Weak carbon price sees market analysts sharply downgrading forecasts of EU ETS cost to airlines in 2012

The current price of a tonne of CO2 is about €8-9. Therefore the cost of the ETS to airlines is very much lower than they had previously estimated, based on a higher carbon price. Point Carbon has calculated airlines covered by the scheme will have to pay around €500 million for the required permits to cover a potential shortfall of 59 million tonnes of CO2 this year, at an average estimated price of €8.50 per tonne. This may end up being even lower, at €300 million, which is described as a “drop in the ocean” compared to fuel.  The carbon price will probably be low next year too. Non-EU airlines will be expected to pay for just a quarter of the total EU ETS aviation costs in 2012, or around €75 million of the €300 million overall cost. So Point Carbon estimates Chinese airlines will have to pay about €1.9 million in 2012, not hundreds of millions of €s.  The cost per passenger for a trans-Atlantic flight is about €2-3, and a Barclays Capital analyst is  quoted as saying “it is really hard to see what all the fuss is about”.


20 Feb 2012 (GreenAir online)

Despite a rebound in the price of European carbon prices late last week, analysts at Thomson Reuters Point Carbon have halved their estimate made last September of the cost of the EU ETS to airlines.

Point Carbon has calculated airlines covered by the scheme will have to pay around €500 million ($660m) for the required permits to cover a potential shortfall of 59 million tonnes of CO2 this year, at an average estimated price of €8.50  ($11.25) per tonne.

Barclays Capital put the overall 2012 cost even lower – around €300 million ($400m) – which an analyst described as “a drop in the ocean” compared to the cost of jet fuel.

Meanwhile, Middle East carrier Etihad has announced a carbon surcharge of $3 per passenger for flights into and out of Europe from March 1, following similar surcharges being imposed by Qantas and major US carriers.

Research carried out by Point Carbon and consultancy RDC Aviation predicts aviation emissions covered by the EU ETS will be around 242 million tonnes (Mt) in 2012, compared with the 2004-6 baseline 221 Mt.

With the cap set at 97%, and 85% of the total allowances being allocated for free, this leaves the industry needing to purchase 59 Mt, reported Point Carbon senior analyst Andreas Arvanitakis at the recent Aviation Carbon 2012 conference. He added the €500 million bill could be considerably reduced still further if airlines properly planned their carbon strategies, for example by purchasing cheaper Certified Emission Reduction (CERs) units.

Arvanitakis said he expected the price for EU allowances (EUAs) to remain low and stable during Phase 3 (2013-2020) of the EU ETS and was currently forecasted to be around €12  per tonne based on the current overall 20% EU emissions reduction scenario, but added this would change if the overall cap was tightened.

According to the Barclays Capital analyst, non-EU airlines will be expected to pay for just a quarter of the total EU ETS aviation costs in 2012, or around €75 million ($100m) of the €300 million overall cost.

“With these costs likely to result in passenger fares going up by little more than €2-3 per transatlantic flight, it is really hard to see what all the fuss is about,” a Reuters report quotes the analyst.

If the forecasts prove correct then the airline industry’s estimates of 2012 EU ETS costs will have been greatly exaggerated.

Two months ago, IATA estimated the cost could be as much as €900 million in 2012, based on an average price of €13 per tonne, rising to €20 or much higher in 2020. China’s air transport association puts the 2012 EU ETS bill for its member airlines alone at about 800 million yuan, around €95 million.

Earlier this month, Qantas Airways said it was estimating it would have to pay A$2.3 million ($2.47m or €1.85) in 2012 for its necessary EU ETS allowances and from February 15 would be adding a surcharge of A$3.50 ($3.76 or € 2.82) each way to fares for flights to and from London and Frankfurt. At the same time and on the same routes, the airline said it would be increasing its fuel surcharge by A$60 ($65  or € 48.75) per passenger per flight.

The total fuel surcharge on its European flights now stands at A$350 per flight.

Carbon costs will also be applied to the airline’s domestic routes from July 1 as the Australian carbon pricing system comes into effect with a starting price of A$23 ($24.70) per tonne, a level that will remain until 2015. The estimated cost impact on the Qantas Group (which includes Jetstar) is in the region of A$110-115 million ($118-124m) in 2012/13.

The cost pass-through for Qantas and QantasLink services will be based on flight sector length, with surcharges ranging from A$1.82 to A$6.86 per passenger per sector. Jetstar is adopting a different policy of increasing fares by a flat A$10 to include both fuel and carbon prices.

“The additional cost of carbon isn’t something we can absorb. As a result, we have decided to be transparent in providing our customers with the actual details of what that cost will be on top of their ticket,” Qantas’ Group Manager Environment and Carbon, Andrew Sellick, told the Aviation Carbon 2012 conference. “We will be passing on the actual cost – there is no profiting whatsoever, so from an EU ETS perspective it is after taking into account our free allowances.”

He added that the EU ETS carbon surcharge would be reviewed regularly depending on EU carbon prices but conceded that it may not always be possible to pass on the full cost in future due to strong competition on the European routes.

Announcing a $3 per passenger EU ETS surcharge for flights into and out of Europe and a 3 cents per kg for cargo shipments, Etihad Airways CEO James Hogan said the airline was strongly opposed to the EU scheme.

“We have invested many millions of dollars to ensure we operate a young and highly efficient fleet but are still being penalised,” he said. “Our efficiency is reflected in the relatively low additional charge and we will continue to be transparent in keeping our customers fully informed of this carbon charge.”

Without specifically naming the EU carbon scheme as the reason, major US airlines announced last month they would be imposing a $3 surcharge on flights to and from Europe (see article).

A recent paper by MIT’s Department of Aeronautics and Astronautics said the economic impact of the EU ETS on US airlines is likely to be small.



Thomson Reuters Point Carbon

Barclays Capital

Qantas Airways – carbon and fuel surcharge announcement

Etihad Airways  – carbon surcharge announcement

Aviation Carbon 2012

MIT paper ‘The impact of the European Union Emissions Trading Scheme on US aviation’




£76m potential emissions trading bill in 2012 for top 20 UK registered airlines tiny compared to fuel subsidies of £8.9bn

posted by Rob

23rd Feb 2012 (Sandbag)

The inclusion of aviation emissions into the EU emissions trading scheme (ETS) sees airlines paying for the green house gases emitted during flights. Starting from the 1st January 2012 all flights taking off from and landing at airports in the European Union have to surrender emissions permits to match volume of emissions produced during the flight. In 2012 airlines will be given 85% of their allowances for free, falling to 82% annually from 2013 to 2020. The UK is a key European aviation hub and all airlines landing and taking off here will be affected by the new environmental legislation.

In a briefing on aviation and the EU ETS Sandbag have calculated that the potential cost to the top 20 airlines in the UK – accounting for 28% of total emissions captured in the trading scheme – will be around £76m in 2012.

Aviation receives a subsidy by not having to pay any tax on their fuel which gives it a competitive advantage over for example rail. Sandbag estimates that this subsidy saves these same 20 operators around £8.9bn per annum.

Despite the scale of the financial impact being dwarfed by on-going subsidies, resistance to the inclusion of aviation emissions into the ETS has been fierce. There is growing pressure on the EU from, airlines, aviation trade groups and countries – notably the USA, China and India – who object to the EU taking action unilaterally.

Airlines and trade groups alike have reiterated the need for a global solution to dealing with growing emissions from the aviation sector, nevertheless, the International Civil Aviation Organisation’s (ICAO) has failed to implement a global emission reduction framework for the sector. Voluntary commitments by ICAO to achieve a global annual average fuel efficiency improvement of 2% until 2020 have been deemed insufficient by the EU.

The EU’s inclusion of aviation in the ETS serves as a good framework for other countries to take action to curb rising emissions from the aviation sector. Care has been taken to protect rapidly growing airlines and those serving low volume routes.

The ETS also contains provisions to exclude counties that are implementing ‘equivalent measures’.

Looking at the UKs top 20 emitting airlines it’s possible to estimate how much the EU ETS will cost airlines in 2012 versus a theoretical tax on Kerosene:

Top 20 UK registered airlines emitted 59.6m tonnes CO2 in 2012.
Top 20 UK registered airlines likely to face a 2012 ETS bill in the region of £76m
An alternative tax on kerosene could cost up to £8.9bn in 2012 for the UKs top 20 emitting airlines




China’s airline CO2 costs greatly overstated: analysts

3 Feb 2012  (Point Carbon)
Europe’s carbon market will cost China’s top airlines a total €1.9 million ($2.6 million, 16 million yuan) this year, a fraction of the 800 million yuan that Chinese airlines say they will have to fork out to comply with caps, Thomson Reuters Point Carbon analysts said.