Airlines' CO2 Bill A 'Drop In The Ocean'

February 16, 2012

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The EU emissions trading scheme will cost airlines EUR€300 million (USD$394 million) this year, "a drop in the ocean" compared to the tens of billions of dollars that carriers are likely to pay for jet fuel, an analyst at Barclays Capital said on Thursday.

Airlines joined the scheme, which covers carbon emissions from European and foreign airlines flying into and from European Union airports, on January 1.

Non-EU governments have lashed out at the scheme because the cost is calculated on the emissions from the point of origin, not just in Europe.

A group of 26 countries including Russia, India, China and the United States plan to meet in Moscow next week to discuss a plan of action, as they insist the EU scheme breaches international law even though the EU's highest court in December ruled otherwise.

Yet non-EU airlines are expected to pay for just a quarter of the total carbon bill, around EUR€75 million, this year, said Trevor Sikorski, an analyst at Barclays Capital.

"The sums of money are not that big compared to what they are paying for fuel - it is a drop in the ocean of that industry," he said.

Sikorski pointed out that the scheme falls harder on European carriers than it does on non-European carriers, because European airlines have more frequent intra-EU flights.

Under the EU cap-and-trade scheme, 82 percent of allowances will be given for free to aircraft operators and 15 percent will be allocated by auctioning. The remaining 3 percent will be allocated to a special reserve.

EU carbon prices dropped last year as the region's debt crisis cut industrial output and demand for carbon permits, reducing the carbon bill for airlines to less than projected.

Last week, analysts at Point Carbon put carbon pollution bill for airlines at EUR€505 million for this year, half their previous estimate made in September.

"With these costs likely to result in passenger fares going up by little more than 2-3 euros per transatlantic flight, it is really hard to see what all of the fuss is about," Sikorski wrote in a research note.