Airline Says It Will Not Absorb Costs Of EU-ETS, Pax Will Pay

Lufthansa may be setting the tone for how airlines will handle the EU's Emissions Trading Scheme (ETS) by telling passengers it will increase ticket prices to cover the costs of the controversial plan which went into effect January 1st.

The airline is facing about $169 million in additional operating overhead to comply with the ETS, according to a report from Reuters. As the world's second-largest airline, Lufthansa will be one of the most affected by the new carbon tax.

In a statement posted on its website, Lufthansa said that in 2012, 82 per cent of the necessary certificates will be awarded to airlines free of charge. Airlines will have to purchase another 15 per cent of the certificates, with 3 per cent being reserved for new airlines. As these allocations are based on average emissions for the years 2004 to 2006, the Lufthansa Group will have to buy at least 35 per cent of the certificates it needs to represent its growth in recent years. Judging by the average trend in certificate prices, Lufthansa expects to incur additional expenses of EUR 130m in 2012. As competition is tough - especially from non-EU companies, whose operations are only subject to limited emissions trading rules - Lufthansa will have to pass on the costs via higher ticket prices, as recommended by the EU. Lufthansa will therefore include the cost of purchasing the certificates in its existing fuel surcharge as of the beginning of 2012. However, it has no immediate plans to increase this surcharge.

“Climate change is a global challenge. This means we also need a global solution," said Carsten Spohr, Member of the Executive Board of Deutsche Lufthansa AG, in the statement. "The incorporation of airlines in the EU Emissions Trading Scheme means that European operators are now facing additional costs which will make flying within and via Europe more expensive for passengers. It will also distort competition and impact on the sustainability of the aviation industry if it proves impossible to implement with the competitive neutrality promised by policy makers. However, given the huge resistance at international level, it is unclear just how the situation will develop.”

Lufthansa last raised its fuel surcharge for European and long-haul flights on 15 December 2011 by three to ten euros. In the future, the surcharge will reflect both the price of oil and the cost of acquiring emission rights.

The imposition of the carbon tax has caused talks of a looming trade war between Europe and the U.S., China, Dubai, and others which do not agree that foreign-flagged carriers should pay a tax imposed by the European Union.

FMI: www.lufthansa.com, http://ec.europa.eu/clima/policies/ets/index_en.htm