Qantas braces for $5m hit from ETS in Europe

QANTAS estimates that Europe’s controversial emissions trading scheme, due to come into effect on Sunday, will cost it up to $5 million in the first year.

The recent failure of a US-led legal challenge in the Court of Justice of the European Union means the Europeans are set to push ahead with the ETS despite strenuous objections from airlines and dozens of countries.

The airline says the effect will not be as severe as initially thought because of a slump in the carbon price and the fact it will receive free permits covering 70 per cent of its 2010 emissions next year.

Based on projected 2012 flying, it expects the bill to be between $4m and $5m.

Qantas will pay the disputed levy on the final leg of a flight into Europe, so a Sydney-Singapore-London flight will be slugged for the Singapore-London leg.

Qantas’s decision to axe flights to London from Bangkok and Hong Kong will also reduce its exposure, although this will not save passengers from having to pay for the British Airways leg.

Qantas does not have to pay for its 2012 emissions until 2013 and it is working out what price to put on tickets to collect the money.

However, it believes it will be at the low end of the E4 ($5) to E40 range normally quoted for potential ticket price increases, and possibly less than $5.

“We’ll be exposed to the European carbon price from January, 2012, and we’re reviewing our liability and considering what impact this may have on fares,” a spokesman said.

“I would expect something more formal in the new year.”

Air New Zealand, which will also be hit by the ETS, was in similar situation.

“Any increased costs to passengers is not ideal, but similar to the recently increased UK departure tax, higher costs due to the EU ETS will need to be passed on to passengers and will be advised in due course,” an AirNZ spokesman said.

The European move means Qantas will be grappling with carbon schemes in three jurisdictions, Europe, Australia and New Zealand, by the middle of next year.

This makes it a case study on the problems of the piecemeal application of such schemes as opposed to the airline industry’s preferred model of a global approach covering the entire sector.

The impact of the schemes is also set to intensify with the International Air Transport Association predicting that the E900m initial cost to the industry of the European ETS will triple to E2.8 billion by 2020.

The pre-Christmas European court ruling rejected claims that the European ETS impinged on the sovereignty of other nations and found the scheme was consistent with international law.

The decision was in response to a legal challenge presented by the Air Transport Association of America (now Airlines for America), several US airlines, IATA and the National Airlines Council for Canada. They had argued that the ETS contravened the Chicago Convention prohibiting such taxation of international aviation, but the EU is not a signatory to the convention and the court rejected the argument.

However, the unilateral move by the Europeans still faces a stinging backlash from more than 40 countries, including Russia, India, China, Japan and Brazil.

Its biggest headaches come from the US, where congress has moved to make it illegal for airlines to pay the levy, and China, which has warned the issue could spark a trade war.

China’s transport association has announced it will file a lawsuit against the European ETS.

“We deeply regretted that the United States lost the lawsuit,” China Air Transport Association deputy secretary Chai Haibo told the Economic Observer this week. “China will continue to steadfastly pursue a lawsuit.”

The US Senate is looking at an act that mirrors the bill already passed by congress and US Secretary of State Hillary Clinton recently warned she would be compelled “to take appropriate action” if the EU did not lift levies on US carriers.
source: The Australian