Airlines stand to pocket up to £2.7 billion (€4bn) in windfall profits from inclusion in the EU emissions-trading scheme, according to a study published by the IPPR on 18 December 2006.
The European Commission is expected to unveil plans on 20 December to include all flights landing and departing from EU airports in the scheme.
It is believed that the Commission will give airlines emission credits at no cost, just as it did with the power-generation sector and other energy-intensive industries currently covered by the ETS.
But the IPPR says this would give airlines "a cheap flight". "If the airlines are simply given the credits they will pass on … costs to passengers, leaving the industry to pocket up to £2.7 billion in windfall profits."
"IPPR argues that the EU should require member states to auction the credits."
"The EU should not repeat the mistake it made with the energy sector and give the aviation industry free emissions credits," said Simon Retallack, head of IPPR's climate team and co-author of the study. The UK energy sector made around £1bn windfall profits in the first year of inclusion in the ETS because it was given free emissions credits, Retallack added.
In a separate study, global conservation organisation WWF estimated that EU airlines would make up to €3.5bn per year from inclusion in the ETS.
However, the measures are making the airline industry nervous over fears of trade- relation disruption with other countries, the US in particular.
British Airways Chairman Martin Broughton urged commissioners to drop the current plan to apply the scheme to all flights into and out of the EU. Instead, he advocated "a simpler approach, confining the scheme to flights within the EU".
The Commission's draft package was "overly ambitious and self-defeating", he said.
US authorities have already stated that they wanted national airlines out of the scheme, raising the spectre of a new transatlantic trade battle.