos Delbeke
    Question. Mr. Delbeke, many aviation stakeholders argue that any 
ETS revenue collected from air carriers should be dedicated to 
activities that reduce airline emissions, such as air traffic control 
modernization. Our FAA recently estimated that by 2018, its 
modernization efforts (NextGen) will reduce aviation fuel use by about 
1.4 billion gallons over that period, and reduce carbon dioxide 
emissions by 14 million tons. Wouldn't it make sense to reinvest any 
money obtained from aviation interests on aviation initiatives to 
reduce aircraft emissions in the near-term? Won't a lack of dedicated 
resources delay the effort to modernize and lessen the impact of 
aviation on the environment?
    Answer. The European Union is implementing a comprehensive approach 
to address aviation emissions wider than just the EU ETS. This includes 
a range of policy measures to improve air traffic navigation, 
investments in aviation research to improve fuel efficiency, and the 
development of sustainable biofuels for aviation. For example, the 
programme to modernising the European air traffic management system has 
the potential to reduce total aviation emissions during the 2008 to 
2020 period by around 50 million tonnes of CO2.\1\ The 
investment in these programmes is substantial.
---------------------------------------------------------------------------
    \1\ Cumulative reduction from 2008 to 2020.
---------------------------------------------------------------------------
    The EU ETS legislation specifies that revenues raised by EU Member 
States in the auctioning of aviation allowances should be used to 
tackle climate change in the EU and third countries. A number of uses 
are mentioned including funding research and development for mitigation 
and adaptation, including in particular in the fields of aeronautics 
and air transport. The law also obliges Member States to report to the 
European Commission how the revenues are spent and it is the intention 
of the European Commission to make this information public.
    The EU legislator has decided not to distribute all the revenues 
from auctioning aviation allowances to aviation. From an economic 
perspective it is not apparent that it makes sense to reinvest all the 
revenues raised from aviation allowances to aviation environmental 
initiatives. In general many additional measures in aviation to reduce 
emissions beyond those measures already planned have high abatement 
costs. In such cases greater economic and environmental benefits would 
be generated if EU Member States invest the money raised in lower cost 
mitigation and adaptation activities.
    Revenues from the auction of aviation allowances are modest as just 
15 percent of the aviation allowances will be auctioned. In 2012 this 
will be 32.2m allowances and in the period from 2013 to 2020 31.6m 
aviation allowances per year \2\. The large majority of the aviation 
allowances, more than 80 percent, are distributed for free up to 2020. 
To the extent that airlines pass through the value of free allowances 
in ticket prices they dispose of additional resources to address 
aviation emissions.
---------------------------------------------------------------------------
    \2\ Rounded figures.
---------------------------------------------------------------------------
                                 ______
                                 
   Response to Written Questions Submitted by Hon. Maria Cantwell to 
                              Jos Delbeke
    Question 1. Is there any possible mechanism by which the European 
Parliament can delay or hold in abeyance the implementation of the EU 
ETS for U.S. commercial and non-commercial carriers?
    Answer. The European Parliament can not on its own accord delay or 
hold in abeyance the implementation of the EU ETS legislation in EU 
Member States. Such a change would require primary legislation and the 
European Parliament has no powers to initiate legislation.
    In the EU, primary legislation can only be initiated by the 
European Commission. To be enacted a change to the EU ETS legislation 
would require a proposal from the European Commission that has been 
approved by the co-legislators (Council of the European Union and the 
European Parliament).

    Question 2. My understanding is that EU governments may offer 
exemptions to non-EU governments for their carriers through so-called 
equivalent measures. Can you describe or define what some of these 
equivalent measures is or could be? For example, the adoption of the 
Next Generation Air Transportation System (NextGen) will provide fuel 
savings and greenhouse gas reductions for U.S. carriers flying domestic 
and international routes. Would the EU consider the full funding of 
NextGen over time to be an equivalent measure?
    Answer. The EU ETS legislation contains provisions to recognise the 
measures by other States to reduce the growth of aviation emissions. 
This would allow for the exemption of all incoming flights operating 
from those countries to the EU on a non-discriminatory basis. This 
flexibility contained in the EU law can be exercised on the basis of 
action by other countries. The exemption of incoming flights cannot be 
decided by individual Member States but it would be implemented EU-
wide.
    The EU has not defined what these measures could or should be, as 
we consider it important that states implement measures that are most 
suited to their individual circumstances. The EU would be very 
interested in discussing with the United States administration the 
measures that are being introduced in the United States to reduce 
aviation emissions, with a view to exempting incoming flights from the 
United States from the scope of our system.
    This flexibility related to incoming flights can be put into effect 
through implementing legislation powers. This is a relatively quick 
process that can come into effect with less time than a change of the 
Directive.

    Question 3. I have heard the EU argue that the EU ETS will 
stimulate the growth of the aviation biofuel market. How does it intend 
to do so?
    Answer. The EU ETS provides a direct financial incentive for the 
use of sustainable biofuels in aviation. Under the EU ETS an aircraft 
operator does not need to surrender any emissions allowances for 
sustainable biofuels. On a flight that uses a sustainable biofuel 
blend, emissions allowances are only required for the part of the fuel 
derived from fossil sources. The size of the EU ETS incentive for 
biofuels is therefore proportionate to the price for emissions 
allowances, the higher the carbon price, the greater the incentive for 
biofuels.

    Question 4. Are there lessons you have learned applying EU ETS to 
the global aviation sector that can be useful when the EU looks to 
expand EU-ETS to the global maritime sector?
    Answer. The EU has no plans at this stage to extend the EU ETS to 
the maritime sector.

    Question 5. Should U.S. non-commercial operators that fly into the 
EU a few times a year be considered de minimis and exempted for EU ETS?
    What was the basis the European Union used to establish its de 
minimis standard for greenhouse gas emissions from the aviation sector?
    Are there additional ways a commercial operator can be exempted 
from EU ETS?
    Are there any non-commercial operators that are exempted from EU 
ETS? Should there be?
    Answer. Under the EU ETS limited de minimis exemptions are provided 
to commercial airlines that operate few flights to and from the EU or 
have low emissions \3\. The exemption was included in the legislation 
as many of the commercial aircraft operators below the threshold were 
from developing countries with immature aviation markets.
---------------------------------------------------------------------------
    \3\ Commercial air transport operators operating either:--fewer 
than 243 flights per period for three consecutive four-month periods; 
or--flights with total annual emissions lower than 10,000 tonnes per 
year.
---------------------------------------------------------------------------
    Non-commercial operators were not provided the same exemption as 
they operate in a very different market. Such flights are usually for 
business travel, often operated on behalf of large corporations. For 
such flights, the cost of carbon is a very small component of the total 
operating costs of the aircraft.
    Non-commercial aircraft operators would only be exempt from the 
system if the types of flights that they operate are outside the scope 
of the EU ETS legislation. For example, exempt flights include: flights 
by small aircraft with a maximum take-off weight below 5.7 tonnes; 
humanitarian flights; military flights; and, emergency medical flights.
    In order to minimise administrative costs for the EU ETS, the 
European Commission has made extensive efforts to simplify 
administrative requirements. For example the European Commission has 
supported the development of the EU ETS Support Facility by Eurocontrol 
(the European air navigation organisation). This facility provides EU 
ETS relevant information and data in order to assist the aircraft 
operators in meeting their regulatory obligations under the EU ETS. In 
addition, all aircraft operators with annual emissions below 25,000 
tonnes of CO2 a year are allowed to monitor and report their 
emissions using modelled data from approved sources, avoiding the need 
for a measurement system to be implemented. This approach substantially 
reduces compliance costs.
    The European Commission is continuing to examine opportunities for 
further simplification of the administrative requirements for aircraft 
operators with low emissions and will seek to introduce further 
improvements to the system going forward.

    Question 6. I have read different estimates of the economic impacts 
of EU-ETS on U.S. commercial and non-commercial air carriers. They 
range from costing U.S. airlines billions of dollars through the year 
2020 to EU claims that its emissions trading system will create profit 
for the airlines. What's to account for the huge difference in 
estimates?
    Do all the parties agree on the same set of underlying facts and 
assumptions? What are the EU's key assumptions underlying its estimate 
of the economic impact of EU-ETS on commercial and non-commercial 
carriers?
    Is it possible to reconcile these estimates?
    Answer. In my testimony I referenced a number of independent 
studies that have examined the impacts of the EU ETS on airlines. 
Indeed one study by MIT highlighted that U.S. airlines could improve 
their economic situation due to the system.\4\
---------------------------------------------------------------------------
    \4\ http://www.sciencedirect.com/science/article/pii/
S0969699711001268.
---------------------------------------------------------------------------
    The differences in cost estimates could relate to different 
assumptions regarding factors such as: the forecast price of emissions 
allowances; and the levels of cost pass through to customers of the 
emissions allowances that are allocated for free.
    I have not seen any details of how the U.S. airlines have 
calculated the costs of compliance with the EU ETS, so am unable to 
comment on how they arrived at their headline figures.

    Question 7. Ms. Young argues that the primary sticking point at 
ICAO currently limiting progress on developing a global approach for 
reducing greenhouse gases from the aviation sector is EU ETS. How do 
you respond? What do you think the main sticking points are?
    Answer. The EU ETS legislation cannot in any way be characterised 
as the main sticking point that is currently limiting progress on a 
global approach being agreed in ICAO. The EU has been a consistent 
supporter of work in ICAO to address aviation emissions and has 
actively contributed to all climate change related work that has taken 
place in ICAO. If anything, the EU policy has accelerated work in ICAO 
on this issue as it has highlighted that action is needed.
    In the past, a key sticking point has been a reluctance of many 
other countries to engage in an ICAO process. There has not been a 
common view amongst States that action is needed to reduce aviation 
emissions. This view seems to be gradually changing with a greater 
willingness of a wider group of States to engage constructively in the 
ICAO process. I hope that this enhanced readiness of key States to 
actively support the work of ICAO will continue and in the end produce 
tangible results.
    Perhaps the major sticking point at ICAO is the respective 
contributions that different States should make to address 
international aviation emissions. In particular the contributions to be 
made by developed and developing countries. A number of States have 
been keen to propose that the concept of ``common but differentiated 
responsibilities and respective capabilities'', as found in the 
international climate negotiations taking place United Nations 
Framework Convention on Climate Change (UNFCCC), should be part of an 
ICAO agreement. Adoption of such a principle could place most 
responsibility on developed economies such as the EU and the United 
States to reduce emissions, with less emphasis on emissions reduction 
in emerging economies. The United States administration in particular, 
has not accepted that such a ``CBDR-RC'' principle has a place in ICAO 
policies. To move forward in ICAO, this issue will need to be resolved.
                                 ______
                                 
     Response to Written Questions Submitted by Hon. John Thune to 
                              Jos Delbeke
    Question 1. Can you provide an update on what other types of 
emission sources the European Union is considering adding to Emissions 
Trading Scheme?
    Answer. The European Union has no plans at the moment to include 
any additional emissions sources in the EU ETS.
    The European Commission recently held a public consultation on a 
number of policy options for addressing maritime emissions. This is the 
only business sector that is not currently subject to EU climate change 
policy. At this stage no decision has been made within the Commission 
on the preferred policy option.

    Question 2. What are the potential penalties for an air operator 
that does not comply with the Emissions Trading Scheme?
    Answer. The penalties for non-compliance are laid down in Member 
States' law. The primary EU ETS legislation requires Member States to 
ensure that the penalties are effective, proportionate and dissuasive.
    Therefore, aircraft operators who have not submitted a verified 
emission report for 2010 or 2011 are subject to penalties as laid down 
in the national legislation of the Member State that administers them. 
This means that the exact penalty will vary between Member States, 
though could for example comprise a fine of up to =50 000.\1\ In most 
Member States, with the full introduction of the system from 2012, the 
fines envisaged for non-submission of verified 2012 emission reports 
increase.
---------------------------------------------------------------------------
    \1\ This is the maximum fine for non-reporting of 2010 or 2011 
emissions by aircraft operators administered by Germany.
---------------------------------------------------------------------------
    The EU ETS legislation however foresees a harmonized penalty for 
the failure to surrender sufficient emission allowances by participants 
in the system. The first surrender date is 30 April 2013. The excess 
emissions penalty is =100 for each tonne of CO2 emitted for 
which the aircraft operator or installation has not surrendered 
emission allowances. The payment of this penalty does not release the 
concerned aircraft operator from the obligation to surrender sufficient 
allowances to cover its emissions.
    In addition, the Member States will publish the names of the 
operators who are in breach of the requirement to surrender sufficient 
allowances.

    Question 3. If the European Union decides to roll back the aviation 
portion of Emissions Trading Scheme, how long will it take to do so?
    Answer. As mentioned in our submission to the Senate hearing, there 
is no prospect of suspending the EU legislation. Such a suspension 
could only take place if the European Commission makes a proposal for 
primary legislation to the co-legislators, which are the Council of the 
European Union and the European Parliament. Such a process typically 
takes at least 2 years to complete.
    The submission by the European Commission to the Senate hearing 
also describes the two flexibilities contained in the legislation. 
Flexibilities related to incoming flights can be put into effect 
through implementing legislation powers. This is a relatively quick 
process that can come into effect within a matter of months.
    In particular, if there is agreement in ICAO on global measures to 
reduce aviation emissions, the EU is ready--as it has frequently made 
clear--to review the ETS legislation and consider the implications of 
the agreement for existing EU law.

    Question 4. What is the current price of a carbon allowance? Would 
you expect allowance prices to go up in the future since aviation is 
being added to the market?
    Answer. On 18 July 2012 the closing price for allowances for 
immediate delivery (spot) amounted to =7.15. Various contracts for spot 
and future delivery are traded and prices vary on a daily basis. There 
are many sources available for price information.
    Given that the legislation to include aviation in the EU ETS has 
been adopted a few years ago we expect that the market has already 
priced in the extended coverage for quite some time. The Commission has 
no view and does not provide forecasts on future price developments.
                                 ______
                                 
                     National Business Aviation Association
                                      Washington, DC, July 20, 2012
Hon. John D. Rockefeller IV,
Chairman,
Committee on Commerce, Science, and Transportation,
United States Senate,
Washington, DC.

Dear Chairman Rockefeller,

    Thank you for the opportunity to appear before the Commerce, 
Science, and Transportation Committee to provide our views on the 
European Union's Emissions Trading Scheme (EU ETS) and its impact on 
general aviation aircraft operators based in the United States. We 
commend you for convening the hearing and focusing attention on this 
urgent issue.
    On behalf of our 9,000 members in all 50 states, I want to 
reiterate that when it comes to aviation operations, we strongly 
believe that environmental stewardship is an imperative. The industry 
continually works to develop reasonable, effective and balanced 
policies that support the twin goals of promoting the mobility and 
growth of aviation while safely minimizing its environmental footprint.
    During the hearing, you highlighted the EPA's 2011 Greenhouse Gas 
Inventory and requested that we provide comments about their findings. 
In addition, you asked that I provide additional information about the 
general aviation community's efforts to reduce aircraft emissions. Mr. 
Chairman, we have been working closely with your staff to better 
understand the EPA's methodology. I would like to take this opportunity 
to commend your staff for their efforts and assistance in connecting us 
with the EPA subject matter experts. Those discussions with the EPA are 
ongoing, and we will provide updated information as the conversations 
continue.
    In the meantime, I would like to outline the industry's past 
achievements and our ongoing commitment in further reducing the 
industry's already small environmental footprint. While business 
aviation has steadily reduced its emissions and represents only 0.04 
percent of global man-made carbon emissions, the industry has developed 
aggressive and measurable goals to achieve further reductions.
    Mr. Chairman, there is no doubt that reducing fuel burn reduces the 
industry's costs and is an important business investment, but general 
aviation has long been focused on the need to be good stewards of the 
environment and continuously work to reduce our environmental impact.
    In 2008, then Cessna CEO Jack Pelton said, ``We have long been 
committed to improving the efficiency and reducing the environmental 
impact of our products. We intend to intensify that effort, through our 
strategy of continuous improvement.'' This priority is shared across 
the industry.
    In fact, fuel consumption of turbine engines has improved an 
average of 1 percent per year since the dawn of the jet age. Winglets 
and laminar flow technology have improved wing design and performance 
leading to improved aerodynamics and thus reduced emissions for 
airplanes. Composites (several general aviation aircraft are all-
composite already--ahead of the Boeing 787) reduce weight and thus 
improve efficiency. Modern and constantly improving avionics allow 
aircraft to fly more direct, efficient routes, thus also reducing fuel 
consumption and aircraft emissions.
    General aviation has also partnered with the FAA to advance new 
technology and operational improvements that will further reduce 
emissions and increase efficiency. Two primary examples are the 
Capstone Program in Alaska, which was the foundation for the ADS-B 
technology, and ADS-B pilot program in the Gulf of Mexico. These are 
vivid examples of what's possible when ``next gen'' is implemented. In 
both cases, safety was enhanced and fuel burn was reduced. As these 
programs grow, these efforts will yield significant reductions in 
aviation emissions.
    Business aviation has made substantial progress in lowering 
emissions, but we are resolved to do more. Together, the business 
aviation manufacturing and operating communities have developed an 
aggressive program for further improvement.
    To this end, the business aviation community has publicly committed 
to the following specific targets:

   Carbon-neutral growth by 2020;

   An improvement in fuel efficiency of an average of 2 percent 
        per year from today until 2020, and;

   A reduction in total CO2 emissions of 50 percent 
        by 2050 relative to 2005.

    We are also pleased to note recent progress in the international 
arena. The Committee on Aviation Environmental Protection (CAEP) of the 
International Civil Aviation Organization (ICAO) has announced an 
agreement on metrics for measurement of CO2 emissions by 
different aircraft using varying technologies.
    The unanimous agreement on a CO2 metric, which was 
announced at a CAEP meeting on July 11, represents an important step in 
the process of developing appropriate emissions standards for 
international aviation.
    Mr. Chairman, thank you again for the opportunity to participate in 
the hearing. We look forward to continuing our work with you and the 
Committee. And, as previously noted, I will send you more information 
on the EPA inventory and general aviation as our discussions with EPA 
evolve. In the meantime, we stand ready to answer any additional 
questions that you might have.
            Sincerely,
                                                  Ed Bolen,
                                                 President and CEO.
                                 ______
                                 
 Response to Written Question Submitted by Hon. John D. Rockefeller IV 
                                  to 
                            Edward M. Bolen
    Question. How much does a typical general aviation flight from the 
U.S. to Europe cost to operate? How much would these costs increase 
under the ETS system, including both the actual ETS charge and the 
compliance costs?
    Answer. The cost of a typical general aviation flight to Europe: 
$17,872.50
    EU ETS operation cost increase to U.S. businesses: $20,468.50

    Supporting data for a typical U.S. business aviation aircraft (non-
commercial):

        Bangor, Maine-Shannon, Ireland

        (flights originating in other locations often stop in Bangor to 
        fuel)

        Trip distance: 2,708

        Aircraft: Learjet

        Aircraft Hourly Cost per hour: $2,543

        Trip Speed: 413K

        Time En route: 6.6 hours [Distance/speed = time]
        Cost per trip: (one way est. based on *) [Hourly cost * Enroute 
        Time = Est. Trip Cost] $17,872.80

    EU ETS compliance cost:

        Annual Emission & Benchmarking Plans: $2,464.80

        Emission Report Verifier: $3,000.00

        Registry Account Maintenance Fee: $480.00

        Subsistence Fee: $3,323.70

        Administrative cost: $2,200.00

        Allowances: $9,000.00

        The average business aircraft operator will need to purchase 
        the smallest block of allowances available for sale. We 
        understand that the smallest block available is 1000 at $9.00 
        per allowance this block will cost $9000. This despite the fact 
        that only 14 allowances are required for the flight.

        EU ETS operation cost increase to U.S. businesses: $20,468.50
                                 ______
                                 
   Response to Written Questions Submitted by Hon. Maria Cantwell to 
                            Edward M. Bolen
    Question 1. Mr. Bolen, during the hearing you listed a number of 
the additional fixed administrative costs non-commercial operators will 
incur to comply with EU ETS that have nothing to do with purchasing the 
actual emission allowances. Can you describe each of them in a little 
greater detail?
    Answer. The ETS creates a series of onerous reporting, monitoring 
and verification requirements that are costly to administer. This also 
raises serious privacy and business confidentiality concerns, because 
the scheme requires U.S. companies to provide a huge amount of 
sensitive data, including bank account information, flight data, 
personal information and other disclosures--all of which would be made 
available to the public. These intrusive, administratively burdensome 
and expensive requirements are all before the actual cost of the ETS is 
even assessed on operators.
    Examples of EU ETS compliance requirements:

        Annual Emission & Benchmarking Plans (this may require hiring 
        an outside consultant or adding personnel internally to develop 
        operator monitoring, reporting and verification process.

        Emission Report Verifier (the EU requires that all operators 
        pay a outside, independent verifier)

        Annual Registry Account Maintenance Fee: Establish a carbon 
        registry account

        Annual Subsistence Fee: account maintenance with administering 
        state

        Brokers to purchase and/or trade allowances (will require 
        primary and secondary market interaction due to the fact that 
        non-commercial aviation is the ONLY emitter below 25,000 metric 
        tons for ground-based emitters or 243 commercial flights in 4 
        month period required to participate in the ETS)

    Question 2. While commercial operators can spread out these new 
fixed costs across many flights and many passengers, I am concerned 
that some non-commercial operators will have to spread these costs out 
over a few flights, which will make them prohibitively expensive, and 
possibly cause them not to occur in the first place. Do you believe 
that if EU ETS is applied to U.S. non-commercial operators there will 
be a corresponding reduction in the number of non-commercial flights 
from the U.S. to the EU?
    Answer. Anything that creates new administrative burdens and higher 
costs does impact the general aviation and its number of operations. 
While I cannot specifically provide a number of lost flights, we agree 
with the assessment of the International Association of Machinists and 
Aerospace Workers. As stated in a June 5th letter to Committee members, 
International President Tom Buffenbarger wrote:

        . . . Nowhere has the economic impact been more severe than in 
        the business aviation industry where job losses have been in 
        the tens of thousands. In this context we want to express our 
        opposition to the European Union's emissions trading scheme (EU 
        ETS), which threatens to negatively impact the U.S. aerospace 
        industry, one of the few industries in which we maintain a 
        positive balance of trade with the rest of the world, as well 
        as the commercial aviation industry.

        While it is commendable to seek reductions in greenhouse gas 
        emissions, the EU ETS is in reality nothing more than a revenue 
        raiser for the E.U.; a tax that will also place an unnecessary 
        regulatory burden on both commercial and general aviation. It 
        is important to note that globally commercial aviation 
        contributes only 2 percent of greenhouse gas emissions and 
        general aviation a minuscule 0.04 percent. Instead of a job 
        killing tax, a more sensible approach would be to support 
        investments in fuel efficient engine and aircraft designs, 
        biofuels, and NextGen aircraft traffic control systems. 
        Together, these innovations will actually create meaningful 
        reductions in greenhouse gas emissions.

        The anemic jobs numbers in the most recent employment report 
        from the U.S. Bureau of Labor Statistics highlight not only the 
        fragility of our economic situation, but also that of the 
        global economy. It would be a regrettable mistake for the U.S. 
        to embrace the EU ETS, a scheme without merit, but with the 
        ability to do real economic harm. I strongly urge you to 
        support efforts to exempt U.S. carriers and the general 
        aviation industry from the E.U.'s disastrous tax.''

    Question 3. What is the minimum size block of greenhouse gas 
allowances a commercial or non-commercial operator can purchase at 
auction?
    Answer. The smallest quantity of European Union Aviation Allowances 
(EUAA) sold is an increment of 1000 tons. A primary and secondary 
market has been established; however, only available and appropriate to 
groups that purchase bulk quantities by auction or in smaller amounts 
greater than 1000 tons allowances per transaction.

    Question 3a. Is this minimum size of allowance much greater than 
the average non-commercial operator will require for flights between 
the U.S. and EU?
    Answer. Yes, a typical aircraft used by non-commercial operator for 
a flight from U.S. to EU flight would emit approximately 15 metric 
tons. So, this will require specialized trades where operators will 
undoubtedly be charged additional fees or premiums to break up larger 
lots.

    Question 3b. Will there be a need for intermediaries to sub-divide 
these allowances for the typical U.S. non-commercial operator traveling 
to the EU?
    Answer. Yes, non-commercial operators need to seek smaller 
increments than other entities participating in the ETS.

    Question 4. Under EU ETS, the airlines of some countries flying 
into the EU are exempt because, for whatever reason, that country has 
been exempted. In your testimony, you mentioned that even if the U.S. 
non-commercial operator makes one flight a year between the U.S. and EU 
is covered under EU ETS. Does the EU ETS include any de minimus level, 
below which a U.S. non-commercial operator would not be subject?
    Answer. No, there is no de minimus exception for non-commercial 
operators. Non-commercial operators are required to participate in the 
ETS from flight #1.
    Commercial operators who emit or operate under the threshold of 
less than 243 flights in 4 months are exempt from the ETS while non-
commercial operators with significantly lower operations/emissions are 
required to participate for every single flight. This clearly 
demonstrates that non-commercial general aviation operators are treated 
differently and required to monitor, report, verify and purchase 
emission allowances (EUAs) that commercial operators with much higher 
emissions are not required to do. In addition, the other major 
discrepancy that we discussed is that commercial operators above those 
exemption thresholds will be awarded free allowances for 85 percent of 
their emissions--15 percent will have to be purchased. Again, non-
commercial operators are singled out for punitive treatment and do not 
get these free allowances.

    Question 5. For your members, currently what is the main sticking 
point at ICAO preventing an agreement on reducing greenhouse gases from 
the global aviation sector?
    Answer. We are confident that ICAO will achieve an agreement and 
recent activity indicates that the international community is moving 
forward.
    Our members are represented through International Business Aviation 
Council (IBAC) as an observer organization to ICAO. IBAC fully supports 
and participates directly in numerous ICAO activities, for example 
within the current CAEP/9 activities, progress has been made; i.e., 
unanimous agreement on a metric system for a global aviation 
CO2 Certification Standard for Aircraft. This milestone was 
reach recently in St. Petersburg, Russia, July 11, 2012. ICAO considers 
the CO2 Certification Standard for Aviation as one in a 
``basket of measures.''
ICAO Basket of Measures and Assembly Resolution
    ICAO has developed a ``Basket of Measures''--a broad scope of 
actions that can be taken by aviation stakeholders including State 
regulators to address emissions from aviation. These include: aircraft 
technology, alternative fuels, Air Traffic Management and 
infrastructure efficiency, operational efficiencies, economic and 
regulatory measures.
    Recent ICAO actions on sustainable alternative fuels for aviation 
and on Market-Based Measures (MBM), the Ad Hoc Working Group of the 
Council, with the support of MBM experts, is working on guiding 
principles for MBMs and on global MBM options (narrowed to three 
possibilities after the 195th session of the Council in June 2012: a 
global mandatory offset scheme; a global mandatory offset scheme with 
revenue generation; and an emission trading scheme).

    Question 6. Ms. Petsonk argued that in Congressman Mica's 
``European Union Emissions Trading Scheme Prohibition Act'', which 
passed the U.S. House of Representatives, the phrase ``take other 
actions necessary to ensure that operators of civil aircraft of the 
United States are held harmless from any emissions trading scheme 
unilaterally established by the European Union'' could mean that the 
U.S Government will have to compensate U.S. commercial and non-
commercial operators for any fines incurred as a result of non-
compliance with the EU ETS. When the Congressional Budget Office scored 
the Congressman Mica's bill it said ``enacting H.R. 2594 would have no 
significant impact on the Federal budget''. If Ms. Petsonk's assertion 
were true, though, there would budget impact. Mr. Bolen, what is the 
range of actions the Administration can take to ``hold harmless'' U.S. 
non-commercial operators from EU ETS?
    Could these actions to hold harmless U.S. commercial and non-
commercial operators include the U.S. Government paying EU authorities 
directly or compensating U.S. commercial operators for any fines 
incurred for non-compliance with EU ETS?
    Does NBAA or any of its members intend to seek compensation from 
the Federal Government for fines incurred for non-compliance with EU 
ETS?
    Answer. Our assumption is that ``hold harmless'' means that the 
U.S. Government will take actions (diplomatic or other) to ensure that 
if a prohibition is enacted that U.S. (commercial and non-commercial) 
planes will not be impounded, pilots will not be incarcerated and fines 
will not be levied against U.S. operators.

    Question 7. Does NBAA support the use of so-called market-based 
mechanisms as one means for reducing the greenhouse gas emissions from 
the global aviation sector?
    Answer. The successful achievement of carbon neutral growth by 2020 
will be challenging. During this interim period, business aviation 
operators are open to offsetting their emissions through market-based 
economic measures. For example, we have long believed and publicly 
articulated the value of general aviation fuel surcharge as an 
incentive to purchase cleaner, quieter and more fuel efficient 
aircraft--and reduce emissions.
    Conceptually, market-based emissions should be limited in their 
focus and duration. They should not create onerous administrative 
burdens or excessive costs. These measures should also treat all 
segments of aviation in equivalent measures (unlike the ETS, which 
clearly singles out certain segments for punitive and discriminatory 
treatment). And, most important, they must be developed in the context 
of a global sectoral approach to aviation emissions.

    Question 8. Mr. Bolen, as I mentioned in my opening statement, 
there is virtually unanimous agreement in the scientific community that 
human-caused global warming is real and there is not a single 
scientific body of national or international standing that does not 
support this conclusion. And while there may be some remaining 
uncertainty as to the timing and scope of climate change, I don't 
believe the United States can continue to ignore this threat to our 
environment and to America's future prosperity.
    Do you concur with the scientific consensus that human-caused 
global warming is real?
    Do you agree that climate change will negatively impact the 
American economy and our citizens?
    How would you characterize the aviation industry's contribution to 
the build-up of greenhouse gases in the world's atmosphere? Is it a 
significant problem today and how will aviation's contribution change 
over time?
    Answer. While NBAA has no specific expertise on the science of 
climate change, I would like to reiterate that general aviation has a 
strong history and ongoing commitment to reducing our already small 
environmental footprint.


    Business aviation has established an excellent record of constantly 
reducing emissions--delivering 40 percent improvement in fuel 
efficiency over the past 40 years. In fact, some of the industry's most 
dramatic advances were initiated by general aviation. For example, 
composite materials and winglets were originally certified for GA 
aircraft.

    Question 9. Mr. Bolen, during the June 6, 2012 hearing, we 
discussed some of the voluntary commitments the aviation industry has 
made to reduce their greenhouse gas emissions beyond business-as-usual. 
Can you specify what those commitments from non-commercial operators 
are?
    Answer. Business aviation has made substantial progress in lowering 
emissions, but we are resolved to do more. Together, the business 
aviation manufacturing and operating communities have developed an 
aggressive program for further improvement.
    To this end, the business aviation community has publicly committed 
to the following specific targets:

   Carbon-neutral growth by 2020;

   An improvement in fuel efficiency of an average of 2 percent 
        per year from today until 2020, and;

   A reduction in total CO2 emissions of 50 percent 
        by 2050 relative to 2005.

    Question 9a. How confident are you that these commitments will be 
met?
    Answer. Achieving the above targets will require not only sustained 
effort on the part of the entire business aviation community, but will 
also require partnership between industry and government to develop 
solutions that balance economic growth and environmental goals. We 
anticipate reaching these objectives through advances in the following 
areas:

   Technology: Improvements in aircraft frames through 
        aerodynamic design changes and weight reductions with composite 
        materials. Engine advances will also reduce emissions.

   Operational Streamlining: Through collaboration with air 
        traffic management, fully implement efficient procedures and 
        modernize ATC.

   Alternative Fuels: The aviation industry is driving the 
        research, development and deployment of commercially viable, 
        sustainable alternative aviation fuels. Based on current 
        research and the encouraging results already demonstrated in 
        flight, business aviation anticipates a CO2 
        reduction of 40 percent in absolute terms from biofuels by 
        2050. This is an area that holds huge promise for significant 
        GHG reductions, but will require a sustained commitment to fund 
        research and development.

   Market-based measures. Please see question #7.
    NBAA would like to again recognize the efforts of this Committee to 
complete the important multi-year FAA reauthorization legislation that 
will undoubtedly expedite the transformation to the Next Generation Air 
Traffic Control technology--or NextGen. In fact, when implemented, 
NextGen has been projected to reduce emissions by an additional 12 
percent.

    Question 9b. Do you believe that there are enough tools available 
to ensure that all major emitting nations and their carriers 
participate and will meet these commitments?
    Answer. Yes. ICAO's history suggests that global standards can be 
effectively implemented. Over the years, ICAO-developed global 
standards on safety, security and air traffic management have been 
introduced successfully. We believe that what ICAO has done in these 
areas, it can also do for global environmental standards. One example 
is the global effort to implement RVSM (reduced vertical separation 
minima). RSVM safely increases the enroute air space, allowing aircraft 
to fly the most efficient altitudes. This successful effort has 
advanced air traffic management and reduced fuel burn.

    Question 9c. What do you think are the most cost-effective ways to 
reduce greenhouse gases from the aviation industry?

    Question 9d. Are there particular efforts or case-studies, such as 
the Green Skies program at SeaTac Airport, you believe Congress should 
look at when considering how best to address this issue?
    Answer. Over the years, a number of important ``case studies'' have 
occurred on the general aviation side that would be worth considering. 
Two primary examples are the Capstone Program in Alaska, which was the 
foundation for the ADS-B technology, and ADS-B pilot program in the 
Gulf of Mexico. These are vivid examples of what's possible when ``next 
gen'' is implemented. In both cases, safety was enhanced and fuel burn 
was reduced. Congress has led the way in expediting the transition to 
the next generation air traffic control technology. This effort will 
yield significant reductions in aviation emissions.
    In addition to Next Gen programs, we would also urge Congress to 
continue to invest in alternative fuels research and development. There 
is no question that the availability of aviation alternative fuels will 
further reduce the environmental footprint.
    We would also suggest that support for programs that encourage 
companies to invest in aircraft aerodynamics and engine improvements 
will advance our collective environmental goals.

    Question 10. Mr. Bolen, carbon emissions are ubiquitous within the 
U.S. economy and almost every economy around the globe. Isolated 
efforts to reduce greenhouse gas emissions will not alter or mitigate 
the devastating impacts of a warming planet. I believe this reality 
provides additional urgency for the United States, as the world's sole 
superpower, to act and lead the world to a clean energy future with 
innovative policies. Curbing carbon emissions to the level necessary to 
avert a climate crisis will require innovation within almost every 
sector of the economy. It seems to me that the global scope of carbon 
pollution poses a somewhat different challenge than more localized 
pollutants.
    Rather than regulating downstream at the point of emission such as 
an airplane's exhaust, would limiting carbon emissions upstream where 
fossil fuels are extracted possibly be a more efficient and technology-
neutral way to squeeze carbon out across the economy?
    Would an upstream carbon limit reduce the need for more monitoring, 
enforcement, and regulatory complexity?
    Answer. As previous mentioned, the successful achievement of carbon 
neutral growth by 2020 will be challenging. During this interim period, 
business aviation operators are open to offsetting their emissions 
through market-based economic measures. For example, we have long 
believed and publicly articulated the value of general aviation fuel 
surcharge as an incentive to purchase cleaner, quieter and more fuel 
efficient aircraft--and reduce emissions.
    Conceptually, market-based emissions should be limited in their 
focus and duration. They should not create onerous administrative 
burdens or excessive costs. These measures should also treat all 
segments of aviation in equivalent measures (unlike the ETS, which 
clearly singles out certain segments for punitive and discriminatory 
treatment). And, most important, they must be developed in the context 
of a global sectoral approach to aviation emissions.
    In addition, any market-based mechanism should be transparent, fair 
and effective with any revenues collected reinvested in aviation 
research and infrastructure.
    We are unable to speculate about upstream carbon limits without the 
details of a specific proposal. We have, however, attempted to outline 
some broad concepts regarding market-based measures.
                                 ______
                                 
    Response to Written Question Submitted by Hon. John F. Kerry to 
                             Annie Petsonk
    Question. S. 1956 would authorize the Secretary of Transportation 
to prohibit an airline from complying with the EU ETS, thereby removing 
a flying option for Americans and potentially raising prices for 
remaining flights to Europe. As a recent CRS study pointed out, ``If 
either of the bills (the Thune bill or its House companion) were to be 
enacted, the language could pose challenges for U.S. aircraft operators 
serving the EU. Were the Secretary of Transportation to prohibit them 
from participating in the EU ETS, this could be construed as an 
instruction not to comply with the laws of the EU and its member States 
and prevent those operators from receiving their shares of allowances. 
It also could subject those operators to non-compliance penalties, 
including exclusion from the EU aviation market.'' We would therefore 
be authorizing through legislation the ability for U.S. companies to 
break the law of another country. Can you please comment on what 
precedent this sets? Are there other examples where the U.S. has 
prohibited an industry from complying with another country's laws? How 
would prohibiting a carrier from complying with EU law ever be ``in the 
public interest'' for Americans who would like to fly to Europe?
    Answer. We think such a law would set a terrible precedent. There 
are many areas where the U.S. seeks the cooperation of other nations in 
law enforcement cases where infractions of U.S. law transcend national 
boundaries. These include enforcement efforts not only in environmental 
cases, but also in the financial area, in banking secrecy cases, in 
drug enforcement, and a whole host of fields where American law 
enforcement authorities seek cooperation from foreign law enforcement 
authorities to enforce U.S. law abroad.
    Only on the rarest occasions has the U.S. Congress enacted 
legislation prohibiting U.S. companies from complying with foreign 
laws. In fact, we have been able to identify only two examples. The 
first is the Comprehensive Anti-Apartheid Act of 1986, Public Law No: 
99-440.\1\ This law, enacted, over a Presidential veto, banned all new 
U.S. trade and investment in South Africa as a sanction against that 
country's apartheid laws. The law was repealed as of June 8, 1994.\2\
---------------------------------------------------------------------------
    \1\ Text available at http://thomas.loc.gov/cgi-bin/bdquery/
z?d099:HR04868:@@@L&summ
2=m&.
    \2\ http://uscode.house.gov/download/pls/22C60.txt.
---------------------------------------------------------------------------
    The second set of laws, which remain in effect today, are the 
Antiboycott Laws under the Export Administration Act, specifically the 
1977 amendments to the Export Administration Act (EAA) and the Ribicoff 
Amendment to the 1976 Tax Reform Act (TRA).\3\ The Antiboycott laws 
discourage, and in some circumstances, prohibit U.S. companies from 
furthering or supporting the boycott of Israel sponsored by the Arab 
League, and certain other countries, including complying with certain 
requests for information designed to verify compliance with the 
boycott. Compliance with such requests may be prohibited by the Export 
Administration Regulations (EAR).\4\ Currently U.S. companies may be 
prohibited from complying with requests for proof of boycott compliance 
when doing business in Bahrain, Iraq, Libya, Saudi Arabia, Syria, and 
Yemen, among others.
---------------------------------------------------------------------------
    \3\ Section 8 of the Export Administration Act of 1979, as amended, 
50 U.S.C. app. Sec. Sec. 2401-2420 (2000), International Emergency 
Economic Powers Act, 50 U.S.C. Sec. Sec. 1701-1707 (2000); and the 
``Ribicoff Amendment'' to the Tax Reform Act of 1976, adding Sec. 999 
to the Internal Revenue Code. See http://www.bis.doc.gov/
complianceandenforcement/comparison-antiboycott-laws.pdf and see http:/
/www.bis.doc.gov/complianceandenforcement/antiboycottcompliance.htm.
    \4\ http://www.bis.doc.gov/antiboycottcompliance/
oacantiboycottrequestexamples.html.
---------------------------------------------------------------------------
    We respectfully submit that it would be inappropriate, to say the 
least, to place apartheid and the anti-Israel boycott in the same 
category at the European Union's legislation to limit global warming 
pollution from aircraft landing at and taking off from European 
airports. Yet that is what enactment of legislation authorizing the 
Secretary of Transportation to prohibit U.S. airlines from 
participating in the EU ETS would effectively do.
                                 ______
                                 
   Response to Written Questions Submitted by Hon. Maria Cantwell to 
                             Annie Petsonk
    Question 1. Ms. Petsonk, Congressman Mica's ``European Union 
Emissions Trading Scheme Prohibition Act'' that passed the House of 
Representative last year and Senator Thune's Senate version both 
include the clause ``take other actions necessary to ensure that 
operators of civil aircraft of the United States are held harmless from 
any emissions trading scheme unilaterally established by the European 
Union.''
    If I understand you, your interpretation is that the U.S. would 
indemnify the airlines from paying any fines to the EU that would occur 
for non-compliance. To take your argument one step further, ``held 
harmless'' really means the U.S. taxpayer would be paying the EU 
treasuries for any fines the U.S. commercial and non-commercial 
operators might incur.
    When the Congressional Budget Office (CBO) scored Congressman 
Mica's bill it said ``enacting H.R. 2594 would have no significant 
impact on the Federal budget''. Under your interpretation, I imagine 
there would be nominal if not significant impact to the Federal budget. 
Did CBO just miss this? Can you explain?
    Answer. Senator Cantwell, here's how CBO might have missed this. As 
you know, when the U.S. Congress amends a pre-existing law, analyzing 
the full impact of the amendment may require analyzing the pre-existing 
law as well as the amendment itself. And if the amendment delegates 
authority to the U.S. states to implement it, a full understanding of 
the amendment may entail also analyzing the state implementing rules.
    Similarly, the EU Aviation Directive (Directive 2008/101/EC of the 
European Parliament and of the Council of 19 November 2008 (Official 
Journal of the European Union L 8/3, 13 January 2009)), brings aviation 
into the EU's emissions trading system (ETS). The Aviation Directive 
does so by amending a pre-existing law, the Emissions Trading Directive 
(Directive 2003/87/EC of the European Parliament and of the Council of 
13 October 2003 establishing a system for greenhouse gas emission 
allowance trading within the Community). The Emissions Trading 
Directive includes general enforcement provisions that apply to all 
sectors covered by the ETS, and directs member states of the EU to 
enforce its provisions, which the member states have done. So, to 
understand the full operation of the Aviation Directive, it is 
necessary to have in hand the Directive itself, the underlying 
Emissions Trading Directive, and the member state implementing 
regulations, all of which are attached to this Response.
    We do not know which provisions of the EU legislation and member 
state implementing regulations, if any, were presented to CBO along 
with H.R. 2594. If all the texts were not presented to CBO at the time, 
it would be understandable that its analysis did not cover this issue.
    The enforcement provisions of the Emissions Trading Directive 
(Article 16) follow the general approach of, and are modeled on, the 
U.S. Sulfur Dioxide Acid Rain Trading Program, which is Title IV of the 
U.S. Clean Air Act Amendments of 1990. That is, for both the U.S. and 
the EU emissions trading program, the respective legislatures enacted 
automatic penalties. The automatic penalty provisions reflect 
legislative judgments that in exchange for receiving the benefits of 
broad flexibility in determining where and how to meet their targets, 
regulated entities should be held to the rigor of strong, automatic 
consequences if the regulated entities reap the advantages of 
flexibility but still fail to comply. That balance has ensured almost 
complete compliance with both the U.S. Acid Rain Trading Program and 
the EU ETS, at costs far below those anticipated when the laws were 
enacted.
    The enforcement provisions of the Aviation Directive take the form 
of amendments to the underlying Emissions Trading Directive's 
enforcement provisions. Article 1, paragraph 14 of the Aviation 
Directive amends Article 16, Paragraph 3 of the ETS Directive as 
follows (changes highlighted in italics):

        ``3. Member States shall ensure that any operator or aircraft 
        operator who does not surrender sufficient allowances by 30 
        April of each year to cover its emissions during the preceding 
        year shall be held liable for the payment of an excess 
        emissions penalty. The excess emissions penalty shall be EUR 
        100 [approximately U.S. $125.00] for each tonne of carbon 
        dioxide equivalent emitted for which the operator or aircraft 
        operator has not surrendered allowances. Payment of the excess 
        emissions penalty shall not release the operator or aircraft 
        operator from the obligation to surrender an amount of 
        allowances equal to those excess emissions when surrendering 
        allowances in relation to the following calendar year.''

    The full text of the Emissions Trading Directive contains, in 
paragraph 16, the following additional language, which does not appear 
in the Aviation Directive amending the ETS Directive, but which is part 
of the ETS framework:

        ``4. The excess emissions penalty relating to allowances issued 
        from 1 January 2013 onwards shall increase in accordance with 
        the European index of consumer prices.''

    In terms of member state regulations implementing the ETS for 
aviation, here is an English-language example from the United Kingdom 
(which administers the ETS system for U.S. carriers United Airlines and 
American Airlines):

        Failure to surrender sufficient allowances

        38.--(1) The civil penalty in paragraph (2) applies where an 
        aircraft operator--

        (a) fails to surrender sufficient allowances or project 
        credits, contrary to regulation 26(1); or

        (b) fails to surrender allowances or project credits equal to a 
        deficit, contrary to regulation 26(2).

        (2) The civil penalty is the sterling equivalent of 100 Euros 
        for each allowance or project credit that the aircraft operator 
        failed to surrender.

        (3) In this regulation, ``sterling equivalent'' means--

        (a) in relation to a penalty relating to aviation emissions in 
        2012, the sterling equivalent converted by reference to the 
        first rate of conversion to be published in September of the 
        calendar year in which the aircraft operator is liable to the 
        penalty in the C series of the Official Journal of the European 
        Union; or

        (b) in relation to a penalty relating to aviation emissions on 
        or after 1st January 2013, the sterling equivalent as defined 
        in sub-paragraph (a) adjusted in accordance with paragraph (4).

        (4) If the last Harmonised Index of Consumer Prices for the 
        member States of the European Union (``HICP'') published by 
        Eurostat before the end of April in the year in which the 
        aircraft operator failed to surrender the allowances or project 
        credits shows an average percentage price increase as compared 
        with the last HICP published before the end of April 2012, the 
        sterling equivalent is increased by the same percentage.

    Regulation 2010 No. 1996, Climate Change: The Aviation Greenhouse 
Gas Emissions Trading Scheme, Made 3rd August 2010, Laid before 
Parliament 6th August 2010, Coming into force 31st August 2010, at Part 
8, paragraph 38.
    Paragraphs 30 and 42 of the Regulation make clear that the 
regulator has very little discretion to waive or modify the imposition 
of the penalty, and can do so only if the regulator is satisfied that 
the aircraft operator has brought itself into compliance. Paragraphs 30 
and 42 also provide that that in cases where the penalty is not paid, 
the regulator may sell the aircraft in order to satisfy the penalty.\5\
---------------------------------------------------------------------------
    \5\ Similar provisions exist in the other EU member states which 
are the reporting states for the largest U.S. carriers, i.e., France 
(see articles L.229.5 to L.229-19 and R. 229-1 to R.229-44 of the 
French Environmental Code), and Germany (Treibhausgas-
Emissionshandelsgesetz. Note that the regulator may refrain from 
imposing a fine if the operator was prevented from fulfilling its duty 
because of a force majeure event; the question whether enactment of the 
Thune bill would constitute a force majeure event would be a matter of 
German law). See generally ``Aviation Briefing: EU Emissions Trading 
Scheme'' (Watson, Farley & Williams August 2011), text available at 
http://www.wfw.com/Publications/Publication938/$File/WFW-Aviation-
EUETSEuropewide-2011.pdf.
---------------------------------------------------------------------------
    Moreover, many U.S. carriers lease, rather than own, their 
aircraft. Aircraft leasing/financing companies that own these aircraft 
typically include in the leases clauses specifying that the lessee must 
operate the aircraft in compliance with applicable law. These leasing/
financing companies are beginning to include provisions in their leases 
providing that the lessees (or permitted sublessors) will operate the 
aircraft in compliance with the EU ETS, including but not limited to 
the payment of any charges incurred pursuant to the ETS. They are also 
including provisions that ensure that any liability for non-compliance 
with the EU ETS cannot be shifted to the owner/lessor/financer of the 
aircraft.\6\ Consequently, an aircraft operator that fails to comply 
with the ETS could find itself not only liable for the government-
imposed penalties for breach of applicable law, but also in breach of 
the provisions of its lease. Consequences for breaching an aircraft 
lease are typically spelled out in the lease. If the consequences 
include surrender of the aircraft, then the airline could need to incur 
expenses obtaining alternative aircraft.
---------------------------------------------------------------------------
    \6\ See ``Aviation Briefing: EU Emissions Trading Scheme'' (Watson, 
Farley & Williams August 2011), supra.
---------------------------------------------------------------------------
    A U.S. law that prohibited U.S. aircraft operators from 
participating in the EU system therefore would expose the operators to 
a broad range of penalties and consequences. If a U.S. law were to 
require the Secretary of Transportation to ensure that U.S. aircraft 
operators are held harmless, how would the Secretary do so? He could 
try to convince the EU and its twenty-seven member states to change 
their laws so as to revoke the mandatory imposition of penalties for 
violation of EU law. But if he is unsuccessful in convincing them, then 
he would have to find other ways of holding the airlines harmless.
    One way of holding the airlines harmless would be to find other 
entities to pay any penalties owed under EU, to supply alternative 
aircraft if aircraft are sold, and to supply alternative aircraft if 
breach of the law in turn breaches aircraft leases and the lessors then 
take possession of the planes. If those other entities included the 
U.S. Treasury, then the U.S. law would have an impact on the Federal 
budget. For our testimony, we conservatively estimated the costs of 
non-participation for the five largest U.S. passenger airlines that fly 
to Europe--United, Continental (since merged with United), American, 
Delta, and U.S. Airways. Together, they emitted almost 16 million 
tonnes of carbon dioxide on flights between the U.S. and Europe in 
2010. Using the U.S. Federal Aviation Administration (FAA) official 
projections for aviation growth, at today's exchange rate, the 
financial liability of these carriers would be $2 billion in 2012, 
growing to $2.8 billion in 2020. If, as part of holding the carriers 
harmless for the compliance liabilities arising out of S. 1956, the 
Secretary were to shift the burden to U.S. taxpayers, then the total 
impact on the Federal budget of enactment of S. 1956 could be on the 
order of $22 billion for the 2012-2020 period.

    Question 2. Ms. Petsonk, as I mentioned in my opening statement, 
there is virtually unanimous agreement in the scientific community that 
human-caused global warming is real and there is not a single 
scientific body of national or international standing that does not 
support this conclusion. And while there may be some remaining 
uncertainty as to the timing and scope of climate change, I don't 
believe the United States can continue to ignore this threat to our 
environment and to America's future prosperity.
  Do you concur with the scientific consensus that human-caused 
        global warming is real?
    Answer. Yes.
  Do you agree that climate change will negatively impact the 
        American economy and our citizens?
    Answer. Yes.
      How would you characterize the aviation industry's 
contribution to the build-up of greenhouse gases in the world's 
atmosphere? Is it a significant problem today and how will aviation's 
contribution change over time?
    Answer. If aviation were a country, at least some analyses indicate 
that it would rank 21st in the world in terms of Gross Domestic Product 
(GDP), which is considerably larger than some members of the G20.\7\ As 
the chart below indicates, if aviation were considered a country, it 
would rank seventh in the world in terms of greenhouse gas emissions 
from fossil fuel combustion.\8\
---------------------------------------------------------------------------
    \7\ http://www.oxfordeconomics.com/FREE/PDFS/OEAVIATION09.PDF at 1.
    \8\ International Energy Agency. 2011. CO2 Emissions 
from Fuel Combustion Highlights--2011 Edition. http://www.iea.org/
co2highlights/co2highlights.pdf (visited July 19, 2012); EDF estimates 
based on United Nations Environment Programme. 2011. Bridging the 
Emissions Gap, available at http://www.unep.org/pdf/
UNEP_bridging_gap.pdf, and International Civil Aviation Organization. 
2009. Global Aviation CO2 Emissions Projections to 2050. 
Group on International Aviation and Climate Change (GIACC) Fourth 
Meeting. http://www.icao.int/environmental-protection/GIACC/Giacc-4/
Giacc4_ip01_en.pdf.


    Industry projections forecast that the number of passengers will 
rise by 145 percent between 2007 and 2026 from just below 2.5 billion 
to 6 billion.\9\ Aviation's emissions are predicted to grow 
substantially over time, even taking into account the IATA voluntary 
goals and the ICAO General Assembly 2010 goals discussed below. Laws 
have been enacted or are under development to cap and cut emissions 
from sectors like electricity and road transportation in a broad range 
of jurisdictions, including the U.S., California, the Northeast U.S. 
States (RGGI), the EU, Australia, New Zealand, the Republic of Korea 
(South Korea), Mexico, Brazil, and several Brazilian states, among 
others, and pilot programs are under development in various provinces 
in China. As the emissions of other sectors decline under these laws 
and programs, aviation's relative share will increase.
---------------------------------------------------------------------------
    \9\ http://www.oxfordeconomics.com/FREE/PDFS/OEAVIATION09.PDF at 2.
---------------------------------------------------------------------------
    Question 3. Ms. Petsonk, during the June 6, 2012 hearing, we 
discussed some of the voluntary commitments the aviation industry has 
made to reduce their greenhouse gas emissions beyond business-as-usual. 
Can you specify what those commitments are?
    Answer. A. IATA and its voluntary commitments. In 2009, the 
International Air Transport Association (IATA), an international trade 
body representing 240 airlines which together comprise 84 percent of 
total global air traffic, voluntarily adopted a set of targets to 
mitigate greenhouse gas emissions from aviation.\10\ These targets are 
first, to achieve ``an average improvement in fuel efficiency of 1.5 
percent per year from 2009 to 2020.'' Second, IATA aims to put ``a cap 
on CO2 emissions from aviation from 2020 (carbon-neutral 
growth).'' That is, starting in 2021, IATA members will voluntarily 
offset any emissions they incur beyond the amount that IATA members 
emitted in 2020. Third, by 2050, IATA aims to attain ``a reduction in 
CO2 emissions of 50 percent by 2050, relative to 2005 
levels.'' IATA proposed, as part of the means to achieve these 
voluntary targets, principles for the use of market-based measures for 
international aviation.
---------------------------------------------------------------------------
    \10\ International Air Transport Association. 2009. A Global 
Approach to Reducing Aviation Emissions. http://www.iata.org/
SiteCollectionDocuments/Documents/Global_Approach_Redu
cing_Emissions_251109web.pdf (visited July 19, 2012).
---------------------------------------------------------------------------
    In IATA's words, ``these collective goals were endorsed by the 
aviation industry in the joint industry submission to ICAO in September 
2009.'' We thus understand that IATA's three targets apply to the 
collective fuel efficiency of and CO2 emissions by its 
members' aircraft fleets. Given the lack of specific language, it 
appears that IATA intends that the fuel efficiency improvement set out 
in the first target refers to actual efficiency (what is measured in 
reality, taking into account actual loads and routes), rather than 
theoretical efficiency (what is technically achievable). Furthermore, 
since there was no reference to the type of aircraft or aviation 
operations, we think it reasonable to interpret the fuel efficiency 
improvement in the first target as the average improvement across the 
entire fleet operated by each of IATA's members, including both 
existing and future aircraft.
    IATA's voluntary commitment, in comparison to business-as-usual 
projections of emissions, is displayed by the pale green line in Chart 
3 accompanying our June 6, 2012 testimony, just below the red 
``business-as-usual'' line in the Chart. Chart 3 is reprinted for your 
convenience below:


    B. ICAO and its voluntary commitments. The International Civil 
Aviation Organization (ICAO), a specialized agency of the United 
Nations that ``sets standards and regulations necessary for aviation 
safety, security, efficiency and regularity, as well as for aviation 
environmental protection,'' and that ``serves as a forum for 
cooperation in all fields of civil aviation among its 191 Member 
States'' has adopted a voluntary resolution pertaining to the reduction 
of greenhouse gas emissions. Specifically, the ICAO General Assembly, 
which meets every three years, resolved at its 2010 meeting ``that 
States and relevant organizations will work through ICAO to achieve a 
global annual average fuel efficiency improvement of 2 per cent until 
2020 and an aspirational global fuel efficiency improvement rate of 2 
per cent per annum from 2021 to 2050, calculated on the basis of volume 
of fuel used per revenue tonne kilometre performed.'' \11\
---------------------------------------------------------------------------
    \11\ International Civil Aviation Organization. 2010. ASSEMBLY--
37TH SESSION REPORT OF THE EXECUTIVE COMMITTEE ON AGENDA ITEM 17 
(Section on Climate Change) at Resolution 17-2 (``Consolidated 
statement of continuing ICAO policies and practices related to 
environmental protection--Climate change'') at operational paragraph 4, 
A37-WP/402, http://legacy.icao.int/icao/en/assembl/a37/wp/wp402_en.pdf 
(visited July 19, 2012). It should be noted that some 40 ICAO member 
states entered reservations to various portions of this Resolution.
---------------------------------------------------------------------------
    Furthermore, at that General Assembly meeting, ICAO recognized that 
``the aspirational goal of 2 per cent annual fuel efficiency 
improvement is unlikely to deliver the level of reduction necessary to 
stabilize and then reduce aviation's absolute emissions contribution to 
climate change, and that goals of more ambition will need to be 
considered to deliver a sustainable path for aviation.'' \12\
---------------------------------------------------------------------------
    \12\ Id. at preambular paragraph 14.
---------------------------------------------------------------------------
    Question 3a. How confident are you that these commitments will be 
met?
    Answer. With regard to IATA's first target (of achieving a 1.5 
percent per annum improvement in fuel efficiency between 2009 and 
2020): In its 2010 Environmental Report, ICAO projected that aircraft 
fuel efficiency would improve by an average of close to 1.4 percent 
every year between 2006 and 2036, under its most optimistic scenario, 
which ``goes beyond industry-based recommendations for potential 
improvements.'' \13\ \14\ To our knowledge, this is ICAO's latest long-
term projection for global fuel efficiency. Given that even ICAO's 
extremely optimistic estimate falls short of IATA's target of 1.5 per 
cent per annum fuel efficiency improvements per year, it appears that 
IATA currently is unlikely to meet its own voluntary commitments, 
absent policy measures to stimulate greater emission reductions. Here's 
some further background:
---------------------------------------------------------------------------
    \13\ International Civil Aviation Organization. 2010. Environmental 
Report 2010. Available at http://www.icao.int/environmental-protection/
Pages/EnvReport10.aspx.
    \14\ ICAO's most optimistic scenario for fuel efficiency 
improvement includes ``the improvements associated with the migration 
to the latest operational initiatives, e.g., those planned in NextGen 
and SESAR,'' ``an optimistic fuel burn improvement of 1.5 percent per 
annum for all aircraft entering the fleet after 2006 out to 2036,'' and 
``additional fleet-wide advanced operational improvements by region.'' 
The report further notes that this scenario ``goes beyond industry-
based recommendations for potential improvements.''


    Chart 5, ``Average Fuel Burn for New Jet Aircraft, 1960-2010,'' 
which accompanied EDF's June 6, 2012 testimony and which is reprinted 
here, demonstrates graphically the fuel efficiency improvements of new 
aircraft over the past half-century. As Chart 5 indicates, aircraft 
fuel efficiency improvements have averaged less than 0.5 percent per 
annum throughout the past decade, far lower than IATA's hope for 1.5 
percent and ICAO's for 2 percent.
    To achieve the IATA and ICAO targets for fleet-wide average fuel 
efficiency improvements by 2020, fleet-wide average fuel efficiency 
would have to improve by 14 to 18 percent over the ten-year period from 
2010, which is substantially more than the 9 to 12 percent the industry 
has actually achieved for new aircraft in the twenty-year period from 
1990 to 2010. To demonstrate this graphically, below please find a 
revision of Chart 5, ``Average Fuel Burn for New Jet Aircraft, 1960-
2010 and Fuel Burn Targets for Fleet-Wide Aircraft, 2010-2020.'' The 
dashed purple and green lines on this graph show the fleet-wide fuel 
efficiency improvements that would need to be achieved during the 
current decade in order to meet the IATA (purple) and ICAO (green) 
aspirational goals for efficiency improvement. Even this numerical 
comparison is an understatement of the improvement required; since fuel 
efficiency improvements in new aircrafts translate to a lower average 
fleet-wide improvement, IATA's target requires an improvement in new 
aircraft fuel efficiency higher than the stated 1.5 percent average 
rate.


    Emissions from aviation are projected to grow in the U.S. (Chart 1 
accompanying our June 6 testimony, reprinted below).


    On business-as-usual, aviation emissions globally are also 
predicted to grow (red line on Chart 3, reprinted above). This is true 
even if IATA were to achieve its fuel efficiency target (pale green 
line on Chart 3), since growth in traffic (shown in dashed lines on 
Chart 3) is predicted to outpace fuel efficiency gains. As noted above, 
ICAO has specifically recognized that its ``aspirational goal of 2 per 
cent annual fuel efficiency improvement is unlikely to deliver the 
level of reduction necessary to stabilize and then reduce aviation's 
absolute emissions contribution to climate change, and that goals of 
more ambition will need to be considered to deliver a sustainable path 
for aviation.'' \15\ At the same time, however, it is important to note 
that every bit of fuel efficiency improvement the aviation industry can 
achieve can help in terms of emissions, as long as the ``rebound 
effect'' is less than 100 percent. (The ``rebound effect'' is the 
increase in demand for an energy service when it becomes cheaper as a 
result of increased energy efficiency. In the context of aviation, we 
can imagine that when fuel efficiency improves, flights may become 
cheaper, leading to more travelers choosing to fly.)
---------------------------------------------------------------------------
    \15\ International Civil Aviation Organization. 2010. ASSEMBLY--
37TH SESSION REPORT OF THE EXECUTIVE COMMITTEE ON AGENDA ITEM 17 
(Section on Climate Change)A37-WP/402. Available at http://
legacy.icao.int/icao/en/assembl/a37/wp/wp402_en.pdf.
---------------------------------------------------------------------------
    With regard to IATA's second target of achieving ``carbon-neutral 
growth from 2020, it is important to clarify that IATA does not mean 
that the entire emissions of aviation will be carbon-neutral starting 
in 2020. Rather, IATA means that starting in 2021, its members will 
voluntarily offset that fraction of their emissions which exceeds 
whatever their emissions actually are in 2020. Understanding whether 
IATA can achieve this goal requires a deeper consideration of the 
mitigation measures available to the industry. Achieving this goal 
essentially means that any growth in air traffic above the level of 
emissions incurred in 2020, requires an equivalent countering effect 
from a combination of fuel efficiency improvements and other measures. 
According to ICAO's projection, global aviation demand (in terms of 
revenue passenger-kilometers) is expected to grow by some 4 to 5.5 
percent every year (higher dotted line on Chart 3).\16\ This means that 
even if IATA achieves its first target, carbon dioxide emissions will 
continue to grow beyond 2020 (pale green line on Chart 3). With a 
trajectory that has been increasing and that is expected to continue 
increasing, it is difficult to see how the green line can suddenly 
flatten after 2020. In other words, IATA will very likely fail to 
achieve its second target if no other mitigation measures are employed. 
To achieve carbon-neutral growth from 2020 onwards, IATA must 
essentially implement a measure that fixes the amount of industry-wide 
emissions at 2020 levels and then employs offsetting for amounts above 
2020 levels. IATA has not specified how it would source those offsets.
---------------------------------------------------------------------------
    \16\ International Civil Aviation Organization. 2009. Global 
Aviation CO2 Emissions Projections to 2050. Group on 
International Aviation and Climate Change Information Paper GIACC/4-IP/
1). Available at http://www.icao.int/environmental-protection/GIACC/
Giacc-4/Giacc4_ip01
_en.pdf.


    IATA's third target (or halving 2050 carbon emissions over 2005 
levels), besides being longer-term, is also more stringent. Being more 
ambitious than stabilizing emissions, this target requires the global 
aviation industry to reduce its emissions by, on average, some 3.5 
percent every year from 2020 to 2050. Not only does the pale green line 
on Chart 3 have to flatten, it has to decline steeply. The graph above 
indicates one potential trajectory for meeting this target. A much 
wider range of measures than solely fuel efficiency improvements would 
---------------------------------------------------------------------------
need to be taken to achieve this kind of trajectory.

    Question 3b. Do you believe that there are enough tools available 
to ensure that all major emitting nations and their carriers 
participate and will meet these commitments?
    Answer. We believe there is a broad range of tools that can ensure 
that all major emitting nations and their carriers participate in a 
global emissions limitation and reduction program, under ICAO auspices. 
We agree with ICAO that to make such a program effective in tackling 
aviation's share of the global warming problem, more ambitious 
commitments are needed. But bringing these tools forward, and obtaining 
the agreement and participation of all major emitting nations, will 
require bolder and more visionary leadership by the United States in 
ICAO.

    Question 3c. What do you think are the most cost-effective ways to 
reduce greenhouse gases from the aviation industry?
    Answer. The aviation industry is a cornucopia of technological 
innovation. It has a wide range of opportunities to reduce greenhouse 
gas emissions available to it. A representative list of about twenty 
potential improvements to aircraft technology is attached, each of 
which has the potential to reduce fuel burn by about 1 percent.\17\ 
Taken together, their impact on emissions reduction could be 
significant.
---------------------------------------------------------------------------
    \17\ EarthJustice. 2012. Not Rocket Science: Efficiency Measures 
Available Now to Reduce Aviation Fuel Use. Available at http://
www.usclimatenetwork.org/resource-database/not-rocket-science-
efficiency-measures-available-now-to-reduce-aviation-fuel-use.
---------------------------------------------------------------------------
    In addition, some in the industry have begun to experiment with 
potential step-change technologies for addressing greenhouse gas 
emissions. For example, Pratt & Whitney is in the process of launching 
its new geared turbofan engine, which it claims has the potential for 
step change improvements in terms of reducing both emissions and noise, 
while Airbus claims that the technologies and processes already exist 
for what it describes as ``perfect flights'' that have much lower 
emissions profiles than current flights.\18\ We hope the Committee will 
look closely at the potential for new step-change technologies.
---------------------------------------------------------------------------
    \18\ See, e.g., http://www.purepowerengine.com/pdf/Press_release/
FINAL_2012-07-10_pw
1200G_test_complete.pdf and see http://www.flightglobal.com/news/
articles/farnborough-airbus-environment-champion-andrea-debbane-
hhoutlines-the-perfect-flight-373774/.
---------------------------------------------------------------------------
    The U.S. Government has begun to identify some ways to reduce 
greenhouse gases from the aviation industry, but the quantification of 
these, and the policy framework for making them cost-effective, is 
unclear. The U.S. Federal Aviation Administration has developed ``a 
suite of environmental analytical tools--including the System for 
assessing Aviation's Global Emissions (SAGE), a component of the 
Aviation Environmental Design Tool (AEDT) and the Aviation Portfolio 
Management Tool (APMT) in order to assess cost-effective options to 
limit or reduce fuel consumption and greenhouse gas emissions. This 
component of AEDT generates aviation fuel consumption and emissions 
inventories for baseline conditions based upon operational data, 
estimates future emissions based upon fleet forecasts including 
technology advances, and also estimates future emissions based upon 
projections for changes in the National Air Space including operational 
improvements. The tool also has the capability to assess the influence 
of market-based measures to reduce fuel consumption and thus greenhouse 
gas emissions. Data from AEDT/SAGE is used to calculate the FAA's 
Flight Plan aviation fuel efficiency goal.'' \19\
---------------------------------------------------------------------------
    \19\ Our Changing Planet, 2008 report of the U.S. Global Change 
Research Program, Appendix 1, http://www.usgcrp.gov/usgcrp/Library/
ocp2008/ocp2008-dot.pdf at page 178.
---------------------------------------------------------------------------
    Last year, partly at the urging of the United States, ICAO asking 
its Member States to provide Action Plans indicating how they plan to 
implement their voluntary goals, and providing guidance to Member 
States on how to develop their Action Plans.\20\ The United States 
prepared an Action Plan and submitted it to ICAO in June 2012. 
According to the Action Plan, the Obama Administration has set an 
overarching goal of achieving carbon-neutral growth for U.S. commercial 
aviation by 2020, using the AEDT-generated data on 2005 emissions as a 
baseline.\21\ FAA states in the Plan that ``Given current forecasts for 
aviation growth this equates to about a 115 million metric tons (MT) 
reduction in carbon dioxide emissions from commercial aviation by 2020, 
and by extending those approaches further there could be an additional 
60MT reduction by 2026.'' \22\
---------------------------------------------------------------------------
    \20\ Guidance Material for the Development of States` Action Plans, 
ICAO (September 2011), http://www.icao.int/environmental-protection/
Documents/GuidanceMaterial_DevelopmentAc
tionPlans.pdf.
    \21\ U.S. Aviation Greenhouse Gas Emissions Reduction Plan 
Submitted to the International Civil Aviation Organization, June 2012, 
page 1 (copy attached).
    \22\ U.S. Aviation Greenhouse Gas Emissions Reduction Plan 
Submitted to the International Civil Aviation Organization, June 2012, 
page 1 (copy attached).
---------------------------------------------------------------------------
    However, because the data underlying the AEDT is not publicly 
available, it is difficult to ascertain from the plan either the 
baseline level of emissions for 2005, or the FAA's projections of 
business-as-usual emissions. Consequently, it is not possible to tell 
if the plan is ``ambitious'', as FAA claims, or not. In May 2012, in 
our capacity as a member of the U.S. Interagency Group on International 
Aviation (IGIA), the Environmental Defense Fund submitted comments to 
the FAA (copies attached) on a draft of the Plan. In those comments we 
urged FAA to provide greater transparency. We also noted that a 
significant share of FAA's claimed reductions were attributed to 
biofuels. We called attention to the difficulties with biofuels 
accounting, and urged FAA to provide greater transparency in this area 
as well. Unfortunately, the June 2012 iteration of the plan fails to 
provide this transparency. We hope that FAA will revise the plan in the 
future to provide greater transparency.
    In practice, how cost-effective any of these greenhouse gas 
mitigation measures will be depends to a great extent on three main 
factors:

  (a)  the level of ambition that the over-arching policy framework 
        demands of participants and the consequences for failing to 
        meet that ambition level;

  (b)  the abatement flexibility that the policy framework affords to 
        participants; and

  (c)  the extent to which the policy framework spurs competition to 
        drive down the costs of the mitigation technologies and 
        processes.

    Currently, there is no over-arching policy framework--other than 
uneven and uncertain pressures from the price of jet fuel \23\--to 
deliver accountability, flexibility and competition. Applying market-
based measures that cap greenhouse gas emissions without specifying the 
particular abatement technologies that firms must use, and that spur 
competition among firms to innovate to develop better, cheaper, faster 
means of abatement, would enhance cost-effectiveness because each 
participating entity could choose its lowest-cost method of reducing 
emissions, and because competition among different technologies and 
processes would grind down the costs of abatement. Recognizing cost-
effectiveness as a key element of environmental effectiveness, the ICAO 
Assembly has endorsed ``the development of an open emissions trading 
system for international aviation.'' \24\
---------------------------------------------------------------------------
    \23\ See, e.g., Hugo Martin, ``Airlines' fuel surcharges far 
outpacing fuel prices: Since April 2011, fuel surcharges by U.S. 
airlines have risen 53 percent, while fuel prices have increased 24 
percent, according to a study by Carson Wagonlit Travel'' (Los Angeles 
Times, July 23, 2012), text available at http://www.latimes.com/
business/la-fi-travel-briefcase-20120723,0,196652.story.
    \24\ International Civil Aviation Organization. Market-Based 
Measures. http://www.icao.int/environmental-protection/Pages/market-
based-measures.aspx. Accessed on July 17, 2012.
---------------------------------------------------------------------------
    An economy-wide emissions trading system like the EU's is even more 
cost-effective than an emissions trading program confined to one 
industry, because it allows and creates the incentive for firms in 
sectors that can more easily and cheaply reduce their emissions to do 
so. The international aviation industry has repeatedly voiced its 
preference for a single coordinated global emissions trading system for 
aviation emissions mitigation, because it knows that a segmented 
approach could inflict unnecessary cost to the sector. For instance, 
IATA, together with other aviation industry groups worldwide, requested 
the governments represented in ICAO to develop a global framework to 
address aviation emissions.\25\ In particular, they noted a principle 
critical to the frame work was ``aviation CO2 emissions 
should be addressed through a global framework and accounted for in a 
global emissions inventory, not at a regional or national level. It is 
essential that emissions from aviation are accounted for only once.''
---------------------------------------------------------------------------
    \25\ International Civil Aviation Organization. DEVELOPMENT OF A 
GLOBAL FRAMEWORK FOR ADDRESSING CIVIL AVIATION CO2 EMISSIONS 
(Presented by the International Air Transport Association (IATA), on 
behalf of ACI, CANSO, IATA, IBAC and ICCAIA, referred to hereafter as 
the--aviation industry) A37-WP/217. http://legacy.icao.int/icao/en/
assembl/a37/wp/wp217_en.pdf.
---------------------------------------------------------------------------
    Furthermore, market-based measures complement technological 
advancement. The efforts by the aviation industry to improve fuel 
efficiency can and should run parallel to the implementation of a 
market-based measure. By putting in place a market-based mechanism that 
pairs the rigor of emissions caps with the flexibility of trading, the 
industry will have a greater economic incentive to improve fuel 
efficiency.
    The aviation industry's interest in market-based measures should 
not be surprising. The U.S. sulfur dioxide trading program has been 
enormously successful, and continues to be cited as a model for 
emission limitation policies around the world. A key success of the 
program is its cost-effectiveness, saving the electric power industry 
billions of dollars as a result of the program's flexibility and 
competition-spurring features, and saving hundreds of billions of 
dollars in health costs.\26\ \27\ \28\
---------------------------------------------------------------------------
    \26\ W. Chameides, U.S. Acid Rain Regulations: Did They Work?, 
Nicholas School of the Environment, Duke University (May 10, 2012), 
text available at: http://www.nicholas.duke.edu/thegreengrok/acidrain-
regs.
    \27\ Hodges, Hart (1997). Falling Prices: Cost of Complying with 
Environmental Regulations Almost Always Less Than Advertised. (Economic 
Policy Institute Briefing Paper). Available at http://www.epi.org/page/
-/old/briefingpapers/bp69.pdf.
    \28\ Burtraw, Dallas (1996). ``Trading Emissions to Clean the Air: 
Exchanges Few but Savings Many.'' Resources for the Future Report, 
Winter.
---------------------------------------------------------------------------
    Respected economic analyses underscore the cost-effectiveness 
aspect of a cap and trade program for the aviation industry. The recent 
analysis by the Massachusetts Institute of Technology (MIT), under a 
contract supported in part by FAA, found that U.S. airlines could 
comply with the EU ETS targets--which appear to be more rigorous than 
those in the FAA Plan--at a cost of $3 per trans-Atlantic segment, and 
that airlines could potentially profit from such participation.\29\ We 
believe the sliver of airfare ($6) attributable to the EU-ETS in Chart 
4 accompanying our testimony, reprinted below, is a small price to pay 
in order to reduce the large bloc ($496.00) attributed by the airline 
to ``Fuel Surcharge''.
---------------------------------------------------------------------------
    \29\ Robert Molina et al., The Impact of the European Union 
Emissions Trading Scheme on U.S. Aviation, 19 Journal of Air 
Transportation Management 36-41, 2012.


    In that regard, we note that the bloc of charges which United 
Airlines labeled ``Fuel Surcharge'' as shown in Chart 4 of our 
testimony, reproduced here, has since been re-characterized by United 
and other airlines. Shortly before the June 6 hearing, the airlines 
received a letter from the Department of Transportation General 
Counsel's Office cautioning the carriers that ``such charges must be 
displayed on a per-passenger basis, accurately reflect the actual costs 
of the service covered, and not otherwise be deceptive. (14 CFR 399.84, 
76 Fed. Reg. 23110, 23143). When a cost component is described as a 
fuel surcharge, for example, that amount must actually reflect a 
reasonable estimate of the per-passenger fuel costs incurred by the 
carrier above some baseline calculated based on such factors as the 
length of the trip, varying costs of fuel, and number of flight 
segments involved.'' Shortly after the hearing, all of the airlines 
that we checked had re-labeled that block of surcharge as 
``International Surcharge.'' We are unsure as to the basis for this 
``International Surcharge,'' since it is more than one hundred times 
the amount identified in the FAA-supported MIT study about the costs of 
compliance with the EU ETS.\30\
---------------------------------------------------------------------------
    \30\ Letter from Samuel Podberesky, Assistant General Counsel for 
Aviation Enforcement and Proceedings, United States Of America, 
Department Of Transportation, Office Of The Secretary, Washington, 
D.C., Dated: February 21, 2012: ``Additional Guidance On Airfare/Air 
Tour Price Advertisements,'' text available at airconsumer.dot.gov/
rules/Notice.Taxes.fees.sam.dl.13.
website.docx.

    Question 3b. Are there particular efforts or case-studies, such as 
the Green Skies program at SeaTac Airport, you believe Congress should 
look at when considering how best to address this issue?
    Answer. We believe the SeaTac program is a great model, and we 
commend SeaTac for considerable constructive work in this area. 
Following the model of SeaTac, we recommend that Congress suggest that 
the Administration consider approaches in ICAO that engage the talents 
and creativity of the entire aviation sector, not just airlines and and 
equipment manufacturers, but also air traffic control, airports, and 
the flying public, in the challenge of reducing aviation's impact on 
the global environment. We also suggest that Congress consult with 
forward-looking actors in industry, such as the Berkshire Hathaway 
company NetJets, whose European division have committed to be 100 
percent carbon neutral.
    Among other studies, we recommend that Congress look at:

  1.  The Aviation and the Global Atmosphere, J.E.Penner, D.H.Lister, 
        D.J.Griggs, D.J.Dokken, M.McFarland (Eds.), Intergovernmental 
        Panel on Climate Change (Prepared in collaboration with the 
        Scientific Assessment Panel to the Montreal Protocol on 
        Substances that Deplete the Ozone Layer), Cambridge University 
        Press, 1999 (hereinafter ``IPCC Special Report on Aviation''), 
        Summary for Policymakers available at http://www.ipcc.ch/pdf/
        special-reports/spm/av-en.pdf (accessed June 3, 2012).

  2.  Commission of the European Communities. Summary of the Impact 
        Assessment: Inclusion of Aviation in the EU Greenhouse gas 
        Emissions Trading Scheme (EU ETS). 2006.

  3.  Chicago Department of Aviation Environmental Sustainability 
        Report (2011). The CDA, which oversees both O'Hare and Midway 
        airports, has prepared a sustainability report which is a 
        leader in the field. http://ohare.com/Environment/
        sustainabilityreport.aspx.

  4.  Sustainable Airport Manual (AirportsGoingGreen.org 2010) and 
        supplements, available at http://www.airportsgoinggreen.org/
        SAM. Airports Going Green brings together airports seeking to 
        make step change advancements in managing greenhouse gas 
        emissions and other environmental concerns at airports.

  5.  Guidance Manual: Airport Greenhouse Gas Emissions Management 
        (Airports Council International (2008) and supplements. This 
        manual and its supplements provide guidance for airport 
        operators wishing to manage greenhouse gas (GHG) emissions. The 
        manual provides: clear definitions of terms; why an airport 
        operator would manage GHG emissions; how to conduct a GHG 
        emissions inventory; what GHG emissions species to include; how 
        to categorize sources; references to documents assisting with 
        the calculations of the quantities of emissions; the goals of 
        an emissions management programme; GHG emissions reduction 
        projects; becoming Carbon Neutral; reviewing programmes and 
        reporting progress; and gaining accreditation for achievements 
        made. available at http://www.aci.aero/cda/aci_common/display/
        main/aci_con
        tent07_banners.jsp?zn=aci&cp=1-6-44%5E33815_725_2__

  6.  NetJets 2010 Environmental Update Report, http://
        www.netjetseurope.com/Global/Reports/
        Environment%20Update%20Report_UK%20Final%20version.pdf.

  7.  Robert Molina et al., The Impact of the European Union Emissions 
        Trading Scheme on U.S. Aviation, 19 Journal of Air 
        Transportation Management 36-41, 2012.

  8.  A New Flightplan: Getting Climate Measures for Aviation off the 
        Ground (Transport & Environment, Environmental Defense Fund, 
        The International Council on Clean Transportation and the 
        Aviation Environment Federation, February 2012) (copy 
        attached).

    Question 4. Ms. Petsonk, carbon emissions are ubiquitous within the 
U.S. economy and almost every economy around the globe. Isolated 
efforts to reduce greenhouse gas emissions will not alter or mitigate 
the devastating impacts of a warming planet. I believe this reality 
provides additional urgency for the United States, as the world's sole 
superpower, to act and lead the world to a clean energy future with 
innovative policies. Curbing carbon emissions to the level necessary to 
avert a climate crisis will require innovation within almost every 
sector of the economy. It seems to me that the global scope of carbon 
pollution poses a somewhat different challenge than more localized 
pollutants.

  Rather than regulating downstream at the point of emission 
        such as an airplane's exhaust, would limiting carbon emissions 
        upstream where fossil fuels are extracted possibly be a more 
        efficient and technology-neutral way to squeeze carbon out 
        across the economy?

    Question 3d. Would an upstream carbon limit reduce the need for 
more monitoring, enforcement, and regulatory complexity?
    Answer. For a range of technical and political reasons, we do not 
believe that an upstream limit would be feasible in the near-term in 
the context of ICAO. We would be happy to discuss with you in detail 
our reasons for that view.
                                 ______
                                 
   Response to Written Questions Submitted by Hon. Maria Cantwell to 
                             Nancy N. Young
    Question 1. Ms. Young, what is the range of actions the 
Administration can take to ``hold harmless'' U.S. commercial operators 
from EU ETS?
    Could these actions to hold harmless U.S. commercial 
        operators include the U.S. government paying the EU authorities 
        directly, or compensating U.S. commercial operators, for any 
        fines incurred for non-compliance with EU ETS?
    Do Airlines for America or any of its member airlines 
        intend to seek compensation from the Federal government for 
        fines incurred for non-compliance with EU-ETS?
    Answer. It is our sense that the intent of both the House 
legislation, H.R. 2954, and the Senate legislation, S. 1956, is to 
ensure that U.S. airlines and aircraft operators are not covered by the 
unilateral and extraterritorial application of the EU ETS to 
international aviation. The ``hold harmless'' language you cite is 
within Section 4 of both pieces of legislation. That Section is titled 
``Negotiations.'' Thus, it is our understanding that the primary intent 
of the ``hold harmless'' language is for the United States government 
to use its authority to overturn the application of the EU ETS to U.S. 
airlines and aircraft operators through negotiations. As you know, we 
continue to urge the United States government to take concrete action 
to overturn the application of the EU ETS to U.S. airlines and aircraft 
operators.
    Should the U.S. fail in its efforts to have the EU ETS withdrawn as 
to U.S. airlines and aircraft operators, it is our sense that this 
legislation would also make clear that the Secretary of Transportation 
could take other actions in the public interest, such as 
countermeasures, to address the effects of the unilateral EU law, 
particularly given that Section 3 of the legislation contemplates that 
the United States may order U.S. airlines and aircraft operators not to 
comply with the wrongful EU law. This could include imposing counter-
charges on EU entities to compensate for losses by U.S. airlines and 
aircraft operators. The primary authority for this is provided in 49 
U.S.C. Sec. 41310. It is our sense that the provisions in Section 4 of 
H.R. 2954 and S. 1956 would work in tandem with existing law to ensure 
that the United States government has the tools in the particular case 
of the EU ETS to be sure that U.S. airlines and aircraft operators are 
not covered or harmed by the extraterritorial EU scheme.
    Notably, A4A members have complied with the EU ETS--albeit under 
protest--since its substantive provisions went into effect in 2009. 
Indeed, for the past three years, our airlines have been covered by the 
scheme. They have complied under protest with the unilateral EU 
emissions monitoring, reporting and verification requirements that 
underpin the scheme, at tremendous expense.\1\ Beginning on January 1 
of this year, our airlines became subject to the scheme's emissions 
allowances purchase, trading and surrender obligations. Although 
airlines do not have to ``settle up'' on the obligation to surrender 
allowances until 2013, the liability is very real, triggering 
securities disclosures and significant expenditures for U.S. airlines 
to be prepared to pay the bill in 2013. A4A is hopeful that the United 
States will use its good offices to overturn the application of the EU 
ETS to U.S. airlines before they must surrender allowances in 2013 and 
before questions of counter-charges come into play.
---------------------------------------------------------------------------
    \1\ Notably, U.S. airlines long have been subject to the world's 
most comprehensive aviation-related data reporting obligations, 
reporting to the U.S. Department of Transportation Office of Airline 
Information (OAI). That ``Form 41'' data provides detailed fuel-burn 
data that is translated into GHG emissions data. Thus, the United 
States has the most comprehensive aviation GHG data of any country in 
the world. Although A4A urged the EU to recognize the Form 41 data when 
adopting rules to implement the EU ETS with respect to aviation, the EU 
chose instead to create a whole new emissions reporting regime, 
subjecting U.S. carriers with EU flights to overlapping and differing 
reporting requirements.

    Question 2. Ms. Young, other than the EU-ETS that you mentioned at 
the hearing, what do you see as the main sticking points at ICAO to 
achieving a global approach to reducing greenhouse gas emissions from 
the global aviation sector?
    Answer. As I noted in my testimony, at its 2010 Assembly, ICAO 
adopted key elements of a global framework on aviation and climate 
change. It confirmed that fuel efficiency goals present the appropriate 
approach for addressing aviation GHG emissions through 2020 and 
established a sectorwide goal of carbon neutral growth from 2020. 
Further, the States agreed to track their aviation emissions and to 
submit ``Action Plans,'' which were due at the end of last month, 
describing the steps they are taking to help achieve the global 
emissions goals. Also, after adopting a set of principles for market-
based measures, the States directed ICAO to further assess the 
potential for market-based measures that might be agreed on a global 
basis and a framework (or more detailed ``playbook'') for such 
measures. This work is going on now, as is work on a first-of-its-kind 
CO2 standard for aircraft.\2\
---------------------------------------------------------------------------
    \2\ A significant milestone in the work on the CO2 
standard was achieved a few weeks ago at a meeting of ICAO's Committee 
on Aviation Environmental Protection, which agreed to the means to best 
measure aircraft fuel and GHG efficiency in the context of an aircraft 
certification standard. (In technical terms, CAEP adopted the ``metric 
system'' that will apply to the future standard). See ICAO's release 
about this milestone, available at http://www.icao.int/Newsroom/Pages/
new-progress-on-aircraft-CO2-standard.aspx; and FAA's 
release at http://www
.faa.gov/news/updates/?newsId=68679.
---------------------------------------------------------------------------
    As noted, the angst and distrust the EU ETS has engendered has been 
the most significant obstacle to gaining further agreement on how to 
implement the 2010 ICAO Assembly Resolution, along with the EU's 
insistence that the world adopt the EU ETS approach on a global level. 
In addition, larger questions regarding what the various countries 
around the world are prepared to do on climate change in general also 
play into the discussions at ICAO. As you know, this has caused the 
larger climate negotiations in the context of the United Nations 
Framework Convention on Climate Change (UNFCCC) efforts to replace the 
Kyoto Protocol (whose terms expire at the end of this year) to stall, 
such that a new global climate change agreement is not expected until 
2015. The airline industry, along with its aviation industry sector 
partners, has sought to cut through this in the ICAO arena by strongly 
advocating that the countries go forward with implementation of the 
2010 ICAO Assembly Resolution. With the aviation industry supporting 
the global framework at ICAO and the many countries who oppose the EU 
ETS recommitting themselves to further address aviation GHG emissions 
through ICAO, we are hopeful that full implementation of this framework 
will be agreed at the ICAO Assembly in September 2013.

    Question 3. Does A4A support the use of so-called market-based 
mechanisms as one means for reducing the greenhouse gas emissions from 
the global aviation sector?
    Answer. A4A and its members are part of a worldwide aviation 
coalition supporting the global framework at ICAO. Under this approach, 
all airline CO2 emissions would be subject to emissions 
targets requiring industry and governments to do their part. As 
proposed by the industry, these would be an annual average fuel-
efficiency improvement of 1.5 percent through 2020 and carbon-neutral 
growth from 2020, subject to critical government infrastructure and 
technology investments such as air traffic control modernization, with 
an aspirational goal of a 50 percent reduction in CO2 by 
2050 relative to 2005 levels. Our focus is on getting further fuel 
efficiency and emissions savings through new aircraft technology, 
sustainable alternative aviation fuels and air traffic management and 
infrastructure improvements. To the extent we are not able to meet our 
targets through these measures, the global aviation sector position is 
that a properly designed market-based measure could be used to ``fill 
the gap.'' In our position papers, the global industry has set forth 
principles regarding the role that a market-based measure might play in 
this regard.\3\
---------------------------------------------------------------------------
    \3\ More information on the industry-wide initiative on aviation 
and climate change is available at: http://legacy.icao.int/icao/en/
assembl/a37/wp/wp217xen.pdf (the industry's joint paper to ICAO) and 
http://www.airlines.org/Pages/A4A-Climate-Change-Commitment--A-Global,-
Sectoral-Approach.aspx (A4A's statement on the initiative).

    Question 4. Do you concur with the scientific consensus that human-
caused global warming is real?
    Do you agree that climate change will negatively impact the 
        American economy and our citizens?
    How would you characterize the aviation industry's 
        contribution to the build-up of greenhouse gases in the world's 
        atmosphere? Is it a significant problem today and how will 
        aviation's contribution change over time?
    Answer. A4A has not questioned the science behind climate change 
concerns. As A4A (then named the ``Air Transport Association of 
America'' or ``ATA'') noted in a letter to Senator Boxer in 2009, a 
solid testimonial and scientific record has been established that 
indicates the world climate is warming and that human-caused emissions 
of CO2 and other GHGs are a contributing factor in that 
warming. The science indicates that the impacts of a significantly 
warmer planet would be insidious and severe, dramatically affecting 
life on our planet.
    It is through this lens and with the keen understanding that 
reducing fuel burn also is critical to our airlines' bottom line that 
we have relentlessly pursued means of improving our fuel efficiency and 
reducing emissions. Although the U.S. airlines contribute only 2 
percent to our Nation's GHG inventory and the world's airlines 
contribute only 2 percent of the global CO2 inventory, we 
acknowledge that we must continue to work to reduce our contribution.
    We have a strong record and are committed to more. As I noted in my 
testimony, for the past several decades, commercial airlines have 
dramatically improved fuel and GHG efficiency by investing billions in 
fuel-saving aircraft and engines, innovative technologies like winglets 
(which improve aerodynamics) and cutting-edge route-optimization 
software. As a result, between 1978 and 2011, the U.S. airline industry 
improved its fuel efficiency by 120 percent, resulting in 3.3 billion 
metric tons of CO2 savings--equivalent to taking 22 million 
cars off the road on average in each of those years. Further, data from 
the Bureau of Transportation Statistics confirms that U.S. airlines 
burned 11 percent less fuel in 2011 than they did in 2000, resulting in 
an 11 percent reduction in CO2 emissions, even though they 
carried almost 16 percent more passengers and cargo on a revenue-ton-
mile basis.
    The global aviation industry commitment to fuel efficiency goals 
through 2020 and carbon-neutral growth from 2020 will help ensure that 
aviation GHG emissions are minimized. A4A and its members are committed 
to doing our part on the technology, operations and infrastructure 
measures that advance progress toward our goals. However, we need the 
U.S. government to work with us to advance fuel and emissions saving 
measures in areas where the government has significant control. For 
example, while the A4A airlines are doing all that they can to promote 
efficiencies within the current air traffic management (ATM) system, 
the limitations of that system account for 10-15 percent of unnecessary 
fuel burn and resulting emissions. To address this, and to achieve 
much-needed modernization of our outdated ATM system, A4A and its 
members are working with FAA and other agencies on a fundamental, 
business case-based redesign of the system through the Next Generation 
Air Transportation System (NextGen) project and on various regional 
airspace design initiatives.
    Recognizing that improving fuel efficiency with today's carbon-
based fuel supply can only take us so far, A4A and its members are 
working hard to stimulate the development and deployment of alternative 
fuels that meet the industry's strict operational and cost requirements 
while reducing environmental impacts. In 2006, A4A joined the Federal 
Aviation Administration (FAA) and others in co-founding the Commercial 
Aviation Alternative Fuels Initiative (CAAFI) to hasten the production 
and use more economically viable, operationally reliable and 
environmentally preferred alternative fuels. A4A also is a principal in 
the Farm to Fly initiative, a collaborative effort between A4A, the 
U.S. Department of Agriculture and Boeing to develop and enhance 
sustainable feedstock opportunities for aviation biofuels, and we have 
a Strategic Alliance with the U.S. Department of Defense to coordinate 
military and commercial efforts to deploy sustainable alternative 
aviation fuels. Although we have made great strides with strong support 
of our collaborative partners, additional and sustained government 
support is needed. Thus, we are gravely concerned about proposals 
before Congress that might eliminate or cut back such opportunities.

    Question 5. Ms. Young, during the June 6, 2012 hearing, we 
discussed some of the voluntary commitments the aviation industry has 
made to reduce their greenhouse gas emissions beyond business-as-usual. 
Can you specify what those commitments are?
    How confident are you that these commitments will be met?
    Do you believe that there are enough tools available to 
        ensure that all major emitting nations and their carriers 
        participate and will meet these commitments?
    What do you think are the most cost-effective ways to 
        reduce greenhouse gases from the aviation industry?
    Are there particular efforts or case-studies, such as the 
        Green Skies program at SeaTac Airport, you believe Congress 
        should look at when considering how best to address this issue?
    Answer. As outlined above, the global aviation industry--including 
the world's airlines, airports, airframe and engine manufacturers and 
air navigation service providers--is committed to a set of emissions 
targets and measures to further address aviation GHG emissions. The 
targets include:

   an annual average fuel-efficiency improvement of 1.5 percent 
        through 2020;

   carbon-neutral growth from 2020, subject to critical 
        government infrastructure and technology investments such as 
        air traffic control modernization; and

   an aspirational goal of a 50 percent reduction in 
        CO2 by 2050 relative to 2005 levels.

    A4A member airlines are committed to these goals as part of the 
global coalition. We are meeting our fuel efficiency goals and are 
working with the International Air Transport Association (IATA) and the 
Air Transport Action Group (ATAG) to further elaborate means of 
demonstrating achievement of the carbon-neutral growth goal.
    As recognized by the Future of Aviation Advisory Committee (FAAC), 
the most cost-effective ways for reducing aviation GHG emissions 
include improvements in ATM efficiency and technology development.\4\ 
Also, as noted by A4A's Senior Vice President of Legislative and 
Regulatory Policy, Sharon Pinkerton, in the Aviation Subcommittee 
hearing you held last year on aviation fuels, sustainable alternative 
aviation fuels could well be a game changer in terms of the industry's 
GHG emissions. As Ms. Pinkerton noted, the aviation industry and would-
be alternative jet fuel suppliers are on the cusp of creating a viable 
alternative jet fuel industry. But government support is needed in the 
near team to provide financial bridging and other tools necessary to 
help us get over the cusp.\5\
---------------------------------------------------------------------------
    \4\ U.S. DOT, Future of Aviation Advisory Committee, Final Report 
(April 11, 2011), available at http://www.dot.gov/faac/docs/faac-final-
report-for-web.pdf.
    \5\ Ms. Pinkerton's testimony is available at http://
www.airlines.org/Pages/Aviation-Fuels--Needs,-Challenges-and-
Alternatives.aspx.
---------------------------------------------------------------------------
    The Greener Skies over Seattle program is a terrific example of how 
the public-private partnership can work to advance aviation efficiency, 
fuel savings and reduced emissions. Importantly, this program includes 
all relevant players--FAA, airlines, airports and major airframe and 
engine manufacturers, including Boeing. By using Required Navigation 
Performance (RNP) and other new procedures, aircraft can fly shorter, 
continuous descent approaches instead of traditional stair-step landing 
paths. This demonstration project serves as a role model for the FAA's 
Next-Gen air traffic control system. A4A and its carriers are 
participating in an array of such programs throughout the country.

    Question 6. Rather than regulating downstream at the point of 
emission such as an airplane's exhaust, would limiting carbon emissions 
upstream where fossil fuels are extracted possibly be a more efficient 
and technology-neutral way to squeeze carbon out across the economy?
    Would an upstream carbon limit reduce the need for more 
        monitoring, enforcement, and regulatory complexity?
    Answer. As noted, A4A and its airlines are committed to continuing 
to reduce our GHG footprint and we have specific plans in place for 
doing so. We see potential promise in certain upstream measures as 
well, such as carbon sequestration that might be employed by those in 
the fossil fuel production chain. Also, sustainable alternative 
aviation fuels typically provide the bulk of their emissions savings 
upstream, as biomass reduces the lifecycle emissions of the fuels.
    While such measures can complement our efforts, A4A strongly 
opposes the application of carbon taxes on the fuels we use. Airlines 
are already driven by the high cost of fuel--which is our airlines' 
number one cost center--to be as fuel efficient as possible. And our 
airlines already pay a disproportionately large share of taxes and 
fees. In spite of the airlines' enormous contribution to the economy, 
air travel is taxed at a higher Federal rate than alcohol and tobacco--
products that are taxed to discourage their use. Since 1990, the number 
of aviation taxes/fees has increased from six to 17; the total amount 
of taxes paid by the industry has grown from $3.7 billion to $17 
billion over the same period. Such taxes harm the airlines, consumers 
and the economy. Moreover, a carbon tax would be counterproductive to 
our efforts, as it would siphon away from aviation the very funds our 
airlines need to continue investing in the technological, operational 
and infrastructure improvements that bring real emissions improvements 
within the industry.
          *        *        *        *        *        *      
            *
    In sum, the U.S. airline industry is strongly committed to 
additional action to improve our fuel efficiency and reduce GHG 
emissions from aviation. While we believe the unilateral EU ETS is the 
wrong approach for our nation, U.S. airlines and the global aviation 
sector, we are committed to implementation of a global sectoral 
framework under ICAO and to implementing measures that reduce 
aviation's carbon footprint while supporting our nation's economy. We 
appreciate your leadership on sustainable alternative aviation fuels 
and on other measures to enhance aviation operations, technology and 
infrastructure.

                                  
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