Far from damaging US airlines, the EU's Emissions Trading System (ETS) could deliver it a €2 billion windfall profit, according to a new report by a US Federal Aviation Administration-funded group of academics.
Bill Hemmings, the aviation spokesman for the European environmental pressure group Transport and Environment, said that it "called seriously into question" air industry claims that the ETS would leave them out of pocket.
"On the contrary, their real costs will probably be covered by being able to pass them on to passengers with minimal impact on their businesses," Hemmings told EurActiv.
"The fact that this US government-funded report says they could make windfall profits leaves us unsympathetic to their cries that the ETS will cost them billions."
The peer-reviewed study in the Journal of Air Transport Management uses several complex modelling frameworks to calculate the effect that inclusion in the ETS' third period - between 2013 and 2020 - would have on US airlines.
The study's models make three key assumptions:
• A carbon price of €15 a tonne that increases by 4% a year
• A 35% increase in the airlines' CO2 emissions between 2011 and 2020
• A full 'pass-through' of costs to the consumer
If all three happened, the report concludes that airlines could receive a $2.6 billion (€2.03 billion) bonanza.
This is because 85% of the EU's aviation emissions allowances – or 'permits to pollute' – have initially been granted to air carriers for free. The other 15% will be auctioned.
As the allowances are based on their 2010 emissions, airlines would only need to purchase about a third of the required allowances in the period to 2020, once business growth had been factored into the equation.
However, even some staunch supporters of the ETS, questioned the methodology used in the report.
John Hanlon, the secretary-general of the European Low Fares Airline Association (ELFAA), said the central contention that allowance costs could be passed back to the consumer was a "canard" and a "fallacy".
"I see no evidence to support that," he told EurActiv. "There is an enormous sensitivity to airfares and the component most adversely affecting that is the price of fuel."
With allowances on top of that it was "not realistic" to assume that airlines would be able to pass on costs and stay in business, he said.
Environmentalists complain that airlines enjoy tax exemptions from fuel and valued added taxes. But Hanlon said that US air carriers could ease tax burdens if they supported the ETS as the most effective market-based mechanism for reducing greenhouse gas emissions.
"That would increase the pressure on the states that are currently taking taxes out of aviation in the name of the environment to withdraw them," he said.
But US airlines remain unconvinced. The industrial association Airlines for America has said it will "comply under protest" with the ETS, but that it is reviewing its legal options, after the EU's Court of Justice recently ruled in the scheme's favour.
The US government has denounced the EU's decision to apply the 'cap and trade' principle to global aviation.
"We continue to have strong legal and policy objections to the inclusion of flights by non-EU air carriers in the EU ETS," Krishna R. Urs, a top State Department official, said in a statement.
The Inter-governmental Panel on Climate Change has estimated that by 2050, greenhouse gas emissions from aviation could rise to between 5% and 15% of the world's total.
Comments
Sign in to comment or to join the conversation
11 January 2012 11:07AM
As the article points out, passing on of all costs to clients will only happen on certain routes, competition will seriously reduce the ability for profiting from this.
I also think the use of a price of €15 in 2012 is preposterious when the current price has been hovering around €6.50.
A 777 from JFK to LHR is about 3000-3200nm, which according the the Small Emitters Tool is about 150 t of CO2. In a 3 class layout, you are talking of about 300 PAX but I would assume a 75% load factor so it works out at about 0.67 t per PAX. If you assume the airline carries the same number of tkm in 2010 as they do in the year in queston, we know they get 0.6422 for every thousand tkm so 5,657km times 0.1 t times 0.0006422 gives you 0.3633 free allowances for that passenger, to the total cost after allowance which comes out at around €2.
All of the surcharges announced so far for transatlantic are around $3, so they are bearly covering their direct costs on short transatlantic routes at todays price, never mind the admin associated. If the price rises, and airlines fly further into either territory, than the costs go up, but the surchage stays the same.
I thingk the word 'could' is very important in that headline
11 January 2012 11:40AM
"However, even some staunch supporters of the ETS, questioned the methodology used in the report."
Indeed ... another example of absurd methodologies and flawed assumptions designed to make out something that is patently untrue as something to believe in. Yesterday it was Mark Lynas trying to get us to believe that renewables are more cost effective than hydrocarbons via some complex DECA calculations (obviously co you would have to be STUPID not to understand that)...... and today its an explanation of why airlines will benefit from a carbon tax. The logic here being that airlines will pass on theoretical costs to consumers rather than actual ones. Brilliant - why didn't I think of that ... maybe they could also just imagine the price of fuel is twice what it is and pass that on too. Whoopee .. another windfall.
Yes - the airlines don't have business analysts of course ... cos if they dd they wouldn't have missed this 'truth' and would no doubt be embracing he new tax.
Go figure.
11 January 2012 12:31PM
It all comes down to growth.
Airlines want air travel to grow and are basing their business models on this growth. Airline tickets rising faster than inflation (whether caused by emissions-related costs or rising fuel prices) will discourage people from flying. This will result in over-supply within the industry; hence increased competition and reduced profits, both of which will lead to airline failures.
In the same way that increasing air travel over the last 40 years has lead to economies of scale and lower ticket prices, so a reduction in air travel will raise costs, push up prices and reduce demand further. In other words it's a vicious circle. Airlines know this, hence they fight anything that will put up prices to the consumer.
Unfortunately we need to see emissions fall dramatically, especially in a relatively high-polluting industry like air travel. There's no way round this if we we want to continue living in a civilised society in 50 years time. At the end of the day air travel is a luxury, not an essential.
And to those who have constructed their lives around the facility of cheap air travel, please turn your wrath on the airlines for lobbying for no taxes on air fuel and thus tricking you into believing that cheap air travel was a fact of life for ever more. You've been suckered.
11 January 2012 12:49PM
While what you say about the vicious circle is true, I think you are underestimating the value of the aviation industry to our economy outside of the direct profitability of airlines.
Think of all the people who are employed handling the aircraft, cleaning them, building them, maintaining them, flying them, legal/administrative roles. If you look wider, you also have people who drive trains to airports, work in the shops in airports and so on. Without the airline industry, what would these people be doing to earn money to pay tax on?
While video conferencing is a useful tool, the ability to meet face-to-face is still important, so aviation give immeasurable benefits to other industries.
I don't know how you can call it a 'relatively high-polluting industry '. Relative to what? Airlines in Europe could not be much more efficient than they are, and they are improving through natural demand, the ETS will not provoke much there. In fact, the biggest single thing they can do to improve efficiency is to improve the airspace restrictions which are still build around national borders - which is something Eurocontrol are working on, and is completely out of the hands of airlines (i.e. the ones who are paying for the ETS).
The airline industry may get tax breaks, but only because the wider benefits to the treasury are greater. Aviation is also only 2-3% of global emissions, but provides something like 5% GDP. Converting to a more efficient economy is not free, so targeting industries that facilitate economic growth is going to harm investment in other areas.