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Sector Briefing: Emissions Trading and European Aviation
23 March 2004
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Key Findings
- There is an inherent and growing conflict between the unconstrained growth of the aviation sector and wider policy objectives to reduce the overall level of emissions in the EU.
- ‘Grandfathering’, where emissions permits are allocated with reference to historic emissions levels, may not be the most appropriate method for the aviation industry.
- An ETS could have a large impact on the profitability of low cost flights in Europe, due to the greater elasticity of demand of leisure seats and small profit margins.
- As the scheme would definitionally be restricted to flights within the EU, airlines with more globally diversified routes will be less affected than those whose flights are entirely within the EU.
- How individual airlines are affected will depend greatly on the eventual allocation of emissions and new entrant reserve levels put in place.
- The current level of uncertainty in measuring the effect of non-CO2 aviation emissions suggests that any scheme would initially be restricted to reducing carbon dioxide emissions alone.
Extract
In 2001, the International Air Transport Association (IATA) published a study of environmental reporting in the aviation sector. This study examines the level of reporting amongst airlines and points out that carbon dioxide emissions are calculated in different ways by different airlines. (Airlines typically calculate fuel usage or carbon dioxide emitted per number of passengers carried or mass of cargo transported). For financial modelling purposes it would be better if airlines reported in a way that relates total emissions to turnover.
A large proportion of the emissions from a flight are generated during take-off, yet many airlines only report the number of miles flown, not the number of stops. As all airlines record the amount of fuel they use, it is likely that their carbon dioxide emissions will ultimately be calculated based on fuel usage.
Why did Trucost carry out the research?
There is an increasing awareness within the EU that the carbon dioxide emissions of the aviation sector will need to be limited, either by tax or a ‘cap and trade’ scheme. There is a contradiction, acknowledged by the UK’s Parliamentary Environmental Audit Committee, between unconstrained growth in air transportation and the Government’s emission reduction targets. Encouragingly, there have been calls from within the industry itself for a trading scheme to be set in place.
Trucost wanted analyse the likely effect that a carbon dioxide emissions trading scheme (ETS) would have on the European Union aviation sector. Thirteen companies have been studied in this report, representing the majority of listed airlines within the EU. For illustrative purposes allocations have been calculated using the ‘grandfathering’ methodology employed in the existing draft UK National Allocation Plan and some comments on the possible winners and losers from this approach have been included.
Report image: EU aircraft emissions 2002
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