US airlines such as Delta potentially face the heaviest ETS costs
Tue 28 July 2009 – The aviation sector could possibly face a shortfall of 77 million tonnes of CO2 when it enters the European Union’s Emissions Trading Scheme (EU ETS) in 2012, estimates a report to be published this week by RDC Aviation and Point Carbon. At the current spot price of €14.40 per tonne of CO2, the cost of having to purchase the necessary credits is therefore likely to be in the region of €1.1 billion. The airlines facing the largest shortfalls are British Airways and the US carriers, particularly Delta Air Lines and United Airlines. The two largest European low-cost carriers, Ryanair and easyJet, could also face heavy shortfalls.
“Emissions trading will increase cost pressure on airlines,” said Andreas Arvanitakis, co-author of the report and a senior analyst at energy and environmental market specialist Point Carbon. “Emissions trading will increase cost pressure on airlines. They will look to pass on at least some of this cost to airlines.”
Arvanitakis said the purpose of the report was to look at the estimated share of revenue tonne kilometres (RTKs) in 2010 and therefore the allowances that each airline will receive, plus how much they will emit from 2012 to 2020.
The report has based its findings on an estimated baseline – the average of CO2 emissions from all relevant flights between 2004 and 2006 inclusive – of 218 MtCO2, with Arvanitakis expecting the final figure to be 5-10% either side.
The European Commission was due to publish the actual baseline cap within the next week. However, a news story in Point Carbon last Friday said the Commission has decided to postpone the date, possibly by a few weeks or longer, on the grounds that it is still checking the data to ensure its accuracy.
According to the RDC/Point Carbon study, British Airways faces a shortfall of 3 million tonnes of CO2 in 2012, equivalent to €43 million at today’s spot price for carbon, which is more than the total shortfall for all Spanish airlines. However, US carriers will face the largest bill. Delta and United come in ahead of British Airways, with shortfalls of 3.5mt and 3.3mt respectively. Qantas and American Airlines will find themselves 2.6mt and 1.7mt short respectively.
“The American carriers in the scheme will be the first sector in the US to be drawn into mandatory international emissions trading, even though it is implemented by the EU,” said Arvanitakis. “This comes just as an emissions trading bill is being considered by Congress and the Administration is engaging in international climate negotiations.
“US airlines contributed a lot to the baseline, but since then their emissions have levelled off, due to slower growth than elsewhere as well as some efficiencies. They are now in a severe downturn and so their RTKs in 2010 will be proportionately smaller than their share of the baseline. We assume growth resumes by 2012, which will therefore see them shorter than other airlines. Bear in mind that transatlantic flights are by definition longer than European flights, so their impact will be larger.”
Europe’s biggest low-cost carrier, Ryanair is estimated to face a 2.8mt shortfall, ahead of all Spanish or Italian carriers, with easyJet short by 1.8mt. They come second and third respectively of all the EU-registered airlines. “As low-cost carriers take passengers only and no freight, they face a relatively larger shortfall,” said Peter Hind, Managing Director of RDC Aviation, a UK consultancy specializing in aviation data modelling, although he pointed out that low-cost carriers with significant growth plans may be eligible for more allowances from the special reserve for new entrants and fast growers.
The report’s authors suggest that that airlines could considerably reduce their bills if they make full use of their quota to import Kyoto offsets, such as Certified Emissions Reductions (CERs), generated by the Clean Development Mechanism (CDM), and Emission Reduction Units (ERUs) generated from Joint Implementation (JI) projects. They say airlines may use up to 39 million CERs and ERUs to meet their targets. In today’s spot market for CERs, this would be equivalent to a discount of €1.50 per tonne, yielding a saving of €58.5 million. Savings could be even higher if airlines decide to invest in CDM projects directly.
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