Bill Hemmings, the aviation spokesman for the European environmental pressure group Transport and Environment, said that it “called seriously into question” air industry claims that the ETS would leave them out of pocket.
“On the contrary, their real costs will probably be covered by being able to pass them on to passengers with minimal impact on their businesses,” Hemmings told EurActiv.
“The fact that this US government-funded report says they could make windfall profits leaves us unsympathetic to their cries that the ETS will cost them billions.”
The peer-reviewed study in the Journal of Air Transport Management uses several complex modelling frameworks to calculate the effect that inclusion in the ETS’ third period - between 2013 and 2020 - would have on US airlines.
Key assumptions
The study's models make three key assumptions:
- A carbon price of €15 a tonne that increases by 4% a year
- A 35% increase in the airlines’ CO2 emissions between 2011 and 2020
- A full ‘pass-through’ of costs to the consumer
If all three happened, the report concludes that airlines could receive a $2.6 billion (€2.03 billion) bonanza.
This is because 85% of the EU’s aviation emissions allowances – or ‘permits to pollute’ – have initially been granted to air carriers for free. The other 15% will be auctioned.
As the allowances are based on their 2010 emissions, airlines would only need to purchase about a third of the required allowances in the period to 2020, once business growth had been factored into the equation.
However, even some staunch supporters of the ETS, questioned the methodology used in the report.
John Hanlon, the secretary-general of the European Low Fares Airline Association (ELFAA), said the central contention that allowance costs could be passed back to the consumer was a “canard” and a “fallacy”.
“I see no evidence to support that,” he told EurActiv. “There is an enormous sensitivity to airfares and the component most adversely affecting that is the price of fuel.”
With allowances on top of that it was “not realistic” to assume that airlines would be able to pass on costs and stay in business, he said.
Environmentalists complain that airlines enjoy tax exemptions from fuel and valued added taxes. But Hanlon said that US air carriers could ease tax burdens if they supported the ETS as the most effective market-based mechanism for reducing greenhouse gas emissions.
“That would increase the pressure on the states that are currently taking taxes out of aviation in the name of the environment to withdraw them,” he said.
US airlines unconvinced
But US airlines remain unconvinced. The industrial association Airlines for America has said it will “comply under protest” with the ETS, but that it is reviewing its legal options, after the EU’s Court of Justice recently ruled in the scheme’s favour.
The US government has denounced the EU’s decision to apply the ‘cap and trade’ principle to global aviation.
“We continue to have strong legal and policy objections to the inclusion of flights by non-EU air carriers in the EU ETS,” Krishna R. Urs, a top State Department official, said in a statement.
The Inter-governmental Panel on Climate Change has estimated that by 2050, greenhouse gas emissions from aviation could rise to between 5% and 15% of the world’s total.
