Cap-and-trade

With the European Union's emissions trading scheme (ETS) set to affect airlines next year, Lufthansa CEO Christoph Franz has warned the cap-and-trade plan will put Europe's airlines at a competitive disadvantage.

Nevertheless, the company is busy buying up emissions certificates and preparing for the coming changes in order to "make the price calculable," he said at a press conference Thursday in Berlin. He expects additional costs of "100 million to several hundred million" euros.

Those additional costs couldn't completely be passed on to customers because of intense fare competition in the sector, Franz explained. Chinese officials told him during a trip to the country this month they would consider imposing fees on European flights to counter the costs of ETS credits, he added.

According to the Beijing News newspaper, China's aviation industry is faced with an additional 800 million yuan (87 million euros) in costs each year.

Most emissions free

Under a cap-and-trade scheme, companies' rights to emit greenhouse gasses are limited through a system of certificates. Additional certificates can be bought, and unused ones may be traded or sold.

Air travel is responsible for approximately 2 percent to 3 percent of greenhouse gas emissions, and under Europe's ETS plan, airlines will get 82 percent of emissions certificates for free. An additional 15 percent will be auctioned, and 3 percent will be reserved for industry newcomers.

Other industries affected

Karin Holm-Müller, an environmental economist at the University of Bonn and a member of the German government's advisory board on environmental policy, said airlines aren't the first industry branch to fear cap-and-trade arrangements will dull their competitive edge.

"Considerations have been made to some degree about whether individual industries are too affected in competition [by cap-and-trade system]," she told Deutsche Welle. "One could consider how significantly air travel is affected… but in principle air travel should be included in the cap-and-trade system because it offers an additional opportunity to reduce greenhouse gas emissions."

Competitive disadvantage

According to Michel Adam, environment manager for the Association of European Airlines (AEA) in Brussels, airlines from other continents are only affected when they touch down in Europe under the ETS plan.

"If we look at the European airlines, almost 100 percent of their activities fall under the scope of the ETS. On the other hand if you look at non-EU airlines, the exposure is much more limited," he told Deutsche Welle, adding that only about 16 percent of Air China's network and 12 percent of American Airlines' are exposed to the scheme.

Circumventing Europe

The AEA is also concerned that Europe's "role as a global hub" will be undermined by the ETS plan.

"If you travel from North America to Asia and your journey includes a stopover at an EU airport, then the whole journey will be covered by the ETS and will have to include its price," Adam said. "So flying via Dubai or North Africa would be cheaper than flying through the EU."

Adam said while a global cap-and-trade system could work in the airline industry, the planned regional approach will likely prove to be a real burden.

"Aviation is clearly a global industry, and climate change is a global problem," he said. "A multilateral, global solution is the only way forward."

Author: Gerhard Schneibel

Editor: Sean Sinico