UK carriers face losing out to their European rivals when a carbon-trading scheme that will add millions of pounds in additional costs is introduced next year.
British Airways and Virgin Atlantic have appealed to the European Commission for special treatment in the allocation of carbon permits, which will be based on the amount of carbon dioxide they released last year, according to reports.
UK airlines will get proportionately fewer permits because UK airspace was closed for six days last April due to the Icelandic the ash cloud. Carriers on the Continent were less affected and some Southern European carriers were able to operate near-normal schedules.
Europe’s emissions trading scheme was introduced in 2005 and already covers many large industries, such as power generation. Companies are allocated a set number of permits every year. If they emit too much carbon, they must buy additional permits in the open market. Those businesses that cut their emissions can sell spare permits.
Airlines will be included in the scheme from the start of next year, with initial permit allocations based on 2010 emissions. The permits will be handed out this year and BA and Virgin have urged the Commission to take account of the ash cloud.
BA will be penalised further because it suffered 22 days of disruption due to strikes by cabin crew. The airline had to cancel many flights, reducing the amount of carbon it emitted in comparison with this year.
A spokesman said: “We are disappointed that 2010 will be the base year because of the unprecedented level of disruption.”
A Virgin Atlantic spokesman reportedly said: “We have asked the Commission to resolve a number of outstanding issues before aviation becomes part of the emission trading scheme, and this distortion in the allocation of permits is one of them.”
The introduction of the emission scheme will add costs to an industry that is already struggling with high fuel bills, air taxes and weak consumer demand.
UBS published research this month that estimated the ETS would add £70 million to the costs of BA and Iberia parent International Airlines Group.
In total, the scheme will cost the airline industry more than €300 million in the first year. This will rise to €600 million by 2014 and could hit €1 billion if the price of carbon increases.
Airlines will try to pass additional costs on to passengers, but this could be difficult if demand remains subdued.
“It remains to be seen if any of the allocated carbon cost can be passed on to passengers,” UBS said. “We believe the low-cost carriers are relatively better off as they fly more efficient and younger fleets than the legacy airlines.”