1. introduction
This article addresses the challenge that multi-territorial activities pose to the concept of territorial sovereignty. The term ‘multi-territorial activities’ is used throughout this article to refer to activities that can be linked to the territory of more than one state. A clear example of such an activity is international transport where passengers or cargo leave from State A, arrive in State B, and possibly also cross the territory, territorial waters or airspace of third states, or the high seas and airspace above it. Other examples of multi-territorial activities can be found in the international services sector, such as international financial transactions and telecommunications, where clients and service providers are often located in different jurisdictions, or in relation to the international environment for regulation in the protection of migratory species.
The focus of this article is on the dispute regarding the inclusion of international aviation in the European Union’s (EU) Emissions Trading Scheme (ETS), which covers almost 60 per cent of international aviation emissions.Footnote 1 As will be discussed in Part 2, the inclusion applies to all flights to or from an airport in a Member State of the EU or the European Economic Area (EEA),Footnote 2 regardless of the nationality of the carrier.
The legality of the inclusion of aviation into the ETS under international agreements and customary international law has been the subject of a number of academic articles.Footnote 3 This article does not systematically analyze which international law provisions apply and whether they have been violated by the inclusion of aviation in the EU ETS. Instead, it adopts an approach that focuses on the concept of state sovereignty and on the allocation of regulatory jurisdiction with respect to multi-territorial activities such as international aviation. It will be argued that, when we investigate the essence of state sovereignty – that is, the capacity to decide over domestic affairs – the EU should be allowed to include international aviation in its ETS.
Regulatory decisions regarding multi-territorial activities will inevitably have an impact on other states. In the case of the EU ETS, the decision to include international aviation affects non-EU carriers that fly to and from the EU because of the regulatory compliance cost. Conversely – and this is often overlooked in the debate – the decision of the EU’s opponents not to regulate aviation greenhouse gas (GHG) emissions also affects other states because of the long-term negative impact of insufficient climate change mitigation and the impact on the competitiveness of carriers whose emissions are regulated relative to their unregulated competitors.
In an ideal world, multi-territorial problems would be solved multilaterally between the states involved. In the case of the EU ETS, the EU’s opponents have argued that any restrictions on GHG emissions of international aviation need to be based on the mutual agreement of states.Footnote 4 The EU and its Member States do not disagree that international cooperation is the best way forward.Footnote 5 However, as will be discussed in Part 2 of this article, the EU and its Member States felt compelled to take unilateral action because of the lack of progress made within the International Civil Aviation Organization (ICAO).
The problem is that the consent required in international law for the conclusion of an international agreement is difficult to obtain when dealing with collective action problems. Such problems arise wherever the cooperation of multiple actors is required to reach a positive outcome for everyone involved, but the required actions are not individually rational for the actors that need to perform them.Footnote 6 In the case of climate change mitigation, there is a strong incentive to free-ride on the efforts of other states because successful climate change mitigation is a ‘global public good’,Footnote 7 meaning that its benefits are non-excludable and non-rivalrous.Footnote 8
If international regulation of a multi-territorial activity does not emerge, as is the case with aviation GHG emissions, this article argues that we should analyze at what point the effects of one state’s regulation infringe another state’s sovereignty.
To this end, this article first examines the principles for allocating jurisdiction in customary international law. After demonstrating that these are unable to exclude double regulation, the article will reflect on what sovereignty protects, and how this plays out in the context of multi-territorial activities. It will be argued that a state’s freedom to decide over its domestic affairs, or its ‘decisional sovereignty’, should be central to our understanding of sovereignty.
A state’s domestic affairs include the decision on how much environmental degradation it is willing to tolerate within its territory, as long as areas beyond its jurisdiction are not harmed.Footnote 9 Hence, if the EU and its Member States consider that aviation GHG emissions from flights to or from their airports pose a threat to their environmental integrity, they should be able to regulate these emissions. In contrast, it should not be up to airlines’ home states to decide on the appropriate level of environmental regulation of all GHG emissions of their airlines, because the environmental effects thereof are not necessarily limited to the home state’s territory.
Decisional sovereignty over domestic affairs does not imply that states have unrestricted authority to regulate any activity that affects their domestic affairs. It needs to be remembered that the argument is about multi-territorial activities, which therefore assumes the existence of a link between the regulated activity and the regulating state’s territory. Moreover, decisional sovereignty is a relative concept that requires respect for the equal sovereignty of other states. The article will argue that the concept of ‘contingent unilateralism’ advanced by Scott and Rajamani (that is, unilateralism that is contingent upon the absence of domestic regulation or multilateral cooperation in other states),Footnote 10 is essential to protect the decisional sovereignty of other states.
An advantage of decisional sovereignty is that it could, in theory, tip the balance of states’ incentives in favour of cooperation. This makes decisional sovereignty desirable not only to protect states’ sovereignty over their domestic affairs, but also from the perspective of providing solutions to global or transnational problems.
The article is structured as follows: Part 2 briefly introduces the EU Directive. Part 3 describes the strong reactions to the Directive by non-EU airlines, their home states and the ICAO. Part 4 frames this dispute as one involving the boundaries of state sovereignty in increasing interdependence. It introduces ‘decisional sovereignty’ as a different way of approaching questions of sovereignty and jurisdiction. Part 5 then discusses how approaching sovereignty as decisional sovereignty can stimulate the development of international agreements. Part 6 concludes.
2. overview of the directive and its background
In 2008, the European Parliament and the Council of the EU issued Directive 2008/101/ECFootnote 11 which included civil aviation in the EU ETS, itself established by Directive 2003/87/ECFootnote 12 and in force since 2005. In 2011, the scope of application of Directive 2008/101/EC was extended to Iceland, Liechtenstein and Norway.Footnote 13
The inclusion of aviation in the EU ETS was considered to be essential to achieve the EU’s goals to reduce GHG emissions by at least 20 per cent below 1990 levels by 2020,Footnote 14 in a cost-effective and economically efficient way.Footnote 15 Without this inclusion, aviation emissions were projected to undermine the efforts of other sectors.Footnote 16 As shown in a presentation by the European Commission to the ICAO Council in September 2011, GHG emissions from international aviation in the 27 EU Member States have nearly doubled since 1990, whereas total emissions declined by 3 per cent.Footnote 17
A further reason for including aviation in the EU ETS was the lack of an international response to calls to reduce aviation GHG emissions.Footnote 18 Despite a mandate in the Kyoto Protocol to regulate aviation emissions,Footnote 19 the ICAO has not yet achieved an agreement on how to do so. In 2004, the ICAO Assembly endorsed ‘the further development of an open emissions trading system for international aviation’.Footnote 20 The incorporation of international aviation into domestic emissions trading schemes was explicitly proposed as an option.Footnote 21 The tide turned at the Assembly’s next meeting in 2007, when it passed a resolution urging its members ‘not to implement an emissions trading system on other Contracting States’ aircraft operators except on the basis of mutual agreement between those States’.Footnote 22 One year later, the ICAO Secretary-General issued a guidance document discussing options to design the geographical scope of an ETS with respect to international aviation.Footnote 23 Using routes, as the EU and its Member States have done, is explicitly mentioned.Footnote 24 Moreover, the document describes schemes limited to emissions within a state’s national airspace as ‘impracticable’ and as ineffective because of the exclusion of emissions over the high seas.Footnote 25 In 2010, a new ICAO Assembly Resolution superseded the 2007 resolution.Footnote 26 Attached to this new Resolution are ‘guiding principles for the design and implementation of market-based measures’. These principles mention only that domestic market-based measures ‘should not be duplicative and international aviation CO2 emission should be accounted for only once’.Footnote 27 Thus, unilateral measures are not excluded, as long as overlaps between different unilateral measures are avoided. These guidelines are the most concrete initiative to have come out of the ICAO with respect to market-based measures such as an ETS.
In light of the international inaction and the need to spread the burden of emissions reductions across economic sectors, Directive 2008/101/EC requires, from 1 January 2012 onwards, that all aircraft (regardless of their nationality) cap emissions of their flights to or from the EU at a percentage of average annual emissions in 2004, 2005 and 2006.Footnote 28 In 2013, total GHG emission allowances are set at 97 per cent. Barring an amendment, the ceiling is lowered to 95 per cent in the following years.Footnote 29 Of the available emission allowances, 15 per cent are auctioned and the remainder is allocated for free.Footnote 30 From 2013, 3 per cent of the free allowances will be reserved for new entrants to the market or for airlines that engage in additional activities.Footnote 31
The financial impact of the Directive on individual airlines not benefiting from an exemptionFootnote 32 will depend on their initial allocation of free allowances and their success in reducing their GHG emissions. If an airline reduces emissions by more than that required, it can sell its excess allowances to other airlines.Footnote 33 However, if it fails sufficiently to reduce its emissions, it will have to purchase excess allowances from other airlines or other sectors included in the ETS.
To apply the Directive in practice, each aircraft operator is assigned to a Member State based on where it has received its operating licence or where it is estimated to emit the most.Footnote 34 The administering Member State deals with applications for free emission allowances,Footnote 35 calculates free allowances using a benchmark provided by the Commission,Footnote 36 allocates allowances,Footnote 37 approves monitoring and reporting plans of airlines under its responsibility,Footnote 38 ensures that the required amount of allowances is surrendered by 30 April of the following year,Footnote 39 and deals with non-compliance.Footnote 40
The Directive specifies that non-compliance results in a fine of €100 for each tonne of carbon dioxide equivalent emitted,Footnote 41 as well as the addition of the shortfall to the amount of allowances to be surrendered in the next year.Footnote 42 The administering Member State can decide on further enforcement measures to ensure complianceFootnote 43 and, should these measures fail, the Member State can request the European Commission to impose an operating ban on the airline concerned.Footnote 44
Most important for the purpose of this article is the application of the Directive to all flights landing at or taking off from an EU airport, regardless of the nationality of the carrier.Footnote 45 This extension is motivated by the need to avoid leakage and to avoid reducing the competitiveness of EU carriers when their foreign competitors flying the same routes are not required to reduce their GHG emissions.Footnote 46
Should a third state take regulatory steps to address aviation GHG emissions, the Directive provides ways of taking these into account. A first option is for the Commission and the Member States to consult with the third state on how to ensure optimal interaction between different regimes.Footnote 47 When necessary, the Commission has been delegated the authority to amend Annex I of the Directive to exempt flights arriving from a third state that has adopted measures to deal with aviation GHG emissions from the EU ETS.Footnote 48 Any other amendments are not within the Commission’s competence, but need to be made by the European Parliament and the Council themselves.Footnote 49 The Commission can also recommend to the Council to open negotiations with the third country involved.Footnote 50 At this stage, it is unclear what the conditions would be for an exemption from Annex I, for another type of exemption, or to open up negotiations with the third state. While this hardly creates a good foundation on which to build confidence between states, the lack of clarity is understandable given that other states have yet to regulate aviation emissions.Footnote 51
The inclusion of non-EU airlines has proved to be the most controversial aspect of Directive 2008/101/EC. Part 3 gives an overview of the dispute.
3. overview of the dispute
In their fight against the application of Directive 2008/101/EC to non-EU airlines for flights to or from the EU, the EU’s opponents have pursued various avenues.
Firstly, in December 2009, American Airlines, Continental Airlines, United Airlines and the Air Transport Association of AmericaFootnote 52 challenged the legality of the United Kingdom’s (UK) implementation of Directive 2008/101/EC in the High Court of Justice of England and Wales.Footnote 53 In the course of these proceedings, the High Court made a request for a preliminary ruling to the Court of Justice of the European Union (CJEU) to determine whether a range of international agreements and rules of customary international law could be invoked to challenge the legality of the Directive and, if so, whether these international provisions could invalidate the Directive.Footnote 54 On 6 October 2011, Advocate-General (A-G) Kokott issued an Opinion which argued that most of the provisions on which the claimants relied could not be invoked as a benchmark for the legality of the Directive and, even if they could, they would not invalidate the Directive.Footnote 55 The CJEU’s judgment of 21 December 2011Footnote 56 largely followed the A-G’s Opinion, and the lawsuit was subsequently dropped.Footnote 57 Chinese airlines are reportedly considering further legal challenges against the Directive, although they are waiting for the most appropriate time to file, which presumably is after their administering Member State has imposed penalties for non-compliance.Footnote 58
Secondly, some states have chosen the route of unilateral legal responses. For example, on 24 October 2011, the House of Representatives of the United States (US) passed the European Union Emission Trading Prohibition Act of 2011.Footnote 59 If passed by the Senate,Footnote 60 and unless vetoed by President Obama, this Act would make it illegal for American companies to comply with the EU ETS. China and India have similarly banned their carriers from complying with the EU ETS.Footnote 61
Thirdly, opponents are using political and economic pressure on the EU to withdraw Directive 2008/101/EC. China has allegedly blocked Hong Kong Airlines’ order of ten A380 aircraft from Airbus.Footnote 62 The Chinese government has also threatened to use unspecified measures to defend its carriers against the EU ETS.Footnote 63 In the US, the State and Transportation Departments are looking into avenues for retaliation.Footnote 64 India has threatened that the inclusion will affect climate change negotiations.Footnote 65
Fourthly, this unilateral pressure is backed up by multilateral initiatives. India has taken the initiative of coordinating the responses of what its officials have dubbed ‘the Coalition of the Unwilling’.Footnote 66 At the end of September 2011, representatives of 21 states met in New Delhi (India) to formulate a unified position.Footnote 67 This Declaration was presented as a non-negotiable proposal to the ICAO Council at its 194th session in early November 2011, together with a working paper drafted by India’s representative on the Council, where it received the endorsement of 26 ICAO Members.Footnote 68 Since the ICAO Council is not competent to take legally binding decisions, the endorsement of the working paper is a political statement only.Footnote 69 Nevertheless, the EU submitted a reservation to it.Footnote 70 The opponents met again in Moscow (Russia) on 21 and 22 February 2012 where 23 statesFootnote 71 decided on a list of possible retaliation measures.Footnote 72 Some of these measures involve multilateral action, such as dispute settlement under Article 84 of the Chicago ConventionFootnote 73 or a review of the legality under the World Trade Organization (WTO) Agreement.Footnote 74 Most of the options, however, involve denying privileges to EU airlines and economic retaliation against them, presumably in the hope that they will lobby their governments and the European Commission to change stance. The threat of countermeasures has not gone unnoticed, with France asking the European Commission to seek a compromise with other states.Footnote 75
4. sovereignty over multi-territorial activities
The dispute over the inclusion of international aviation in the EU ETS reveals conflicting claims of sovereignty over multi-territorial activities. On the one hand, the EU Member States, acting through the EU, consider the inclusion of aviation a legitimate exercise of their own sovereignty.Footnote 76 On the other hand, the EU’s opponents argue that the inclusion of flights of non-EU airlines landing at or taking off from an EU airport amounts to an extra-territorial exercise of jurisdiction.Footnote 77
To examine which claim to exercise sovereignty over the multi-territorial activity of aviation is compatible with international law, the following sections analyze the limits of traditional approaches to sovereignty and jurisdiction and argue that, in the context of multi-territorial activities, the focus of sovereignty should be on the ability of states to make decisions over their domestic affairs.
4.1. The Limits of Traditional Approaches to Sovereignty and Jurisdiction
Sovereignty can be defined as the ultimate legal authority to decide to the exclusion of others.Footnote 78 In international law, states exercise this sovereignty over their ‘domestic affairs’. Often, the term is used interchangeably with ‘reserved domain’Footnote 79 or ‘domestic jurisdiction’.Footnote 80
Traditionally, the concept of state sovereignty is closely linked to a state’s territory. State sovereignty is considered as a ‘title to territory’Footnote 81 that allows states to take independent decisions within their territory and bans them from acting in another state’s territory without the latter’s consent.Footnote 82 As articulated by Huber in the Island of Palmas arbitration, ‘[s]overeignty in the relations between States signifies independence. Independence in regard to a portion of the globe is the right to exercise therein, to the exclusion of any other State, the functions of a State’.Footnote 83 As a result, under international law, sovereignty is traditionally considered ‘territorial sovereignty’.Footnote 84
Yet, not all actors or activities within a state’s territory are automatically within its domestic affairs. The 1923 Nationality Decrees Advisory OpinionFootnote 85 of the Permanent Court of International Justice (PCIJ), still regarded as the authoritative interpretation of ‘domestic jurisdiction’, ‘reserved domain’ or ‘domestic affairs’,Footnote 86 indicates that the evolution of international law and international relations can restrict the scope of a state’s domestic affairs.
The Opinion originated in a dispute between the UK and France about the impact on British citizens of the nationality decrees issued by France in Tunis – at the time a French protectorate – and in Morocco’s French Zone. The Council of the League of Nations asked the PCIJ whether the dispute related to a matter which, by international law, was solely within France’s domestic jurisdiction.Footnote 87 The PCIJ held that:
[t]he question whether a certain matter is or is not solely within the jurisdiction of a State is an essentially relative question; it depends upon the development of international relations. ... [I]t may well happen that, in a matter which … is not, in principle regulated by international law, the right of a State to use its discretion is nevertheless restricted by obligations which it may have undertaken towards other States.Footnote 88
Given its dependence on the evolution of international relations, the scope of a state’s domestic affairs is thus inherently in flux and can only be determined for each state individually, depending on its specific obligations under international law.Footnote 89
Applying the PCIJ’s formula to the EU ETS, one finds that there is no specific international agreement that governs GHG emissions of international aviation or allocates the regulation thereof to the state of departure, arrival or registration of the aircraft.Footnote 90 There is thus no indication that the regulation of international flights landing at or departing from an EU airport is not part of the domestic affairs of the EU Member States, nor that it is excluded from those of the EU’s opponents.
The principles allocating jurisdiction under customary international law similarly do not restrict either side’s discretion to regulate GHG emissions from international aviation. International law traditionally requires a sufficient nexus between a regulating state and the object of regulation for the exercise of regulatory jurisdiction to be presumed valid.Footnote 91 Of the principles that assist with the identification of such a nexus, the most important in the context of the EU ETS dispute are the territoriality and the personality principles.
Based on the personality principle, each state’s exercise of jurisdiction over its own carriers, even for the GHG emissions over the high seas and in another state’s airspace, would be presumed to be legal under international law. Some statements of the EU’s opponents reveal that they favour the personality principle as a basis for the exercise of jurisdiction. For example, according to press reports, a spokesperson for the US State Department argued that the ‘EU needs to cease application of this scheme to foreign airlines’.Footnote 92 Jurisdiction over international aviation is, however, not solely determined on the basis of the personality principle. For example, the obligations under the Schengen AgreementFootnote 93 and its Implementing Convention,Footnote 94 to ensure that passengers have the necessary documents to enter the territory of an EU Member State, apply to all carriers flying to the EU.Footnote 95
The territoriality principle is at least equally important in an international legal order based on territorial sovereignty.Footnote 96 It bans states from regulating acts that are wholly internal to another state, except when jurisdiction can be based on another principle. However, this does not imply that states can exercise jurisdiction only over acts that are wholly internal to their own territory. The territoriality principle requires only a nexus, rather than a complete match, between the regulated activity and the territory of the regulating state.Footnote 97
Given that international aviation is a multi-territorial activity, both the EU Member States and their opponents could claim jurisdiction. This author thus disagrees with the position of the EU’s opponents that the inclusion of international aviation in the EU ETS is extra-territorial because allowances have to be submitted for the portion of a flight that takes place outside the airspace of an EU Member State.Footnote 98 Such an interpretation of the territoriality principle limits the valid exercise of territorial jurisdiction to events that fall entirely within a single state’s territory.
There are many examples under international law where states exercise jurisdiction over actors or activities that have only a nexus with the regulating state’s territory. States, for example, have jurisdiction to regulate both services supplied from the territory of another state into their territory and the suppliers of these services.Footnote 99 Such regulation will affect foreign-service suppliers that want to export their service to the regulating state. Similarly, states often base antitrust jurisdiction, albeit controversially, on the effects of foreign actions within their territory.Footnote 100 Finally, at least one EU opponent applies its taxation laws to the worldwide income of ‘resident aliens’.Footnote 101 Since these ‘resident aliens’ are not citizens, jurisdiction can only be based on the territoriality principle. The situation of these ‘resident aliens’ is comparable to that of non-EU airlines in the EU ETS: because of a territorial connection with the regulating state, some of their activities elsewhere are taken into account for the purposes of the regulation. Arguably, the application of US tax law to resident aliens reaches even further into another state’s territory than the inclusion of airlines in the EU ETS because, once the territorial connection is established, all worldwide income is taken into account.Footnote 102 This would be comparable to the position where the EU requires all carriers that regularlyFootnote 103 land at an EU airport to submit allowances for all their flights, even those between two non-EU airports.
The principles that allocate jurisdiction under customary international law thus do not place international aviation outside the domestic affairs of one of the sides involved. Instead, they can lead to double regulation. Traditionally, double regulation is avoided either through an international agreement allocating jurisdiction to one state or another, or through the creation of an international organization with regulatory authority. In an international legal system of sovereign states, international agreements require a state’s consent before they can become binding. However, consent to cooperation has so far failed to materialize in the case of GHG emissions from international aviation. The legality of the EU’s decision to include foreign air carriers in the EU ETS cannot, therefore, be determined with reference to an international consensus, but stands or falls depending on whether it is considered to be a legitimate exercise of state sovereignty. The following sections will argue that, if we understand sovereignty as decisional sovereignty over domestic affairs, as is appropriate in today’s interdependent world characterized by multi-territorial activities, the inclusion of aviation in the EU ETS is a legal and legitimate exercise of EU sovereignty.
4.2. Reviving the Decisional Aspect of State Sovereignty
As discussed above, sovereignty is the ultimate legal authority to decide to the exclusion of others,Footnote 104 which under international law is exercised by states over their domestic affairs. By focusing on the decisional aspect of sovereignty, the emphasis is on the legal ability of states to make decisions over their domestic affairs.
‘Decisional sovereignty’ was first invoked by Australia in its pleadings before the International Court of Justice (ICJ) in the Nuclear Tests case.Footnote 105 Australia argued that sovereignty does not only entitle states to territorial inviolability, but also to decisional inviolability. Each state, Australia argued, has an ‘independent right to determine what acts shall take place within its territory’.Footnote 106 Therefore, ‘decisional sovereignty is violated by such an intrusion as impairs or destroys the unfettered capacity to decide’.Footnote 107 Although the concept of decisional sovereignty was not analyzed by the ICJFootnote 108 and is only mentioned in passing in legal literature,Footnote 109 it is a useful concept that merits further exploration, particularly given the increased likelihood of jurisdictional conflicts as states become more interdependent.
Since the scope of a state’s domestic affairs is still heavily influenced by its territorial boundaries, decisional sovereignty remains tethered to a state’s territory. Thus, decisional sovereignty is not all that different from more traditional territorial sovereignty. With respect to activities that are contained within one territory, decisional and territorial sovereignty coincide. It is only when confronted with multi-territorial activities that we are forced to reflect on why a state is allocated jurisdiction. Is it because the activity takes place in its territory or because the activity has negative effects on the state or its inhabitants? This article argues that the ability of a state to regulate in order to avoid negative effects should be recognized. In response to ‘multi-territorial’ activities, the territoriality of the activity combined with the activity's effects are at least as important to legitimize the exercise of jurisdiction as the territoriality of the activity combined with the nationality of the actor.
Decisional sovereignty, however, should not be mistaken for the effects doctrine – the exercise of jurisdiction based solely on the effects of activities. While decisional sovereignty may strengthen support for the effects doctrine, the legality of jurisdiction exercised under the effects doctrine will always need to be measured against the impact of the equal decisional sovereignty of other states. As with the less controversial principles allocating jurisdiction, the effects doctrine confers only a presumption of legality and is not an automatic legitimation of a state’s exercise of jurisdiction beyond its own territory as it pleases.Footnote 110
At the same time, however, the presence of an actor or an activity in a state’s territory is not in itself a sufficient basis to exercise sovereignty. Not every actor or activity within a state’s territory is necessarily also within its domestic affairs, particularly not when the actor or the activity reduces another state’s capacity to decide.
This argument is not as radical as it may seem. In the Nationality Decrees Advisory Opinion, the PCIJ held that the evolution of international law can limit the scope of a state’s domestic affairs.Footnote 111 International law recognizes that inherent limits on state sovereignty are necessary for any system based on the equality of sovereign states.Footnote 112
Crucial to decisional sovereignty is the freedom from intrusion in the capacity of a state to decide over its domestic affairs.Footnote 113 This illustrates that the freedom that comes with state sovereignty is not just a freedom to act (or not to act), but also a freedom from external interference.Footnote 114 In a context of increasing interdependence, protecting the ‘freedom from’ dimension becomes more important because the consequences of states’ actions or omissions are more likely to affect other states without the citizens of the latter state being able to voice their concerns to the authorities of the former.
At first glance, this distinction between ‘freedom to’ and ‘freedom from’ may not seem to clarify matters because the EU and its opponents could each invoke both, depending on one’s perspective. On the one hand, the EU could claim freedom to regulate international aviation emissions and freedom from the negative effects of climate change triggered by the inaction of other states as well as from the negative effects of lost competitiveness. On the other hand, the EU’s opponents could invoke freedom to regulate international aviation emissions and freedom from the EU’s regulation.
To weigh up the different ‘freedoms to’ and ‘freedoms from’ involved and determine which should prevail to safeguard decisional sovereignty, this article proposes a comparison of the negative effects caused by the EU’s action with those caused by its opponents’ inaction, in order to determine which of the negative effects are compatible with sovereignty, namely, with the state’s capacity to decide over its domestic affairs. It is this comparison of the negative effects that provides a tool to avoid overlapping claims of sovereignty and jurisdiction. The following paragraphs discuss how this plays out in favour of the inclusion of international aviation in the EU ETS.
On the one hand, the lack of regulation by the EU’s opponents of international aviation emissions causes negative effects for other states, such as the EU Member States. Firstly, there are the negative environmental effects of unrestricted growth in GHG emissions. Because of the transboundary character of climate change, these effects are not limited to the states that opt not to restrict emissions, but extend to other states. These effects are incompatible with international law, which has long recognized that sovereignty should not be exercised in a way that causes a negative impact on the environment of another state.Footnote 115 Secondly, further negative effects follow from the artificial competitive advantage for internationally active businesses when their home state does not regulate, or does not regulate to the same extent as their competitors’ home states. Admittedly, by itself, the lack of regulation in one state does not reduce another state’s legal capacity to decide. However, combined with a strict approach to territoriality that would preclude regulation of internationally active businesses by states other than their home states, the political reality is different. States will find it difficult to regulate their internationally active businesses unless the home states of the competitors of these businesses adopt similar regulation. It takes significant political courage to persuade voters that the long-term positive impacts of regulation outweigh the short-term negative impacts on competitiveness and jobs, particularly in times of economic uncertainty. Both of the negative effects discussed – higher exposure to unmitigated climate change and the impact on the competitive advantage – interfere with the capacity of the EU and its Member States to decide, which is central to decisional sovereignty. As Meltzer argues, restrictions on the ability of states to effectively regulate access to their territory leads ‘to a complete collapse of the very notion of sovereignty that [the EU’s opponents] are claiming to defend’.Footnote 116
On the other hand, the EU’s opponents claim negative effects as a result of the EU Directive and the domestic implementation thereof by its Member States. A first negative effect is the higher cost of regulatory compliance. However, in contrast with the negative environmental effects that interfere with the decisional capacity of the EU Member States, the ‘no harm’ principle does not extend to the impact of economic regulation, as evidenced by the International Law Commission’s discussions on its Draft Articles on Prevention of Transboundary Harm from Hazardous ActivitiesFootnote 117 and its Draft Principles on the Allocation of Loss in the Case of Transboundary Harm Arising out of Hazardous Activities.Footnote 118 During these discussions, the state representatives on the United Nations (UN) General Assembly’s Sixth Committee made it clear that ‘the wholesale transfer of pioneering experience in the field of the physical uses of territory to the even less developed field on economic regulation’ was a line that should not be crossed.Footnote 119
A second negative effect is the impact of the Directive on the ability of non-EU states to regulate. In this respect, it could be argued that the EU benefits from a first-mover advantage.Footnote 120 This could make it harder for other states to regulate, because their regulation would add another layer of costs on flights to or from their territory. Yet, the EU has expressed its willingness to accept the equivalent regulation of other states should they decide to regulate.Footnote 121 This abates the risk of double counting of emissions for flights between the EU and another regulating state, in line with the 2010 ICAO resolution.Footnote 122
The commitment to credit domestic regulation through an exemption from the EU ETS reduces the negative effects of the EU Directive on the ability of other states to regulate. This regulatory technique, which Scott and Rajamani have described as ‘contingent unilateralism’,Footnote 123 is essential for the protection of decisional sovereignty. It expresses the idea of relative sovereignty, according to which state sovereignty is limited by the equal sovereignty of other states. Contingent unilateralism ensures that states that currently do not regulate in response to a specific problem retain not only the legal but also the political capacity to regulate later without fear of adding to the regulatory compliance costs of companies that already fall within the scope of another state’s regulation.
Whether the decisional sovereignty of other states to regulate GHG emissions from aviation will be protected in practice will depend on how the EU will evaluate the equivalence of another state’s regulation. As contingent unilateralism is not currently required under general international law, there are no criteria available to limit the EU’s discretion in the determination of equivalence. However, contingent unilateralism is not unknown in international economic law, and we can draw guidance from the limits developed in that context.Footnote 124 In the Shrimp/Turtle decision,Footnote 125 the WTO Appellate Body clarified that it prefers states to reach a bilateral or multilateral solution for trade-related issues such as environmental protection. Nonetheless, trade restrictive unilateral regulation can still benefit from one of the exemptions in Article XX GATTFootnote 126 if good faith attempts to negotiate a bilateral or multilateral agreement have been undertaken. Should these attempts fail, WTO Members are allowed to regulate unilaterally, as long as they make allowances for domestic regulation in other states. When deciding on these allowances, different conditions prevailing in exporting states must be taken into consideration to evaluate whether the regulatory programme of the exporting state is appropriate for those conditions.Footnote 127 It should not be required that trading partners adopt a domestic regulatory regime that is ‘essentially the same’ as that of the importing state.Footnote 128 The example from WTO law provides guidance on the allocation of jurisdiction in other areas of increasing interdependence, such as international aviation, where the primary goal of an international agreement needs to be balanced against related goals, such as environmental protection.
5. decisional sovereignty and the provision of global public goods
In Part 4 it was argued that our understanding of state sovereignty should emphasize the state’s capacity to decide. It also argued that decisional sovereignty justifies unilateral action with respect to multi-territorial activities, such as the inclusion in the EU ETS of all flights landing at or departing from an EU airport, regardless of the nationality of the carrier.
This argument, however, should not be mistaken as one against multilateral regulation. On the contrary, this author prefers multilateral responses to global threats such as climate change. Unfortunately, effective multilateral cooperation relies on state consent. As the Kyoto Protocol and the lack of initiatives at the ICAO illustrate, this is notoriously difficult to achieve with respect to climate change. The difficulties stem from the global public good characteristics of successful climate change mitigation.Footnote 129 The incentives for states to free-ride on the efforts of other states are further strengthened by the asymmetry between the responsibility for GHG emissions and the vulnerability to their negative impact, which leads to insufficient internationalization of the full environmental costs of emissions.
International law ought to ban the ‘beggar-thy-neighbour’ behaviour of free-riding and causing negative externalities. However, when regulating states are barred under international law from adopting any regulations that could affect a non-regulating state – as per the allocation of jurisdiction favoured by the EU’s opponents – international law reinforces the incentives to free-ride. A state that is not currently inclined to regulate in response to a global problem such as climate change will have every reason not to change its stance, because that would require sacrificing its exporters’ competitive advantage in the markets of states that have regulated. Even regulation based on multilateral cooperation is less attractive than no action, as international obligations are costly to negotiate and implement.Footnote 130
Approaching state sovereignty as decisional sovereignty can reduce these obstacles towards international cooperation. The allocation of jurisdiction on the basis of decisional sovereignty has two effects. Firstly, states that want to take the lead on regulation can do so without putting their competitiveness at risk, because there is no legal objection to the inclusion of all actors with activities in their territory, regardless of nationality. Secondly, such unilateral regulation removes the competitive advantage that would befall non-regulating states by simply doing nothing. Moreover, if the non-regulating state values market access for its economic actors to the regulating state, there will be an incentive either to engage in multilateral regulationFootnote 131 or, at the very least, to adopt equivalent regulation, which the originally regulating state will then have to accept pursuant to the idea of contingent unilateralism.
Any resulting regulatory differences create incentives for foreign companies to lobby their own government to impose equivalent regulation or to negotiate global regulation. Scott attributes the adoption of the ICAO’s guiding principles on market-based mechanisms in 2010Footnote 132 to the pending inclusion of international aviation in the EU ETS.Footnote 133 The ICAO Secretary-General has indeed cited the pressure stemming from the inclusion of international aviation in the EU ETS as a reason behind intensified efforts to develop a draft global instrument on market mechanisms by the end of 2012.Footnote 134 Although this deadline has been postponed to spring 2013, the intention is still to complete the work in time for the 2013 ICAO Assembly.Footnote 135 At a meeting in June 2012, the number of options presented to the ICAO Council Members was reduced to three.Footnote 136 These recent steps indicate that unilateral action by affected states can kick into gear laggard international efforts to deal with a transboundary issue.
6. conclusion
Traditionally, sovereignty was conceived of as territorial sovereignty. This article, however, argues that the territorial boundaries of a state do not exhaustively define the essence of state sovereignty. After all, these boundaries can be artificial in the face of transboundary problems or multi-territorial activities. Instead, the approach suggested is to focus on the state’s capacity to make decisions over its domestic affairs. When it comes to the regulation of multi-territorial activities, such as international aviation in the dispute studied, decisional sovereignty allows states to regulate actors or activities that have a nexus to their territory and that negatively affect them, despite the fact that these actors are foreign nationals or that these activities partly take place abroad.
The main advantage of approaching state sovereignty as decisional sovereignty is that it creates space for a state to regulate unilaterally when multi-territorial activities affect its domestic affairs, even if the regulation applies to economic actors from other states that are active within the regulating state’s territory. Otherwise, the state would either be exposed to the negative effect of non-regulation or to a lack of competitiveness as a result of more lenient regulation by its trading partners. A technique such as ‘contingent unilateralism’ serves as a tool to avoid unilateral regulation unduly restricting other states’ decisional sovereignty.
Unilateral regulation may not be the preferred option of many international lawyers, who are committed to multilaterally agreed solutions.Footnote 137 However, we need to question whether, while we pursue the holy grail of an effective and binding multilateral agreement, we prefer no regulation or unilateral regulation. This article argues in favour of the latter, all the more because unilateral action can provide an impetus for future cooperation. The regulatory differences, feared by some as increasing fragmentation,Footnote 138 create incentives for states to harmonize their domestic regulation or negotiate international regulation. Recognition that unilateral regulation is legal under international law would also send a clear message to industry lobby groups that the real question is not whether there will be regulation or not, but rather which regulation they will be subject to. Rather than lobbying their government to fight the very existence of regulation, they could (and should) focus their energy on developing a global response.Footnote 139
