ETS to Cut 40bn Euros Off Airline Profits – Study
Aircraft operators’ profits would be slashed by more than €40 billion from 2011 to 2022, under the current proposal to include aviation into the EU’s carbon cap-and-trade system, according to a new study commissioned by the industry.
In December 2006, the EU Commission tabled a legislative proposal to include aviation in the emissions-trading system (ETS) to help Europe reach its targets under the Kyoto Protocol on climate change.
Now approved by Parliament and Council, the scheme would enter into force as of 2011 for all intra-EU flights and one year later for all flights using EU airports.
The aviation industry has now unveiled an independent impact-assessment of the inclusion of aviation into the ETS, which it claims demonstrates that the Commission’s proposal “will jeopardise the long-term viability of the European aviation industry”.
The six associations that commissioned the report say that the Commission’s text is based on “unrealistic assumptions” that:
* Airlines will be able to pass on 100% of the costs of entering the ETS to consumers;
* demand for air travel is not price sensitive and will not result in a significant loss of passengers, and;
* giving out some or all emissions for free would allow airlines to make windfall profits at consumers’ expense by passing on non-existent costs to travellers. The Commission has therefore proposed that auctioning should be made mandatory.
According to the Ernst & Young and York Aviation impact assessment, however, these assumptions are not supported by economic theory. Rather, the study claims that the ability of airlines to pass costs onto their customers will vary according to the operator’s business model and its exposure to competition. At most, states the study, airlines will be able to recover just one third of the costs.
And these costs will be substantial – more than €45 billion from 2011 to 2022 (and up to 44% higher if auctioning is included) – double the cumulative profit of Europe’s airlines over the past decade.
The study also shows that, whatever the geographical scope of the scheme, it will put EU aircraft operators at a “perpetual competitive disadvantage vis-Ã -vis non-European carriers”.
Airlines are therefore calling on the Commission, Council and Parliament to review the proposal and make it less detrimental to the sector. They say that a different baseline and cap are essential.
They further claim that the 2004-2006 baseline is too far removed from the trading period (2011-2022) and will leave 17 years of growth unaccounted for, forcing the industry to undertake massive credits investments even if, originally, credits are given away for free.
Auctioning of emission allowances would simply aggravate this situation by making airlines pay for an even greater number of credits, they state.
Valere Tjolle
Valere
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