Emissions Trading: Asian Airlines' Friend Or Foe?

February 18, 2009

Already trapped in a tailspin as earnings drop and a global recession curtails passenger and freight traffic, Asian airlines face yet another challenge -- figuring out how to pay for their greenhouse gas emissions.

Green groups, governments and passenger bodies are piling on the pressure for airlines to rein in carbon pollution, and to have their emissions included in a broader UN climate pact.

Carriers such as Singapore Airlines, Cathay Pacific and Qantas, which fly some of the world's longest routes, already plan to curb or offset pollution through emissions trading, more efficient planes and other measures.

But they worry that numerous domestic and regional emissions schemes now emerging could prove costly and unfair because not all airlines will be treated equally, crippling their competitiveness and their already shrinking earnings.

Despite only having a small share in global carbon emissions, at around 2 percent, the airlines are a high-profile target for regulators and environmentalists: their emissions are among the most intensive per kilometer of travel and the most damaging as they are released high in the atmosphere.

"What we don't want to see is a proliferation of regional schemes or regional and sectoral combinations or some weird and wonderful brainchild that applies in one country but not in others," Dominic Purvis, Cathay Pacific's general manager for environmental affairs said.

The European Union plans to make the aviation industry subject to its emissions trading scheme from 2012, covering all airlines using EU airspace. Australia will have a domestic emissions trading scheme from 2010, while the US government wants to introduce a cap-and-trade system as well.

Last Thursday, Air France-KLM, British Airways, Cathay Pacific, Virgin Atlantic and airport operator BAA said they wanted aviation emissions to be included in a broader global climate pact this year, the first time a group of airlines has made such a call.

Their aim is to shape the debate to avoid being saddled with a scheme not of their choosing.

"We are very concerned about the fragmented approach here. Aviation is a global business," said Stephen Forshaw, spokesman for Singapore Airlines.

"If we're flying aircraft from one emissions trading zone into another, and there's different schemes that apply, we run the very real risk of getting caught in the middle."


The main aviation industry grouping, the International Air Transport Association, estimates the EU emissions trading scheme will cost airlines EUR2.4 billion euros (USD$3 billion) in 2012, but admits the figure is a fast-moving target.

A major variable is the price of European emission allowances, which now stand just above EUR8, having fallen from a peak of more than EUR30 last year.

The EU scheme requires carriers in its airspace to offset emissions over their entire journey, a rule Asian airlines call unfair. Britain's separate air passenger duty has also woken concern among carriers, who fear a rash of aviation taxes.

"Emissions trading would be affordable and fair if applied across all airlines," said Andrew Herdman, director-general of the Association of Asia-Pacific Airlines, which groups 17 carriers.

"On the other hand, if there is unequal treatment then airlines will not be able to pass on the full cost, and will see margin erosion and/or loss of market share."

The aviation industry emits around 650 million tonnes of carbon dioxide annually, Herdman estimated. Charged at USD$25 per tonne, this would cost the industry USD$16 billion, but even at USD$15 per tonne, the figure would work out to USD$10 billion.

That represents just a small percentage of global industry revenues of about USD$500 billion, however.


Airlines are already taking steps to cut emissions, such as buying newer aircraft and trying out biofuels. Air New Zealand, Virgin Atlantic and Japan Airlines are among the carriers that have tested biofuel blends.

But these steps alone won't cut expected growth in emissions, which are expected to grow 3 to 4 percent annually, according to the UN's International Civil Aviation Organization (ICAO).

That means tougher action may be necessary when world leaders meet at the end of the year in the Danish capital, Copenhagen, to try to agree on a replacement for the UN Kyoto Protocol.

Developing nations as well as aviation and shipping emissions are excluded from Kyoto's first commitment period, which runs from 2008 to 2012, but aren't expected to be so lucky again.

Among the numerous schemes under discussion to help airlines pay for emissions is a universal levy assessed at the point of purchase of fuel.

"Everybody pays a figure," said Purvis. "However, the regulator decides to set the figure, which represents the cost of taking the CO2 back out of the atmosphere when you burn that fuel."

For environmentalists, though, emissions trading and levies are not the complete answer.

"Currently aviation is a product that's underpriced because its full environmental costs are not factored in," said Peter Lockley, aviation analyst for global conservation group WWF.

"A global scheme is a fundamental part of the policy but emissions trading on its own is never going to be enough to drive the kind of reductions we need to see," he added.

"In the long term, aviation emissions are going to have to come down. Maybe that means less flying, using high-tech video conferencing. There are alternatives and the world doesn't revolve around the aviation industry."

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