Airline passengers in Europe may have slightly higher ticket prices before long
And end to the era of ‘absurdly cheap’ flights could be coming to an end, in the EU, as Brussels makes industry pay more for carbon emissions. Airline passengers may have to pay slightly higher air fares under newly strengthened EU rules designed to tackle aviation emissions, in a sign that the era of super low-cost air travel may be about to end. The EU wants to require carbon-intensive industries to pay more for their pollution with ticket prices likely to rise by up to €10 per return flight. This would be part of the ETS (Emissions Trading System) which only covers flights within Europe, not outside it. The rules phase out the current practice of allowing airlines to obtain a significant proportion of the permits they need for free by 2026. The total number of allowances in the system will also fall over time, which analysts expect to drive up the cost of aviation carbon emissions. Airlines for Europe, the industry lobby group, said the slight increase could lead to “up to 17% fewer passengers travelling through EU airports by 2035”. How terrible. The EU is considering taxes on aviation kerosene.
Airline passengers face higher fares under new EU emissions rules
Era of ‘absurdly cheap’ flights could be coming to an end as Brussels makes industry pay more for pollution.
By Alice Hancock in Brussels and Philip Georgiadis and Camilla Hodgson (FT)
Airline ticket prices could rise as much as €10 per return flight due to increased levies on aviation emissions.
Airline passengers are facing higher fares under newly strengthened EU rules designed to tackle aviation emissions to combat climate change, in a sign that the era of super low-cost air travel may be about to end.
The threat of higher fares comes as carriers put up prices to help them recover from the coronavirus pandemic after renewed demand for flights with the end of travel restrictions.
The EU wants to require carbon-intensive industries to pay more for their pollution with ticket prices likely to rise up to €10 per return flight due to increased levies on aviation emissions, according to analysts.
EU lawmakers have given initial approval to an update of the bloc’s carbon pricing rules, which forces industries including aviation to buy enough allowances to cover their pollution under the emissions trading system.
The rules phase out the current practice of allowing airlines to obtain a significant proportion of the permits they need for free by 2026. The total number of allowances in the system will also fall over time, which analysts expect to drive up the cost of polluting.
Olivier Jankovec, director-general of airports industry body ACI Europe, told an industry conference that the EU was going through “a major policy reset” that would change “the economics of the sector”. “It is going to result in increasing costs for airlines, increasing fares and lower demand.”
Airlines for Europe, the industry lobby group, said that “sustainability legislation such as the EU’s . . . could see flying via EU hubs like Amsterdam, Paris or Frankfurt becoming about 23-29% more expensive in 2035”. It said this could lead to up to 17% fewer passengers travelling through EU hubs.
Ryanair boss Michael O’Leary has previously said that rising environmental taxes, alongside higher oil prices, meant that the era of “absurd[ly]” cheap fares is over.
The cost of complying with the EU ETS would rise to €5bn in 2027 for the six largest intra-EU carriers, up from €0.5bn in 2019, Bernstein analyst Alex Irving estimated. “Airlines cannot absorb that . . . and will need to increase prices,” he said.
Passengers would end up paying between €8 and €10 more per return flight, he estimated.
Deutsche Bank analyst Jaime Rowbotham forecast that Ryanair, easyJet and Wizz Air would spend a cumulative €785mn on carbon allowances in their 2023 fiscal years, equivalent to about €2.60 per passenger journey. That could rise to €2.25bn by the middle of the decade, he said.
EasyJet has said it is impossible to predict future prices, but that the industry needed more government support to reach net zero emissions.
Ryanair last year reported spending €51mn on credits and said that “in the medium to longer term” it would not be able to “eliminate” the impact of the rising cost of allowances by forward hedging.
The price of allowances in the EU system were trading at close to their all- time highs, near €100 a tonne on Friday. The permits allow the holder to emit one tonne of carbon dioxide. Revenues from the ETS will be put towards schemes to boost the use of sustainable aviation fuels.
Airline emissions count for about 3% of EU greenhouse gas emissions, the majority of which comes from international flights.
Europe’s emissions trading system is a flagship element of the EU’s plan to cut greenhouse gas emissions by 55% by 2030, compared with 1990 levels.
The “polluter pays” scheme is viewed by climate change campaigners as an effective way to tackle carbon emissions, and have pushed for it to be extended.
“Carbon pricing is an essential tool for emissions reduction in Europe . . . it’s only right that airlines pay their fair share for emissions,” said Jo Dardenne, Aviation Director at Transport & Environment, an NGO.
Bas Eickhout, a Green MEP, has pushed for free allowances to be phased out as soon as possible, calling them a “fossil fuel subsidy”.
Airlines have been covered by the ETS since 2012, though only for flights within the European Economic Area. An effort to broaden this to flights outside the area was successfully opposed by countries including China and the US.
European airlines are not only facing an increased cost for their carbon emissions. The EU is also negotiating rules to enforce the uptake of sustainable aviation fuels — less polluting alternatives to fossil fuels — as well as increased taxes on kerosene.
The emissions trading system update will not come into effect until the final law has been approved in a vote by the European parliament and by EU environment ministers in the spring.
Taxing kerosene on flights, at the level paid by motorists, could raise £6.7 billion a year for the UK Treasury
Revenues generated from a UK aviation kerosene tax could accelerate the reduction in aviation CO2 emissions, a new study by Transport & Environment (T&E) found. They calculated possible revenues that could be raised by the Treasury if the UK government were to impose a duty on the fuel (in a similar fashion to how road fuel is taxed) uplifted to planes in the UK. Airlines currently pay no fuel duty at all. To make matters worse, in further ignorance of the polluter pays principle – long-haul flights are not included in the UK ETS (the carbon market for aviation), long haul carrier airlines do not pay a penny for any of the emissions they cause. In contrast, jet fuel taken on for domestic aviation has been taxed for many years in countries such as the US, Japan, India and Brazil. In 2019 a kerosene tax at the same level as motorists pay, airlines would have collectively had to pay £6.7 billion for their fuel. Taxing domestic flights, which represent 19% of all UK departing flights, but only 4% of total jet fuel used, could generate £0.26 billion. For flights departing to the EU (65% of flights and 30% of jet fuel), revenues calculated were £1.93 billion. For flights to the US, the Treasury could generate £1.6 billion.
EC draft shows EU to propose aviation fuel tax in efforts to cut European CO2 emissions
The European Commission has drafted plans to set an EU-wide minimum tax rate for aviation fuels, as it seeks to meet more ambitious targets to fight climate change. The EC is drafting an overhaul of EU energy taxation, as part of a package of measures it will propose on July 14, to meet a target to reduce EU greenhouse gas emissions by 55% by 2030, from 1990 levels. The draft proposes taxing aviation fuel, as its continuing exemption “is not coherent with the present climate challenges and policies.” From 2023, the minimum tax rate for aviation fuel would start at zero and increase gradually over a 10-year period, until the full rate is imposed. The draft proposal did not specify what the final rate would be. A recent survey suggests that Europeans support the taxation of aviation fuel. Even factoring in the impact of the pandemic, aviation emissions are expected to grow between 220-290% by 2050 compared to 2015 levels, which would be disastrous for the climate. Airlines favour carbon offsetting schemes, rather than fuel tax; but these allow them to continue polluting even though offsets have been repeatedly found to be largely ineffective.