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Airlines may face €1 bln carbon trading cost from 2012

The aviation sector could face a shortfall of 77 million tons of CO2 when it enters the European Union’s emissions trading scheme (EU ETS), according to a forthcoming report to be published by RDC Aviation the leading independent consultancy in aviation data modeling and Point Carbon.

To indicate the scale of the possible cost, at today’s spot price, €14.40 per ton of CO2 (as at 21 July 2009), the cost to the industry would be €1.1 billion. “Emissions trading will increase cost pressure on airlines. They will look to pass on at least some of this cost to passengers”, said Andreas Arvanitakis, co-author of the report and a senior analyst at Point Carbon.

British Airways faces the largest shortfall of the EU-registered airlines at 3 million tons of CO2 in 2012, equivalent to €43 million at today’s spot price for carbon. This is more than the total shortfall for all Spanish airlines. However, American carriers will face the largest bill. The scheme will cover all flights that land or take off within the EU, including those operated by companies registered elsewhere, so intercontinental flights are covered.

“The American carriers in the scheme will be the first sector in the US to be drawn into mandatory international emissions trading, even though it is implemented by the EU,” Arvanitakis said. “This comes just as an emissions trading bill is being considered by Congress and the Administration is engaging in international climate negotiations.”

US airlines Delta Air Lines and United Airlines come in ahead of British Airways, with shortfalls of 3.5 million tons and 3.3 million tons respectively. Qantas and American Airlines come in with predicted shortfalls of 2.6 million tons and 1.7 million tons respectively.

The European Commission was due to publish the total number of allowances that will be available to the aviation industry as a whole when it enters the EU ETS in 2012, right up to 2020 on 2 August, however The EC announced on 27 July that it would not be able to meet this deadline. Instead an EU spokesman said that the European Commission will probably decide “sometime in the autumn” citing the need for data accuracy as the reason for the delay. The Point Carbon – RDC Aviation report calculates the cap that individual airlines will face and forecasts their CO2 emissions.

Aviation is the largest new sector to enter the scheme since its inception and it will be the first international transport sector to have had its greenhouse gas emissions regulated in a carbon trading scheme.

Airlines are to be issued allowances based on how much weight they carry – including freight and passengers – and how far. “As low-cost carriers take passengers only and no freight, they face a relatively larger shortfall,” said Peter Hind, Managing Director of RDC Aviation. “Many low-cost airlines have aggressive growth plans as well, which could increase that shortfall.”

Ryanair alone would face a 2.8 million tons shortfall in 2012, ahead of all Spanish or all Italian airlines. EasyJet would be 1.8 million tons short. They come second and third respectively of all the EU registered airlines.

“Low-cost carriers with significant growth plans may be eligible for more allowances from a special reserve for new entrants and fast-growers,” Hind said.

The news is not all gloomy for airlines, however, as the bill they face could be considerably reduced if airlines make full use of their quota to import Kyoto offsets, such as Certified Emissions Reductions (CERs), generated by Clean Development Mechanism (CDM) and Emission Reduction Units (ERUs), generated from Joint Implementation projects (JI). Airlines may use up to 39 million CERs and ERUs to meet their targets. In today’s spot market for CERs, this would be equivalent to a discount of €1.50 per ton, yielding a saving of €58.5 million. Savings could be even higher if airlines decide to invest in CDM projects directly. (press release)