The foggy future of airline emission costs

The European Union’s plan to charge airlines for their carbon emissions has stirred up quite a bit of controversy. While some readers support the scheme, in which airlines landing in the European Union must buy or sell carbon allowances depending on their yearly CO2 emissions, others are clearly annoyed that the scheme may increase airline costs, which may result in higher fares. “Everyone should do their bit and more to counteract the negative effects they place on the environment,” reader Geraldine McDonald wrote. “I wouldn't mind paying higher charges if it was going to help the environment.” Since I reported on this issue last week, reader responses have flooded into my inbox and onto our Facebook page. It’s also become clear that there is plenty we can’t predict yet. First, let’s look at the spectre of higher fares as a result of the Emissions Trading System (ETS). While most US airlines raised transatlantic fares by $6 when media chatter about ETS flared last week, the reality is that airlines will not face higher costs until the end of 2012 – if at all. That’s when airlines will tally their carbon emissions for the year and know if they are over or under their assigned limit. “The battle over whether airlines will actually have to pay more into the ETS will rage all year,” said Rick Seaney, CEO of Farecompare.com. “Transatlantic travellers are already paying an average of $435 in fuel surcharges and $150 in taxes on each roundtrip ticket. Add on another $50 to $60 to cover ETS and demand could drop. Passing another price increase onto passengers with thinner wallets is no easy task,” he said.    While some readers railed against ETS as a new tax, airlines will not actually be forced pay European governments any money. ETS is a “cap and trade” scheme where there is a limit on the total amount of greenhouse gases that can be emitted, and heavy carbon emitters must buy and sell allowances among themselves. Buying allowances will cost the company money, and they may pass those costs onto travellers. But there’s even the possibility that airlines could reap windfall profits from fare hikes if they remain under their assigned emission limits. According to the EU’s website, “at the end of each year, each company must surrender enough allowances to cover all its emissions, otherwise heavy fines are imposed. If a company reduces its emissions, it can keep the spare allowances to cover its future needs or else sell them to another company that is short of allowances. The number of allowances will be reduced over time so that total emissions fall. In 2020 emissions will be 21% lower than in 2005.” To avoid incurring extra costs, there are several measures an airline could take to reduce their carbon emissions. They could invest in more efficient aircraft, such as the new Boeing 787 Dreamliner, which Boeing says burns 20% less fuel and therefore spews 20% less CO2 into the atmosphere. They could also reduce their flight frequencies or avoid European hubs altogether. “Emirates and Qatar Airways bosses might be drooling as they fly nonstop to US destinations, bypassing Europe and offering better fares to passengers from Asia, India or the Middle East travelling to US and vice versa,” said reader Haider Hazrat from Chicago. While many readers stood firmly on one side of the debate or the other, Bruce Henderson pointed out how intertwined the two sides are. “The tourism industry will be the first to fail as the climate changes,” he wrote.