EU considers charging emissions fees

 - September 29, 2006, 10:31 AM

Within a decade, aircraft operators flying in the airspace of the 25-state European Union (EU) will likely have to start paying for carbon dioxide (CO2) emissions from their engines. The long-awaited final report from Dutch consultants CE Delft was published on July 29, and it has advised the European Commission’s environmental directorate (which commissionedthe report) that it would be both feasible and legal to implement emissions trading for all operators, regardless of their nationality or type of operation.

If the EC accepts emissions trading as the way forward, as it is expected to do by year-end, the system could apply to aviation by 2010. It will certainly want to achieve this by 2012, which is a key date in the Kyoto Protocol on climate change, which the EU states have endorsed. The EU has already applied emissions trading to several other industries.

Some possible good news for business and general aviation operators came in CE Delft’s recommendation to exclude from emissions trading all VFR movements and flights by aircraft weighing less than 8,618 kilograms (19,000 pounds).

The weight cut-off would excuse aircraft such as the Hawker 400XP and Citation Encore, but it would include other popular business jets, such as the Learjet 40. This could prove to be an important consideration for operators shopping for new aircraft, and especially for executive charter operators.

Emissions Trading Plans

The EC’s expected acceptance of emissions trading as a means of reducing aviation’s output of greenhouse gases appears to confirm that it will not impose direct taxes on aircraft fuel. At a May 13 and 14 meeting EU finance ministers decided to abandon the fuel tax project.

Controversially, the EU governments instead proposed to levy a new airline passenger tax to raise aid funds for developing world countries. However, this proposal has since been mired in profound disagreement and at subsequent July meetings of the EU finance ministers it appeared to be put on hold indefinitely.

In July the UK assumed the rotating presidency of the EU for a six-month term. Prime Minister Tony Blair has highlighted action on climate change as one of his key goals for the EC, specifically pointing to emissions trading as a plan he would like to advance. EC officials will now digest CE Delft’s recommendations with a view to deciding whether to opt for emissions trading and which method to use.

The 200-page CE Delft report (which can be found in the environment section of the EC Web site, outlines several different modes of emissions trading. It appears to favor a system whereby aircraft operators would bid in an auction for the emissions permits that they require. Another system would allocate emissions permits to operators, who would then buy or sell them depending on their needs.

In assessing the possible cost impact of emissions trading, CE Delft assumed emissions charges at rates of between €10 and €30 ($12 to $36) per metric ton (tonne) of CO2. It was estimated that a typical airliner would produce about eight tonnes of CO2 on a 259-nm short-haul flight between Amsterdam and Paris, almost 16 tonnes for the 757-nm sector between Munich, Germany, and Palma de Mallorca in Spain, and 157 tonnes for a 3,500-nm transatlantic flight between London and New York.

On this basis, depending on which emissions trading system might eventually be implemented, the additional cost to the operator for the round-trip, short-haul city pairs would be between €23 ($27) and €481 ($577). For the medium-haul flight the increase would range between €46 and €948 ($55 to $1,137) and up to €1,638 ($1,965) for the transatlantic flight. The consultants calculated that–depending on the degree to which airlines would directly pass on emissions costs to their passengers–average ticket prices might rise by up to €9 ($10) per flight.

The EU finance ministers had previously considered plans to tax either airline passengers or the airlines themselves for fuel consumption. This would have resulted in taxes on tickets of €10 ($12) for a one-way journey within the EU or €30 ($36) for a flight from inside the EU to a destination outside the EU. Alternatively, the plan could have imposed a tax on jet-A fuel of €330 ($396) per 1,000 liters (equivalent to almost 13 cents per U.S. gallon).

Both sets of fuel tax proposals were staunchly opposed by the airline lobby, which appears to favor emissions trading as the lesser of two evils. The carriers were also vociferous in their objections to the planned development aid tax.

To have opted for direct fuel taxes would have brought the EU into conflict with the terms of the International Civil Aviation Organization’s 1944 Chicago Convention, which excludes commercial operations from fuel taxation. However, the legal advice in the CE Delft report is that ICAO cannot prevent the EU from unilaterally imposing emissions trading, even on non-EU operators flying into EU airspace.

According to CE Delft, while the EU’s total greenhouse gas emissions fell by 5.5 percent between 1990 and 2003, CO2 emissions from aviation within the 25 EU states increased by 73 percent. According to EU statistics, air transport is the fastest growing source of CO2 emissions even though it currently accounts for just 3 percent of global emissions. Air transport is projected to account for 15 percent of worldwide CO2 emissions by 2050.