Airlines Face $1.6 Billion Carbon Charge

Posted by: Mark Scott on July 27, 2009

Estimates for carbon prices are notoriously hard to nail down. Markets fluctuate, so any figure could soon be out of date. With that in mind, though, consultants Point Carbon and RDC Aviation have an interesting take on how much carbon offsets will cost the aviation industry. Based on current market prices in Europe ($20.50 per metric ton of CO2), airlines will have to fork out $1.6 billion annually when the sector becomes part of the European Emission Trading System — the world’s largest cap-and-trade scheme — from 2012.

What’s interesting is which carriers will be most affected. Under European Union plans, all flights that land or take off within the EU, including those operated by companies registered overseas, must offset emissions. And because CO2 targets will be based on how much weight airlines carry and how far they fly, companies like British Airways and Lufthansa face stiffer costs than low-cost carriers, such as Ryanair and Easyjet.

But the largest bills await U.S. airlines that must find millions of dollars to meet the European Union’s demands. According to the consultants, Delta will face a carbon shortfall of 3.5 million metric tons (worth an estimated $71 million) and United must offset 3.3 million metric tons (worth an estimated $67 million). That compares to British Airways’ predicted $61 million charge, and won’t come as good news for an industry already suffering from mounting debt and dwindling passenger revenues.

“The American carriers in the scheme will be the first sector in the U.S. to be drawn into mandatory international emissions trading, even though it is implemented by the EU,” Point Carbon senior analyst Andreas Arvanitakis said in a statement.

Despite the billion-dollar price tag, will the airline industry’s inclusion into Europe’s cap-and-trade scheme help to lower global emissions? The short answer is yes. According to estimates, planes produce roughly 3% of EU’s overall CO2 output. That’s more than oil refineries or steel plants, respectively. Worldwide, around 4% of total emissions come from the sector.

But for some (cash-strapped) carriers, the extra charges could prove too much to bear. And many U.S. carriers may balk at paying a European-mandated levy. In a telling move, the European Commission has delayed publishing the total number of allowances available to the aviation industry until the Fall. Analysts reckon that will give the industry more time to lobby for more lenient CO2 targets. Whether airlines can wrangle a better deal, though, doesn’t look likely.

 

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BusinessWeek correspondents John Carey and Mark Scott, cover the green scene, keeping on top of the business aspects of energy, the environment and climate change, as well as the technologies, policies, markets and people that are shaping how the earth's resources will be used in the century ahead.

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