Carbon scheme will cost travellers more

On average, it is estimated between US$15 and US$57 will be added to the cost of a passenger ticket between New York and London, with longer flights, including those between Grand Cayman and the United Kingdom, costing more due to increased emissions based on tonnes of carbon, according to European Commission analysis.

The cost of airline tickets for flights between the Cayman Islands and Europe will likely increase next year as regulators look to address the impact of the aviation industry’s greenhouse gas emissions on global climate change.

The European Union’s Emissions Trading System is scheduled to start billing every commercial airline operating to and from Europe for its carbon footprint beginning 1 January, 2012. 

On average, it is estimated between US$15 and US$57 will be added to the cost of a passenger ticket between New York and London, with longer flights, including those between Grand Cayman and the United Kingdom, costing more due to increased emissions based on tonnes of carbon, according to European Commission analysis. 

At the moment, British Airways is the lone carrier offering passenger service between Owen Roberts International Airport in Grand Cayman and continental Europe. British Airways offers roundtrip service four days a week between London Heathrow and the Cayman Islands, via one stop in Nassau, Bahamas. 

Cayman Airways, the national carrier of the Cayman Islands, flies in the Caribbean and to Honduras and the United States. Cayman Airways does not fly to Europe. 

“What (the ETS) is trying to do is force the airlines into renewing their aircraft,” said Edward Jerrard, a lecturer in the air transport programme at University College of the Cayman Islands. “Engines are becoming much more efficient. Airframes are becoming much more efficient. So the carbon output and the nitrous oxide output from new aircraft are reducing. But for those airlines that are still flying rubbish aircraft, they’re going to be paying more. And those airlines with the high-tech will be paying less.” 

The ETS was launched in 2005 to help slow the increase in man-made greenhouse gas emissions, and up to now the scheme has focused almost exclusively on the roughly 12,000 power stations and industrial plants throughout the dozens of countries in the European bloc.  

But beginning next year, the EU intends to bring the aviation sector, including all commercial airliners flying in and out of European airports, under its cap-and-trade system. Light aircraft are exempt, as are some operators whose low traffic patterns are not enough to warrant inclusion. 

Worldwide aviation accounts for 2 to 3 per cent of global greenhouse emissions and it is estimated to grow to 5 to 6 per cent by 2050, according to industry analysts. 

The ETS programme works through the allocation and trading of carbon allowances. An overall limit, or cap, is set on emissions. Operators are then required to ensure they have sufficient allowances to cover their emissions and can buy or sell allowances should they emit above or below the cap. 

Under the EU plan, 15 per cent of pollution credits for airlines will be auctioned off. The other 85 per cent of credits are being given without charge. 

Based on how the industry has handled fuel price increases and market volatility historically, it’s reasonable to believe airlines will pass on a significant portion of the costs associated with carbon trading. 

“BA is going to have to get its calculator out to see how much this is costing its flight from London to Nassau to Cayman,” Jerrard said. “Is it costing them $2 per passenger or is it costing them almost nothing?  

“Only BA can answer those questions. Then they’ll have to make the corporate decision whether they are going to put a surcharge on their ticket or they are going to absorb that cost.” 

Michele Kropf, a media relations manager in the US for British Airways, said the airline has always supported carbon trading as the most effective tool to address aviation’s impact on climate change.  

Kropf said British Airways is well placed to participate in the ETS scheme come January. 

“We always price our tickets competitively in what is a highly competitive market place with a range of customer choice,” Ms Kropf said. “Our pricing structures and strategies are always commercially confidential.” 

Meantime, not everyone seems so inclined to accept change as proposed. 

US carriers American Airlines, Continental and United, which all offer passenger service to the Cayman Islands, as well as between the US and Europe, are among the groups challenging the reach of ETS to include foreign-based airlines. 

Earlier this summer, the two airlines were part of a group that took the EU to court arguing that its imposition of emissions caps on non-European carriers breaches international law.  

The suit in the European Court of Justice in Luxembourg was filed by the Air Transport Association of America, which represents US airlines. Airlines from China, Russia and elsewhere also have argued the EU cannot impose restrictions beyond the bloc and suggest the scheme could result in a trade conflict.  

The ECJ advocate general on the case plans to deliver a nonbinding opinion by 6 October. The final decision of the ECJ is expected at a later date. 

“The EU ETS violates international law, including the sovereignty of the US and imposes an illegal, exorbitant and counterproductive tax on US citizens, diverting US dollars and threatening thousands upon thousands of jobs,” said Nancy Young, ATA vice president, environmental affairs.  

According to ATA estimates, US airlines will be required to pay more than US$3.1 billion to the EU between 2012 and 2020. The group said the US airline industry already has improved fuel efficiency by 110 per cent between 1978 and 2009, resulting in carbon dioxide savings equivalent to taking 19 million cars off the road each of those years. 

“None of the monies collected by the Europeans are required to be used for environmental purposes,” Young said. “By contrast, the initiatives that the US airlines are undertaking are resulting in real environmental improvements.” 

In late July, four US congressmen introduced legislation declaring the ETS as inconsistent with international law and directing the US Department of Transportation to prohibit US carriers from participating.  

Further, the congressmen said the ETS undermines ongoing efforts at the International Civil Aviation Organization to develop a unified, worldwide approach to reducing aircraft greenhouse gas emissions. The bill calls on the EU to withdraw the current scheme and for EU member states to work with ICAO to develop an alternative. 

“This is an arbitrary voodoo tax scheme, that’s what it is,” said US Rep. John Mica, a Florida Republican. “It will be another ticket expense that a passenger has to pay. Less people will fly, airlines will shrink, Americans will lose their jobs, communities will lose services. This is a bad idea, period.” 

However, the EU contends the ETS is well within legal bounds and have vowed to pursue its full implementation as the best way known to curb carbon emissions. European officials also note there is leniency in the ETS and if another country can show “equivalent measures” on carbon reduction from its airlines, then those carriers don’t have to pay the charge for one leg of the flight. 

Global emissions from aviation are about 700 million tonnes of carbon, and the European Commission estimates the ETS will lead to an annual reduction of about 20 million tonnes once the scheme comes into force in 2013, according to a report prepared by Standard & Poor’s.  

“This legislation is fully consistent with international law and we’re confident that the court will side with us and understand our arguments,” said Isaac Valero-Ladron, a spokesman for EU Climate Commissioner Connie Hedegaard. “We don’t intend to withdraw or amend the law at all. The purpose of the directive is to reduce emissions, not to charge companies.” 

Environmental groups also have lauded the EU’s initiative and urged the court to dismiss the airlines’ case. They contend the carriers should no longer be able to skirt responsibility for their role in global climate change.  

“US airlines have a long history of actively seeking to disrupt any and all measures to cut climate change emissions,” said Bill Hemmings of the European Federation for Transport and Environment, a nongovernmental organisation promoting sustainable transportation.  

“The emissions trading scheme … is a welcome first step toward dealing with aviation’s growing climate impact.” 

Already there are concerns the legal fight and its outcome may be creating the foundation for a trade conflict between countries. It appears likely a compromise solution will be struck in the coming months to appease those most concerned and sceptical of the programme’s initiative. 

In June, Willie Walsh, the head of British Airways and Iberia, the flag carrier of Spain, cautioned if major US entities are forced to pay, American authorities will exact retribution in the form of aviation taxes on European carriers or by blocking flights. Walsh has called for a global emissions trading system for airlines and urged the EU to implement a compromise.  

“It is clear that the countries are going to retaliate, whether in the form of imposing additional taxes on European airlines or restricting access to markets,” Walsh said. “There needs to be a plan B. It is unacceptable that airlines face the prospect of retaliation because of the actions of the EU. Plan B for me would be to restrict the scheme to intra-Europe.” 

EU airlines expect the measure to cost them US$4.3 billion each year, said Ulrich Schulte-Strathaus, secretary general of the Association of European Airlines. If non-European airlines aren’t required to pay, it would cause a “serious distortion of competition, he said. 

Nevertheless, airlines worldwide are bracing for the beginning of ETS. The EU plans to determine the final amount of each airline’s free allocation by the end of September, and those figures will be based on the airline’s 2010 market share of routes covered by the ETS.  

Overall, global network carriers will be best-placed to cope with the introduction of the ETS, according to a report prepared by Standard & Poor’s. Conversely, low-cost and short-haul airlines that have lower premium revenues, and particularly those with older aircraft fleets, may be more adversely affected. 

“It’s going to happen whether we like it or not,” Jerrard said. “To what level it’s going to happen is the question. I think they’ll end up reaching a compromise the airlines can live with. I think the idea to try to force some of the airlines to change their fleets is a good idea. There’s some pretty ropey things flying in the air right now. It would be nice to start seeing some newer aircraft.” 

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British Airways offers roundtrip service four days a week between London Heathrow and the Cayman Islands, via one stop in Nassau, Bahamas.

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