Airlines could make up to 4bn Euros from emissions trading

Airlines could make billions of euros following the inclusion of aviation in European emissions trading despite small reductions in air traffic that higher ticket prices would bring, two separate reports warn.

The aviation sector stands to make a profit of up to 4bn Euros if carbon credits are given out free and generous emission allowances allocated, according to reports published by the IPPR and the WWF respectively.

Windfall profits – under the new EU emissions trading scheme, airlines will have to gain emissions credits, each worth one tonne of carbon dioxide, to cover the greenhouse gas emissions caused by their flights. The market price of these emissions credits is anywhere between Euro 5-30+.The aviation industry is likely to pass through the full costs of these credits to passengers. This could mean UK ticket prices going up by between 14p and £6.04 and any emissions credits given to airlines are a windfall profit.

The industry could make windfall profits in the order of Eur1.34 billion to Eur4 billion (£0.9 billion – £2.7 billion), if all emissions credits were given away for free to the airlines and EU ETS market prices were between Eur10 and Eur30.

The UK power sector made £1 billion windfall profits in the first year of the EU ETS. “A combination of free allocations with a full pass through of marginal costs is estimated to result in increased profitability for the UK power sector”, wrote economic consultants IPA.

Higher plane ticket prices might lower passenger demand by 0.1 – 1.4 per cent. But with the European airlines growing at 4-5 per cent per year until 2020, these extra costs will not restrain the aviation industry’s growth. Some countries’ airlines are growing as fast as 14 per cent.

These figures are based on calculations made in a report written for the European Commission, CE Delft (2005), Giving Wings to Emissions Trading.

The IPPR’s Simon Retallack said: “When it comes to preventing climate change, there is no such thing as a cheap flight. Including aviation in the European Union Emissions Trading Scheme is a step in the right direction. “But the EU should not repeat the mistake it made with the energy sector and give the aviation industry free emissions credits, handing the airlines a windfall of up to £2.7 billion,” he said. “The EU should take a strong lead on curbing emissions from airline flights and clip the aviation industry’s wings.”

European power companies reaped £1bn in windfall profits when they were included in the ETS, indicating the EU could have been much tougher in emission allowances, the IPPR said. The WWF’s Keith Allott said: “The inclusion of aviation in the EU carbon market should be the first step in addressing the industry’s soaring emissions.”

But “the potential for airlines to make profits from the scheme shows that the EU can afford to be tough. A robust limit on emissions should be set and airlines must be required to pay for their allowances at auction or the system will not be credible,” he said.

“The inclusion of aviation in the EU carbon market should be the first step in addressing the industry’s soaring emissions. said Keith Allott, head of climate change at WWF-UK. “A robust limit on emissions should be set and airlines must be required to pay for their allowances at auction or the system will not be credible.”

“The carbon market alone will not be enough to curb pollution from aviation, the fastest growing source of greenhouse gas emissions. Further policies and measures, such as improved traffic management, an end to ticket subsidies, and a fuel tax should be put in place urgently. Most worryingly, the UK Government has confirmed its plans to massively increase airport capacity – this outdated ‘predict and provide’ approach will lock us in to an unsustainable, high carbon future,” added Keith Allott.

http://www.ippr.org.uk

http://www.wwf.org.uk

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