Study finds airlines stand to make up to $1.7 billion in windfall gains from EU emissions scheme in 2012

A study by Dutch consultancy CE Delft estimates airlines stand to make up to 1.3 billion euros ($1.7bn) in windfall profits from the EU Emissions Trading Scheme (EU ETS) in 2012. This is based on an assumption that airlines have passed on all the costs of the scheme in increased charges to passengers including the value of the free allowances they have been allocated. This sum also includes a windfall gained as a result of the European Commission’s ‘stop the clock’ proposal. Airlines have always consistently denied they would profit from the scheme but most have been less than transparent on pass-through costs to customers, choosing to hide some or all of the cost within fuel surcharges. The CE Delft study was commissioned by Brussels-based NGO Transport & Environment (T&E), which suggests the carriers contribute their windfall to the UN’s Green Climate Fund.

Under the first year of operation of the EU ETS, all aircraft operators serving European airports are required to surrender sufficient allowances, or permits, to cover their CO2 emissions in 2012, with 85% of the sector’s historic 2010 emissions being given them for free. The remainder, plus allowances to cover a growth in emissions since 2010, would need to be purchased through auctions or the carbon market.

Evidence suggests airlines have not only been raising ticket prices to fund the permits they need to purchase but they have also been passing on the value of the free allowances, claims T&E and CE Delft. According to the study, these windfall profits amount to around €872 million ($1.16bn) for all airlines, assuming the full value of the free permits covering intercontinental flights were charged to passengers.

The study’s authors estimate airlines will gain further windfall profits of up to €486 million ($647m) as a result of the ‘stop the clock’ exemption proposal since carbon surcharges levied in 2012 on customers of intercontinental flights will no longer be needed to purchase the necessary allowances.

“Passengers have paid towards fighting climate change, it is unjust for airlines to retain these windfall profits,” said T&E Aviation Manager Bill Hemmings. “Air carriers should act responsibly and contribute these additional profits to the UN’s Green Climate Fund, created to support developing countries’ initiatives to tackle the impacts of climate change.”

Added Tim Johnson, Director of the Aviation Environment Federation: “Simply pocketing over a billion euros of passengers’ money would not only damage industry credibility but also rightly prompt questions as to their real motives.”

According CE Delft, European airlines with intercontinental operations stand to gain most from the windfall, around 55% of the total. If full pass-through was applied, including the value of the free allowances, the authors calculate they stand to earn €758 million ($1bn) in 2012, which includes up to €271 million ($361m) as a result of the ‘stop the clock’ exemption (see table below).

However, a spokesperson for the Association European Airlines (AEA) disputed the findings. “The ‘stop the clock’ was a decision made by the European Commission – airlines were just as surprised as the general public. Suggesting that airlines have been making profits from the EU carbon scheme is unsubstantiated and misleading,” she told GreenAir.

Although not confirmed at the time, an announcement by US airlines at the beginning of 2012 that they were increasing passenger fuel surcharges by $3 per flight on transatlantic routes was widely understood to cover the costs of compliance in the EU ETS during 2012. CE Delft estimates income from the surcharge for the period January to October 2012 – until the ‘stop the clock’ announcement in November – ranges from €5 million ($6.7m) for US Airways to €15.5 million ($20.6m) for Delta Air Lines.

The consultancy believes the US airlines are the second biggest beneficiaries from the EU ETS windfall, potentially gaining up to €175 million ($233m) in 2012, having spent $4.3 million in lobbying Congress to pass the EU ETS Prohibition Act, points out T&E.

Like its European counterpart, US airline association A4A dismissed the CE Delft study as “an assertion, with no basis in fact,” she said. “There is no scenario under which US carriers are making – or will make – money off of the EU ETS.

“Since 2009, US airlines have expended millions of dollars complying with the extensive emissions monitoring and reporting provisions imposed by the EU ETS. The obligation to surrender emissions allowances under the scheme would be even more costly. If the EU were to go forward with its full scheme, it would cost US airlines $ 3.1 billion through 2020.”

CE Delft estimates total 2012 aviation CO2 emissions falling under the original EU ETS regulation to be 237 million tonnes and based its figures on an average allowance (EUA) cost of €7.60.
Greenair, January 22, 2013