Some Airlines Embrace CO2 Trade, Buy Permits
Several big airlines are taking advantage of European carbon law by buying emission allowances at bargain prices, tuning out an outcry against the scheme by many non-EU airlines and shoring up demand in a market that saw prices cut in half last year.
All airlines using EU airports were brought into the European Union's Emissions Trading System (ETS) on January 1, joining more than 10,000 power and industrial plants which have been active in the scheme since 2005.
Under the EU scheme, all airlines landing or taking off in the 27-nation bloc must submit permits to cover the carbon emissions of these flights.
"We are continuously buying allowances," Peter Schneckenleitner, a spokesman for Lufthansa told reporters.
Lufthansa has said it would need to buy 35 percent of the permits it needs this year on the open carbon market, while it would pass on to its customers an expected EUR€130 million (USD$166.11 million) of the carbon cost.
Some airlines and industry groups, particularly from non-EU countries such as China, India and the United States, continue to rage against the ETS, despite the EU's highest court in December ruling the scheme does not breach international law.
Carbon trading for airlines has been slow since they have yet to receive their emissions permits. Yet major airlines Lufthansa, Air France-KLM and others have been buying or plan to buy carbon permits.
For some airlines the timing to buy could not be better, as benchmark EU Allowances are struggling to rebound from a record low of 6.30 euros a tonne hit in mid-December. They have since recovered to around 7 euros a tonne - still half of their value at the end of 2010.
Exchanges are also taking notice. Slovakia's Commodity Exchange Bratislava on Wednesday said it will launch trade in EU aviation allowances (EUAAs) before the end of February, the first to announce an offering of the permits.
Carbon trading eventually will become routine for airlines as hedging fuels and currencies, although volumes will vary depending on economic forecasts, said the chief executive of Virgin Atlantic.
"At the moment it's being driven by the level of confidence and the level of economic activity in Europe, which is struggling to grow," CEO Steve Ridgway said.
In the UK, Virgin will receive nearly 3.6 million EU aviation allowances this year, and a total of 27 million for the period 2013-2020, UK data shows. Virgin's 2010 carbon emissions at 4.5 million tonnes mean it will likely need to buy more.
The EU aviation emissions cap for 2012 has been set at 215 million tonnes, while 183 million EU Aviation Allowances, or 85 percent of the total, will be given for free to airlines - expected in late February. The rest will be sold via auctions.
The aviation sector's net demand for carbon permits could reach up to 700 million by 2020, say some analysts, making aviation the second biggest buyer of carbon units behind the electricity sector.
This demand could be a relief to the ETS market, which has seen demand crippled by an over-supply of carbon units and concerns about a double-dip recession.
Air France-KLM plans to buy emission permits throughout the year, said a company spokesman, estimating its ETS compliance costs of between EUR€50 million and EUR€100 million in 2012.
The group will have to buy around seven million carbon units this year, said Cedric Leurquin, a spokesman with Air France in Paris. "The exact amount will depend on changes in activity."
UK data for major airlines British Airways and low-cost carrier easyJet show their CO2 emissions in 2010 were 4.6 million tonnes and 700,000 tonnes above their 2012 allocations, respectively.
Many airlines plan or have started to pass on their ETS compliance costs this year to consumers, potentially earning them windfall profits.
But even if customers shoulder the compliance costs, not all European airlines see any value in the carbon scheme.
"We do not agree with it and we do not believe there will be any environmental benefit," a spokesman for Ryanair, Europe's largest budget airline, said earlier this week.