EU-ETS Costs Really Add Up for Bizav Operators

 - March 3, 2012, 4:05 AM
U.S. operators challenge the pricing structure of Europe's ETS, asserting that they should have to pay the carbon tax only on the part of the flight that takes place in Europe, not on entire flight.

Operators flying in Europe can expect overall charges such as airspace and airport fees (including noise tariffs) to double when European Union Emissions Trading Scheme (EU-ETS) costs are added in for transatlantic flights. According to a preliminary report obtained last month by AIN from UK-based EU-ETS consultants SustainAvia, a U.S. Part 91 corporate flight department flying 15 round trips per year from New York JFK to Munich Airport in a Gulfstream G450 could pay nearly $35,000 annually in EU-ETS fees. That comes to more than $2,300 in extra costs per round trip to Europe.

This estimate assumes a price of €25 ($32) per carbon credit (also referred to as European Union Allowances, or EUAs) over an allotment of 27 free EUAs, as well as emissions monitoring, reporting and verification (MRV) charges of $5,628 for aircraft assigned to the UK registrar for EU-ETS compliance. MRV costs are similar in other European countries, though France is notably lower at $2,042. The study estimated emissions using Eurocontrol’s so-called Small Emitter Tool.

Using the example G450, a medium-haul round-trip flight between Cairo and Munich would cost an extra $1,020 in carbon taxes, not including MRV levies. A short-haul round trip between Paris Le Bourget and Munich would add about $190, sans MRV costs.

“Aircraft noise charges are higher than costs for emissions allowances when operating the G450 on short trips” to or from Europe, the report notes. “By contrast, carbon costs of medium- or long-haul flights exceed the noise charges. This becomes even more true the higher the carbon price is.” Carbon spot prices are currently in the €15 ($19) range, but SustainAvia believes prices will spike with the increased demand from aircraft operators, including airlines.

European Business Aviation Association CEO Fabio Gamba asserts that SustainAvia’s estimates might in fact be too low. The report assumes that verification costs are €1,000 ($1,276), but Gamba believes that figure is off by a factor of five or even 10. “Verification costs for European operators could be between €5,000 and €10,000, irrespective of whether the verification resulted from the complex or the simplified procedure,” he told AIN.

As part of the report, SustainAvia asked 132 business jet operators to evaluate the administrative burden of EU-ETS. Unsurprisingly, 80 percent of them said the administrative burden is either high or very high. “This may serve as an indicator that total costs of emissions trading are far higher than costs related to the purchase of carbon credits alone,” the report’s authors said.

After reviewing the report, International Business Aviation Council (IBAC) director general Don Spruston told AIN, “Business aviation is committed to mitigating the impact of aviation on climate change…[but] the community believes an international approach is critically important given the international nature of business aircraft operations. Our industry supports the need for market-based measures…but not mechanisms that cause very high administrative burden” such as EU-ETS.

Spruston is also concerned about how EU-ETS revenue will be used: “Business aviation has a great desire to do its part in preserving the planet, but funding should go toward fixing the problem, not feeding state general revenue funds through another tax scheme.”

NBAA senior vice president for operations Steve Brown said his organization has “aggressively opposed” EU-ETS. “We know it is not just unlawful, but unwise for a host of reasons. This report speaks to just one of our concerns: the program’s cost. EU-ETS will come at significant added costs to our industry, which is particularly troublesome given that the revenue generated through the program won’t be applied to initiatives to strengthen aviation.”

According to EBAA’s Gamba, “EU-ETS might be more costly given the aircraft type and its range than airport charges. To me this is a central argument. EU airports are already the most expensive infrastructure providers on the planet. Coupled with national taxes, which blossom a bit everywhere in Europe–most recently in Italy–and the EU-ETS, it further decreases the attractiveness of the Old Continent.

“What I am missing in [SustainAvia’s] analysis is the percentage that EU-ETS, including both the acquisition of permits and the parallel MRV obligations, weighs on an operator’s cost base, and the incredible difference it can make when compared to an airliner. There is a huge discrimination on business aviation operators, but in Europe–perhaps for cultural reasons–people seem to ignore it. Perhaps if we could quantify this difference, we could help change things and decrease the burden, in particular the burden of bureaucracy, when a revision is undertaken next year. The fact that business aviation operators are relatively insensitive to cost should not constitute a reason to treat them as cash cows.”

Gamba is also troubled by the fact that the scheme’s use of the Small Emitter Tool to estimate business aircraft emissions “does nothing to [offer incentives to] its tenants to improve their carbon footprint.” In his opinion, “It totally misses the point: manufacturers and operators naturally [have an incentive to] improve their footprint, not by EU-ETS but by the cost of fuel. We believe it is disingenuous to use a tool that is aimed at simplifying the whole monitoring and reporting process.

“If operators don’t improve their footprint, it has nothing to do with the fact that they are users of the Small Emitter Tool, but simply because cost reduction for business aircraft operators comes second to other more important priorities such as flexibility, comfort and so on.” Because of this, Gamba said, “We are currently inviting non-EU operators qualifying as small emitters to use Eurocontrol’s ETS Support Facility, as its accuracy has recently improved dramatically and can therefore help operators avoid a burdensome and costly process.”