Commission Says Airlines Will Benefit, Airlines Say 'Not So Much'

European airlines have hit back against the European Commission’s latest comments on aviation’s entry into the European Emissions Trading Scheme (EU ETS), arguing that the comments are grossly misleading.

In a statement dated September 26th, Climate Action Commissioner Hedegaard claimed airlines will benefit from $27 billion (€20 billion) worth of free carbon permits during their first decade in the EU ETS, which aviation will join on January 1st next year. She refers to these free allowances as “revenues” and suggests airlines could channel these funds into fleet modernization. 

These statements have caused uproar among Europe's airline associations. “To refer to carbon permits as revenue is totally absurd,” says Association of European Airlines Secretary General Ulrich Schulte-Strathaus, voicing the united view of the three airline bodies. “This is simply not true. The allocated certificates have to be surrendered; this is not money which airlines can re-invest.”

The Commission is capping aviation emissions below 2004-06 levels. Initially it will grant 82% of the permits that airlines would have needed in 2004-06 for free, while the remaining 18% must be bought at auction or from other sectors. This means that even if an airline maintained its emissions at 2004-06 levels, it would still need to buy that remaining 18%. But the industry has grown since 2004-06, widening that shortfall.

“The Commission has got this completely wrong. Far from profiting from the scheme, an average airline will need to acquire 27% of its permits from the market,” argues Mike Ambrose, who is Director General of the European Regions Airline Association. “Contrary to the Commission’s statement, this will hamper industry investment in new technologies and biofuels.”

Carbon permits are expected to increase in price, hitting around $38 (€28) by 2020. On this basis, the airline industry will be left footing a nearly-$24 billion (€17.5 billion) bill between 2012 and 2020. This would be a tough pill for any industry to swallow, but according to IATA’s latest forecast, European carriers will post a meagre 0.8% margin in 2012. “Companies depend on air links to do business. Adding costs against a backdrop of economic uncertainty will only hinder the recovery,” says International Air Carrier Association Director General Sylviane Lust.

Meanwhile the Commissioner makes no reference to the ongoing legal and political challenges against the EU ETS. The heads of all three airline associations conclude: “It is high time that the Commission woke up to reality. Saying airlines are the beneficiaries of a scheme that deprives them of revenues shows a blatant misunderstanding of economic reality.”

FMI: www.aea.be, www.eraa.org, www.iaca.be