Airlines will receive almost 85 per cent of their required carbon allowances for free when the sector joins the EU’s emissions trading scheme (EU ETS) from the beginning of next year.
The percentage of free credits will then fall to 82 per cent from 2013 to 2020, the European Commission announced in a statement yesterday.
Plans to bring aviation into EU ETS have been fiercely opposed by airlines, which insist that charging per tonne of CO2 emitted for every flight in and out of Europe will add €1.1bn onto their operating costs in 2012 and €10.4bn through to 2020.
There are also fears the move could spark trade wars with China and the US, whose airlines are embroiled in a court case at the European Court of Justice alleging that forcing them to purchase carbon allowances is equivalent to a tax and as such the proposals are in breach of international aviation laws.
However, their stance has been given short shrift by the EU, and yesterday climate action commissioner Connie Hedegaard urged airlines to stop complaining and use the free credits to improve the environmental credentials of their aircraft.
“At current market prices these free allowances represent more than €20bn over the decade,” she said in a statement. “With these potential revenues, airlines could invest in modernising their fleets, improving fuel efficiency and using non-fossil aviation fuel.”
The free allocation is based on figures submitted to the EU detailing airlines’ share of passengers and cargo transported in 2010 that is expressed using a revenue-tonne-kilometre metric.
A spokesman for trade body the Association of European Airlines (AEA) told BusinessGreen that the total revenue-tonne-kilometres figure was “significantly higher” than had been expected.
“This is not necessarily good news as the airlines will receive fewer [free permits],” he said. “For the whole industry, the number of allowances that have to be bought won’t change, but at the individual airline level it will be different.”
He added that the allocation of free allowances would “probably” increase costs for airlines, although he added that it was too early to tell for certain.
Analysis by Thomson Reuter Point Carbon suggested the largest 10 airlines, including BA, Lufthansa and Virgin, will face a 30-million tonne shortfall in CO2 allowances in 2012.
Andreas Arvanitakis, aviation analyst at Point Carbon, said the total cost for the top 10 carriers would be €360m next year.
“The task now is to refine the carbon procurement and risk management strategies,” Arvanitakis said. “In such a keenly competitive industry, the emissions market may offer an advantage in terms of keeping costs below those of rival carriers.”
Every year of the scheme will see 15 per cent of allowances auctioned, and from 2013 to 2020 the remaining three per cent will be set aside into a special reserve for new entrants and fast-growing airlines.
The EU expects to save 72 million tonnes of CO2 per year by 2020 as a result of the scheme – a 26 per cent reduction on business as usual.
However, Jean Leston, head of transport policy at WWF-UK, said more credits needed to be auctioned with the receipts funnelled towards efforts to combat climate change, such as the UN’s $100bn Green Climate Fund.
“It’s only right, however, that airlines have to pay to pollute if they exceed their allowances, especially as aviation is one of Europe’s fastest-growing sources of CO2 contributing to climate change,” she said.
“WWF would have liked to see even more auctioning of emission allowances and reinvestment of the revenues for climate protection purposes. WWF calls for clear safeguards that the money will go towards the Green Climate Fund and other climate-friendly investments, not only in the EU but also in developing countries. This would certainly contribute to international acceptance of the ETS and increase its ability to combat climate change.”
