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ETS will cost airlines €364 million, study finds

By Hpanchal on January 12, 2012

In the first full year of the EU's emissions trading scheme, airlines will be forced to buy €364 million worth of emission credits in order to comply with the new policy, an analysis conducted by Brussels-based Altimedes Consulting found.

While the EU will provide a limited amount of free emissions credits to more than 900 airlines, they will only supply 77 percent of the estimated total needed to offset carbon emitted during flights to Europe in 2012. The amount of free allowances for the industry, which was laid out by the European Commission last September, will be derived based on an airline's verified tonne-kilometers for 2010.

Using Chinese carriers as an example, the report found that Air China will receive more than 1.16 million allowances, while China Southern and Hainan will receive 745,846 credits and 198,690 credits, respectively. But according to a press release announcing the findings, "Air China, China Southern and Hainan are represented by the China Air Transport Association, [which] recently declared that its members will not pay European emission allowances."

The above example also outlines the range of emission allowance allocations, which are expected to be doled out by the end of February. However much a given airline is allotted, Erik van Agtmaal of Altimedes said it won't be enough to cover all the costs.

“The actual cost for airlines will depend on the carbon price and the specific shortfall per airline,” he said in a statement. “There are large differences between airlines. For some large airlines, the allowances received free of charge will only cover 60 [percent] to 70 [percent] of their emissions in 2012, but some others have a much smaller shortfall or even a long position.”

“As the current price of allowances is historically low and only around €20 per tonne of jet fuel, we expect that airlines will soon enter the carbon market and start to buy additional allowances," he continued.

As for the imbroglio the Chinese carriers are raising over the scheme, Agtmaal goes on to state that he thinks everything will be resolved peaceably. “I do not expect that the Chinese airlines will refuse to accept the free allowances allocated to them or to delete the free allowances on their account as a sign of protest,” he said.

“As they won’t have to surrender emission rights before April 30, 2013, against reportable 2012 emissions, they will have time left to lobby via the Chinese government,” Agtmaal added. “In the EU ETS, the economic sanction for noncompliance is a fine of €100 or even a prohibition to fly to Europe, and I do not think that they will take that risk.”

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