This case introduces students to the complex drama of international climate policy negotiations. In 2008, the EU decided to include the aviation industry in its emissions trading system (ETS), beginning in 2012. The policy puts China, the US and the EU on a collision course that could end in a trade war. The policy can be seen as a clever and/or heavy-handed way of negotiating climate change policies with countries outside of the EU, notably the United States and China. Furthermore, it has indirect effects on a variety of related and supporting industries, including airline manufacturers. In both cases, firms are caught in a complex intergovernmental bargaining game in which they have to make a series of strategic choices about shaping and responding to potential outcomes.
The goal of the case is to teach students to break down and analyze complex situations involving business, government and society. They should be able to understand the causes of this policy, the relationship between firms and governments in different contexts and the consequences of this particular policy for airlines as well as related and supporting industries. Students should also be able to develop plans for firms involved in the dispute, including market and non-market responses to block or adjust to the policy. The case gives students the chance to practice lobbying and exposes them to strategic interaction at multiple levels. Because the bargaining between governments resembles a game of chicken, instructors may choose to use game theoretic terms and logic.