Research: EU emissions trading will cost airlines €1.1bn in 2012

Airlines will spend up to €1.1bn when they join the EU's emissions trading scheme (EU ETS) next year rising to €10.4bn through to 2020, a new analysis has found.

The figures published yesterday correlate with industry estimates for the scheme, which from January next year will require all carriers flying in and out of Europe to carry EU Allowances (EUA) to cover carbon emissions arising from their flights and operations.

Thomson Reuters Point Carbon, the analyst firm that produced the research, said airlines will need to buy 88 million allowances to cover flights in 2012, on top of the 176 million allowances expected to be issued for free.

Assuming average carbon prices throughout the year of €12 a tonne this works out at a spend of €1.1bn.

"While the extra cost to airlines is minor compared to the cost of jet fuel, it eats considerably into the profits of the sector as a whole," Andreas Arvanitakis, associate director at Thomson Reuters Point Carbon, said in a statement.

The analysis also suggests the free allowances, worth around €2.1bn at today's carbon price, will be doled out in a way that favours Europe's long-haul carriers.

Air France/KLM, British Airways, Lufthansa and Iberia on average will be allocated 81 per cent of what they need in 2012, compared to a 61 per cent average for all of the 27 carriers operating in the European Economic Area (EEA) carriers, and a global average of 56 per cent.

Chinese and US airlines also suffer in comparison to Europe's leading airlines, receiving respectively 63 per cent and 64 per cent of the allowances they need to cover their projected 2012 emissions.

The findings are certain to inflame tensions between the EU, US and China ever further.

Relations are already at a low after a US trade body launched a lawsuit claiming the EU ETS represents a tax and is therefore against international law, while politicians have consistent lobbied for US airlines to be made exempt.

Similarly, the China Air Transport Association (CATA) has threatened its own legal action and warned of potential trade wars if the EU continues with its plans to impose a levy on emissions, while the International Air Transport Association (IATA) has warned of €40 fare increases and halved its 2011 profit projections from $8.6bn to $4bn.

Even The International Air Cargo Association (TIACA) has waded into the debate. Last week the group wrote to EU climate commissioner Connie Hedegaard claiming the scheme would cost airlines $1.3bn (€0.95bn) in 2012 rising to $3.5bn (€2.6bn) in 2020 and divert investment away from cleaner technologies, such as biofuels or more efficient engines.

However, the EU has consistently rejected criticism of its stance, insisting the policy is legal and will help tackle emissions from an industry that accounts for around two per cent of global emissions and is expected to see its share of emissions increase as other sectors decarbonise.