Sector Briefing: Emissions Trading and European Aviation

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.

The study shows that ‘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 by definition 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.