The inclusion of aviation emissions into the EU emissions trading scheme (ETS) sees airlines paying for the green house gases emitted during flights. Starting from the 1st January 2012 all flights taking off from and landing at airports in the European Union have to surrender emissions permits to match volume of emissions produced during the flight. In 2012 airlines will be given 85% of their allowances for free, falling to 82% annually from 2013 to 2020. The UK is a key European aviation hub and all airlines landing and taking off here will be affected by the new environmental legislation.

In a briefing on aviation and the EU ETS Sandbag have calculated that the potential cost to the top 20 airlines in the UK – accounting for 28% of total emissions captured in the trading scheme – will be around £76m in 2012. Aviation receives a subsidy by not having to pay any tax on their fuel which gives it a competitive advantage over for example rail. Sandbag estimates that this subsidy saves these same 20 operators around £8.9bn per annum.

Despite the scale of the financial impact being dwarfed by on-going subsidies resistance to the inclusion of aviation emissions into the ETS has been fierce. There is growing pressure on the EU from, airlines, aviation trade groups and countries – notably the USA, China and India – who object to the EU taking action unilaterally. Airlines and trade groups alike have reiterated the need for a global solution to dealing with growing emissions from the aviation sector, nevertheless, the International Civil Aviation Organisation’s (ICAO) has failed to implement a global emission reduction framework for the sector. Voluntary commitments by ICAO to achieve a global annual average fuel efficiency improvement of 2% until 2020 have been deemed insufficient by the EU.

The EU’s inclusion of aviation in the ETS serves as a good framework for other countries to take action to curb rising emissions from the aviation sector. Care has been taken to protect rapidly growing airlines and those serving low volume routes. The ETS also contains provisions to exclude counties that are implementing ‘equivalent measures’.

Looking at the UKs top 20 emitting airlines it’s possible to estimate how much the EU ETS will cost airlines in 2012 versus a theoretical tax on Kerosene:

• Top 20 UK registered airlines emitted 59.6m tonnes CO2 in 2012.
• Top 20 UK registered airlines likely to face a 2012 ETS bill in the region of £76m
• An alternative tax on kerosene could cost up to £8.9bn in 2012 for the UKs top 20 emitting airlines

Airlines should welcome the inclusion of their industry into the EU ETS as a cost effective way to incentivise emissions reductions. The strength of their opposition is out of line with what they are being asked to do. The removal of fuel subsidies by comparison, by introducing a tax on kerosene, would be hugely more expensive and damaging to the industry.