The Carbon Trust today launched a new report outlining the impact of the EU emissions trading scheme (EU ETS) on the airline industry. The report coincides with today’s recommendations by the Committee on Climate Change on how to reduce airline emissions.
With airlines set to join the EU ETS on 1 January 2012, the report notes that the industry is likely to purchase €23-35bn of additional allowances over the period 2012-2020. However, the report underlines the uncertainty that operators face in terms of the impact on their profitability. Airlines operating more competitive short-haul leisure flights are likely to be more exposed due to the greater price sensitivity of their customers. Meanwhile, operators of long haul business flights are likely to be less exposed and could even gain in profitability in the short term.
Those airlines that improve fuel efficiency have the potential to benefit significantly from the EU ETS, and could increase profitability by 20-40% compared to average airlines, assuming carbon costs between €25-50/tCO2. The least fuel efficient airlines could see profits drop by as much as 40%.
The ultimate impact of a cap and trade scheme on an individual airline’s performance is critically determined by four key factors. These are the prevailing cost of carbon; the number of carbon allowances allocated for free to airlines; the rate of ‘price pass-through’ to customers; and how airlines manage their cost structure in response to a potential change in demand from consumers due to increased ticket price.
Bruce Duguid, Head of Investor Engagement at the Carbon Trust, said:
“Aviation is one of the fastest growing sources of carbon emissions so entry of the sector into the EU ETS is an important step forward in tackling climate change. However, the full impact this will have on the airlines is still uncertain. While some operators will face a threat to profitability, those that can become much more fuel efficient are likely to benefit.”
Critically the report findings suggest that unless the airline industry can achieve a significant breakthrough in energy efficiency or low carbon biofuels, additional policies to reduce emissions may follow.
Bruce Duguid added:
“Additional policies beyond the EU emissions trading scheme may need to follow, including further taxation to boost R&D spend and measures to limit new runway capacity. Significant breakthroughs in energy efficiency or low carbon biofuels will be critical factors in determining how far the aviation industry can grow within the carbon constrained world of the future.”
Civil aviation is currently one of the fastest growing sources of greenhouse gas emissions, with long-term annual emissions growth of 3-4%. A key policy objective will be to ensure airline emissions return to 2005 levels by 2050.
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Notes to editors
For more information or an interview please call the Carbon Trust press office on 0207 544 3100.
The Carbon Trust
- The Carbon Trust is an independent company set up in 2001 by Government in response to the threat of climate change, to accelerate the move to a low carbon economy by working with organisations to reduce carbon emissions and develop commercial low carbon technologies.
- We cut carbon emissions now by giving business and the public sector expert advice, finance and certification to help them reduce their carbon footprint and to stimulate demand for low carbon products and services. Through our work, we’ve already helped save over 23 million tonnes of carbon, delivering costs savings of around £1.4 billion. We aim to help our customers cut a further 17MtCO2 and save another £1 billion in the next three years.
- We cut future carbon emissions by developing new low carbon technologies. We are helping the UK become a global hub for low carbon innovation. We do this through funding and managing projects, investing and collaborating on low carbon technologies and by identifying market barriers and practical ways to overcome them. Our work on commercialising new technologies will deliver savings of up to 23 million tonnes of carbon a year by 2050.