Airlines Profit From CO2 Plan?

One of the hot topics in European climate policy last year was the inclusion of airlines in the region’s carbon market, the ETS (Emissions Trading System.) Starting in 2012, the EU aimed to require airlines to hold permits covering the CO2 emissions of each flight landing at and taking off from an EU airport.

The issue raised fierce opposition by all major economies in the world, worried that the plan would be discriminatory and alleging that the EU was trying to regulate beyond its borders.

After fighting back for a while, Brussels partially gave in and delayed the implementation of the plan for intercontinental flights by roughly a year, hoping that in the meanwhile a global deal limiting aviation greenhouse gas emissions will be found.

But according to a study commissioned by the non-profit group Transport and Environment, airlines have already raised their prices to cover the extra cost of buying some of the CO2 permits, even if they have actually not faced any cost yet for intercontinental flights. Even domestically, the study argues, airlines have made money because they have increased the ticket prices for the same reason, even though according to the rules they got most (85%) of their allowances for free.

This means that they are actually making money from the system. How much? According to the study, as much as 1.3 billion euros in 2012.

“Depending on the cost pass through, the total windfall profits range from € 679 million to € 1,358 million. About a third of these windfall profits arise from the exemption of intercontinental flights,” the report argues. “EU airlines are expected to reap the largest share of the windfall due to the change in regulation (55%), followed by US airlines (13%),” it reads.

The Association of European Airlines, the industry lobby that represents all the big EU airlines, has another take on the situation.

“The exact amounts of the ETS charges are not published,” as they are often part of the fuel surcharge, said Viktoria Vajnai, a spokeswoman for the association. “The calculation is unsubstantiated and quite misleading,” Ms. Vajnai explained, though she didn’t provide of what the airlines’ profit was. If there was some gain from the program, she said, it would only help repay airlines for the money they invested to get ready for it, including computer technologies and staff to handle it.

Who’s got it right? Tell us: Next time you buy a plane ticket, check what’s in the extra costs.
Wall Street Journal, January 22, 2013