Airlines profited up to €1.36 billion last year by passing “imaginary” costs from the EU’s Emissions Trading System (ETS) onto consumers, says a study by a Dutch environmental consultancy published today (22 January).

EU airlines stood to gain the most from the carbon trading scheme - some €758 million or almost twice their estimated returns of €400 million in 2011 - says the CE Delft study.

Under the ETS, the EU’s market-based measure to curb greenhouse gas emissions, airlines are given a certain number of free carbon allowances. The rest they have to purchase on a ‘carbon market’.

The free allowances covered some 85% of the sector’s emissions in 2010. The remaining 15%, plus any allowances to cover any emissions increases since 2010, needed to be purchased, with airlines recovering their costs through higher air fares in 2012, according to the environmental campaign group Transport & Environment, which commissioned the study.

Aoife O’Leary, an aviation advisor at T&E, told EurActiv that airlines were passing on the “imaginary costs” of the free ETS allowances onto customers, generating huge profits.

“Evidence suggests that airlines have not only been raising ticket prices to fund the permits they need to purchase, but they have also been passing on much of the ‘cost’ of the 85% free allowances to customers, and consequently, generating windfall profits,” said a statement by T&E.

O’Leary said airlines treated carbon allowances like any other asset, passing their costs onto customers or selling the surpluses.

“Despite receiving allowances for free, companies charge their customers for the full value of these allowances to enhance their profitability”, the statement said.

These windfall profits amount to some €870 million for all airlines, if the full value of the free permits were charged to passengers.

Stopping the clock

The ETS for airlines took effect in 2012 amid opposition from international carriers. Flights entering or leaving the EU are temporarily excluded from the ETS to give the International Civil Aviation Organization (ICAO) more time to develop a global approach to aviation emissions under a European Commission proposal known as ‘stopping the clock’.

But the study claims that airlines continued to pass the carbon costs onto customers of intercontinental flights, despite no longer having to pay for the permits under the ETS. The extra revenue generated to pay off the carbon allowance then translated into additional profits for the industry, it said.

The Association of European Airlines, which represents major passenger carriers, declined to comment on the study, saying: “Part of the conclusions is based on assumptions and not on facts or reality. It is not known at which price airlines have bought certificates.

“The authors tend to forget that many European airlines have invested a lot of money in ETS, reporting software and human resources.”

The ETS is the target of repeated criticism from industry and environmentalists that it does little to protect the environment.

The value of carbon on the market fell by 36% last year, according to Bloomberg New Energy Finance. As a result, speculation has mounted that the Commission will intervene in the ETS, by ‘backloading’ some 900 million allowances until 2019 and 2020.