The international row over Europe’s emissions trading scheme (ETS) will come to a crunch next February, the Civil Aviation Authority has warned. Yet the cost of ETS to airlines and passengers has proved a fraction of the sums feared, says the CAA.
The European Union introduced the cap-and-trade carbon-reduction scheme in January despite fierce opposition from the US, China, Russia and India.
CAA head of economic policy and international aviation Dan Edwards said: “The cost of the scheme is far lower than estimated when it was established.”
“The experience since January 1 is that ETS’s bark is worse than its bite. It does not appear to have hit the bottom line as much as feared.”
Speaking at a Waterfront conference on A New Aviation Policy in London yesterday, Edwards said it had been assumed the price of carbon would reach about euro30 a tonne by 2020.
“That was against the background of rapid economic growth,” he said. “But we’re in the fifth year of a downturn and that is reflected in carbon prices. It is now forecast carbon will be priced at about euro12 through to 2020.”
The EU estimated the cost per passenger of ETS at between euro4.60 and euro40 on fares, depending on the length of a flight. It has proved to be about one third of that, said Edwards.
He added: “At the same time, we are not seeing the full cost passed on to passengers. Ryanair, which is renowned for passing on costs to customers, levies only euro0.25 per passenger.”
No airline has yet paid anything for the 15% of carbon-emission allowances they must buy at auction. That point will come in February “when airlines have to start coughing up”. “That is the point at which a resolution is required,” said Edwards
He described the impact on ticket prices as “minimal” and added: “There is no evidence of passengers using hubs outside Europe [to avoid the cost of ETS].”
Edwards said there is a strong economic argument for retaining ETS. “If ETS is replaced we may see multiple national measures and greater taxation of aviation, and that is less efficient.”
He told the conference: “ETS is not ideal and has its opponents around the world, but it is the best of a bad bunch . . . and aviation is the fastest-growing carbon emitter in Europe.”
Edwards said the CAA views ETS as “a major step forward, primarily because it has driven the global discussion about carbon trading. However, fuel prices are the major driver of decision-making by airlines. ETS has been marginal.”