Carbon Trading Program Expands in EU to Airlines

Airlines that fly within the European Union will have to trade pollution allowances beginning in 2011, the European Commission said Wednesday, which could see travelers pay more for popular short-break trips.

Expanded rules covering all airlines that fly into the EU will take effect the next year, a move that would hit U.S. airlines on their lucrative trans-Atlantic routes.

Airlines are generally in favor of the plan, since EU officials had warned them that refusing to back a carbon emissions trading program would result in an aviation tax.

"EU emissions from international air transport are increasing faster than from any other sector," the Commission said. "This growth threatens to undermine the EU's progress in cutting overall greenhouse gas emissions."

The plan could add between euro1.80 and euro9 (about US$2.40 to US$11.80) to a typical return flight within Europe with higher price hikes for long-haul trips. The Commission claimed these would be "significantly lower" than oil price increases passed on to travelers.

Bowing to pressure from trade partners, the EU's executive arm will give all flights to and from EU airports another year to join the program.

All airlines - based in the EU or elsewhere - will have to trade carbon dioxide allowances beginning in 2012 for all flights to and from European airports, it said.

The plan is compatible with international rules, EU Environment Commissioner Stavros Dimas said, adding that he did not believe U.S. airlines would win a challenge to it. He called on their "moral obligation" to fight climate change.

"We need to act globally. We need to have the United States on board," Dimas told reporters. "It's a global problem. It needs a global solution."

The program gives airlines a financial incentive to reduce emissions because they can sell allowances that they don't use. But if they fail to turn to low-carbon technology or increase their flights, they will be forced to buy additional allowances to release more carbon dioxide.

The EU said aircraft emissions make up 3 percent of total greenhouse gas emissions - higher than any other industry - but are increasing as cheap flights multiply and would likely double by 2020.

"Without action, the growth in emissions from flights from EU airports will by 2012 cancel out more than a quarter of the 8 percent emission reduction the EU must achieve to reach its Kyoto Protocol target," it said.

Someone flying from London to New York and back generates about the same level of emissions as the average person in the EU does by heating their home for a year, the Commission said.

Emissions will be capped at the average from 2004 to 2006, it said. Some allowances will be auctioned by national governments but most will be given away.

Airlines can trade carbon permits with other fuel-hungry industries such as power generators and steelmakers, increasing competition for a finite number of permits.

Scandinavian airline operator SAS AB said carbon trading was the best option because it did not punish economic growth. But it said it would have preferred to start with a global plan "in environmental terms and from a competitive perspective."

The Association of European Airlines, which represents Air France SA and British Airways, backed emissions trading but warned that a poorly designed program could strip airlines of the funds they need to introduce cleaner technology. The International Air Transport Association also gave it a "cautious welcome."

But environmentalists claimed the EU plan was too weak, citing a report from the British think tank, the Institute for Public Policy Research, that said airlines could make up to 2.7 billion pounds (euro4 billion; US$5.26 billion) in profit because they will get emissions allowances for free and pass on the costs in higher ticket prices.

One group, Transport and Environment, said the plan would barely reduce overall emissions and more measures were needed such as a tax on fuel and sales tax on tickets.

"This looks like business as usual and the likelihood of massive windfall profits for the industry," said T&E director Jos Dings.

Caroline Lucas, a Green Party member of the European Parliament, said the required adoption by the European Parliament was unlikely while the plan runs "completely counter to their clearly stated view that all flights into and out of the EU should be included, and that non-carbon dioxide emissions should be taken into account."

The EU says it will, by the end of 2008, suggest including nitrogen dioxide released by airlines to the trading plan.

EU governments and the Parliament must back the proposal - and can make changes - before it enters into force.


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