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Airlines stand to make £2.7 billion profit from EU climate scheme

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18 December 2006

Embargoed: 00.01h Monday 18 December 2006

Airlines stand to make £2.7 billion profit from EU climate scheme

The aviation industry could make up to £2.7 billion profits through the EU Emissions Trading Scheme according to a new report published today (Monday) by the Institute for Public Policy Research (ippr). ippr’s report comes ahead of an announcement by the EU Commission on including the aviation industry in the EU Emissions Trading Scheme (EU ETS), due out Wednesday.

ippr argues that the EU should require member states to auction the credits to emit greenhouse gases to airlines. The ippr says that if the airlines are simply given the credits they will pass on emissions credit costs to passengers, leaving the industry to pocket up to £2.7 billion in windfall profits. The report shows that the UK energy industry made around £1 billion windfall profits in the first year of the EU ETS when it was given free emissions credits. ippr says that the profits from an auction should be used to fund low-carbon transport and fuels.

ippr’s report also recommends that:

the trading scheme should cover all flights to and from EU airports which would cover three times as many flights than if the scheme covered just internal EU flights
the trading scheme covers all greenhouse gases emitted by aeroplanes not just carbon dioxide, which would increase its effectiveness five fold
individual countries develop a broad package of measures to address the climatic impacts of flying and the growing demand for air travel, which accounts for 5-12 per cent of Europe’s greenhouse gas emissions.

Simon Retallack, head of ippr’s climate team, said:

“When it comes to preventing climate change, there is no such thing as a cheap flight. Including aviation in the European Union Emissions Trading Scheme is a step in the right direction. But the EU should not repeat the mistake it made with the energy sector and give the aviation industry free emissions credits, handing the airlines a windfall of up to £2.7 billion. The EU should take a strong lead on curbing emissions from airline flights and clip the aviation industry’s wings.”

Notes to Editors:

Trading up: Reforming the European Union’s Emissions Trading Scheme by Tim Gibbs and Simon Retallack is available to journalists from the ippr press office.

Windfall profits: Under the trading scheme, airlines will have to gain emissions credits, each worth one tonne of carbon dioxide, to cover the greenhouse gas emissions caused by their flights. The market price of these emissions credits is anywhere between Euro 5-30+.

The aviation industry is likely to pass through the full costs of these credits to passengers. This could mean ticket prices going up by between 14p and £6.04 and any emissions credits given to airlines are a windfall profit.

The industry could make windfall profits in the order of Eur1.34 billion to Eur4 billion (£0.9 billion - £2.7 billion), if all emissions credits were given away for free to the airlines and EU ETS market prices were between Eur10 and Eur30.

The UK power sector made £1 billion windfall profits in the first year of the EU ETS. "A combination of free allocations with a full pass through of marginal costs is estimated to result in increased profitability for the UK power sector", wrote economic consultants IPA.

Higher plane ticket prices might lower passenger demand by 0.1 – 1.4 per cent. But with the European airlines growing at 4-5 per cent per year until 2020, these extra costs will not restrain the aviation industry’s growth. Some countries’ airlines are growing as fast as 14 per cent.

These figures are based on calculations made in a report written for the European Commission, CE Delft (2005), Giving Wings to Emissions Trading.

Contact:
Matt Jackson, ippr senior media officer, 020 7339 0007 / 07753 719 289 / m.jackson@ippr.org

Richard Darlington, ippr media manager, 020 7470 6177 / 07738 320 645 / r.darlington@ippr.org