New York Times: says EU ETS can be profitable for airlines
The New York Times says many airlines like Emirates could make significant amounts of money out of the EU ETS. It could make a modest profit of €1.5 million from a small surplus of permits, each representing a ton of carbon dioxide, that airlines can trade as part of the system. So far more than 20 countries have agreed on a basket of retaliatory measures that will penalize European carriers unless the system is suspended. As the current price of carbon is so very low, the cost is about €3 on the price of a round-trip ticket between Brussels and Washington, or about €4 for a round trip between Brussels and Beijing. Significant price increases are only expected after 2020. Airlines get 80% of their permits free, but many charge passengers anyway.
Carbon Plan Could Pay Off for Airlines
By JAMES KANTER
Published: March 21, 2012 (New York Times)
LONDON — Emirates, an airline based in wealthy Dubai, has been among the outspoken opponents of a system making airlines account for their pollution on all flights using E.U. airports.
Yet Emirates could make a modest profit of €1.5 million, or $2 million, from a small surplus of permits, each representing a ton of carbon dioxide, that airlines can trade as part of the system.
The E.U. Emissions Trading System already applies to about 11,000 factories and utilities across theEuropean Union. Since the start of the year, airlines have had to obtain enough permits to offset their emissions along the entire length of round-trip journeys.
Despite the ease with which many airlines like Emirates should be able to comply — at least at first — the system has turned into one the most contested environmental initiatives ever undertaken.
More than 20 countries have agreed on a basket of retaliatory measures that will penalize European carriers unless the system is suspended.
The Europeans have stood firm and have said failure to comply would result in steep fines and possible exclusion from their airports.
Connie Hedegaard, the E.U. climate commissioner, has said that Europe tried for more than a decade to achieve a global solution before adopting its own system.
She has also insisted that the cost is manageable — about €3 on the price of a round-trip ticket between Brussels and Washington, or about €4 for a round trip between Brussels and Beijing.
Last month, the International Air Transport Association, an industry body, said that the majority of carriers had grown since the Union had made its calculations of the volume of emissions and that airlines would face costs of $1.2 billion in 2012 to pay for permits, rising to $3.6 billion in 2020.
Analysts like Trevor Sikorski at Barclays Capital have said the bill should be far less — about €300 million, with non-European airlines paying about €75 million of that.
“With more significant price increases only expected after 2020, the remainder of the decade will see compliance costs remain relatively low for the airlines,” he said.
Some airlines may even profit in the near term — though Emirates said it would not be among them.
Emirates still would need to buy “a considerable number” of permits despite its surplus of nearly 200,000, because it has been flying more.
Emirates “will certainly not be making moneys from these emission allowances, as they are insufficient to cover our overall emissions” this year, and “onwards when the financial burden increases,” the company said in a statement.
DHL Air U.K., a unit of the giant German postal company Deutsche Post DHL, also could make a small profit of about €1 million from the system by selling surplus permits corresponding to about 131,000 tons of carbon dioxide.
But Deutsche Post DHL said that any surplus for that subsidiary would be transferred to help offset shortfalls in other aviation units operating in its express delivery business in Europe. Over all, it said, its emissions would match the number of permits it had acquired.
Cases involving an outright surplus are exceptional.
Still, many other carriers, like Japan Airlines or Jet Airways of India, are very close to getting all they need from Britain, which regulates hundreds of airlines, including Emirates and DHL Air U.K., in the system, which is administered by E.U. member states.
The British Department of Energy and Climate Change said it had awarded some airlines a surplus compared with their historic emissions because those carriers emitted less carbon dioxide or carried more passengers than less-efficient airlines flying similar routes.
In fact, airlines also should receive more than 80 percent of the permits they need for free until the end of the decade — part of a strategy by the E.U. to offer generous terms and conditions to encourage the industry to participate.
The creation of a flexible carbon-trading system was important for the airlines, too.
Until Europe formally approved the system four years ago, the airlines had been fighting to stave off a far more rigid carbon tax.
“Including aviation in the existing E.U. E.T.S. should be the least-cost and most environmentally effective way forward,” Brian Pearce, the chief economist for the International Air Transport Association, wrote in an article in 2006.
The following year, a study by the association even suggested that carbon trading could be an advantage for some international airlines. The I.A.T.A. said this week that that study had been carried out before the organization knew airlines would be required to buy allowances over other states’ airspace.
Even as airlines have lined up to condemn the European system, most have applied to receive the free permits, and some, like American Airlines, Delta Air Lines and United Continental Holdings have already raised prices about $6 for trans-Atlantic round trips.
American Airlines said its surcharge had “no specific purpose.” But it could help offset an expected shortfall of nearly 570,000 permits costing about €4.5 million.
Asked whether the $6 charge would help the carrier break even, or whether it could generate extra revenue, American Airlines referred questions to Airlines for America, a trade organization.
Airlines for America said that to its knowledge, there had been no “specific charge or fare increase.”
Seven years ago, when they joined the European system, electrical utilities put a market value on their books for the many free permits they also received, and they added some of that putative cost to their prices, creating a multibillion-euro windfall.
Regulators in Germany accused some utilities of charging customers for more permits than the utilities were entitled to.
But many analysts agree that profits on that scale are very unlikely in the case of airlines.
“We can never be sure there will be no additional profit being made,” said Mr. Sikorski of Barclays Capital.
But a “real focus on costs is essential for any airline,” and that “would suggest that the level of windfall profit-making in the sector will be reasonably low,” he said.