Carbon offsets take off in EU

Carbon offsets take off in EU

Air cargo industry bemoans inclusion in emission

         trading program, says rates increases likely.


      By Eric Johnson


   The aviation industry causes an estimated 3 percent of carbon emissions within the European Union, and air cargo is responsible for about one-fifth of that 3 percent.

   Come 2012, airlines operating within the EU will come within the auspices of an emissions trading program designed to curb those carbon emissions. That includes flights within the EU as well as those arriving at or departing from the 27 member nations.

   In October, the EU formally voted to include airplane emissions in its Emission Trading Scheme (ETS) program, a regulation enacted in 2005 to cover the various industries producing the most carbon dioxide. The vote to include jet emissions in the ETS was seen as a way to curb not just the emissions of today, but the future environmental impacts from expected growth in the aviation sector.

   It should be no surprise the aviation industry has bristled at the decision, saying the industry contributes a relatively miniscule amount to EU carbon emissions, and that the aviation industry is an easy target for politicians because it's in the public eye.

   Simply put, the EU decision will make shipping by air to, from or within the EU more expensive. How much more expensive has yet to be worked out. Airlines will have to pay to offset the emissions they are creating, and that cost will almost certainly be passed along to shippers in the form of a carbon emission surcharge.

   'Some carbon tax is inevitable,' said David Jensen, lead counsel for regulatory affairs for FedEx Express, at The International Air Cargo Association's Air Cargo Forum in Malaysia in November. 'It will increase costs for airlines and they'll attempt to pass along the costs, but they won't be able to pass along all the costs.'

   However, Andrew Herdman, director general of the Association of Asia Pacific Airlines, estimated that the trading scheme might drive up air cargo rates to and from Europe by as much as 25 percent. AAPA members, which include no Indian nor Mainland Chinese carriers, carry nearly one-third of the world's air cargo, by freight ton kilometers.

   The crux of the debate over whether the EU is unfairly targeting the aviation industry comes down to two key points: how much is aviation actually contributing relative to other, higher-polluting industries; and would money from the carbon offset trading program actually help the aviation industry become cleaner.

   On the first point, it's clear that aviation's public profile has made it seem a greater cause of carbon emissions than it really is. Methane from cows, for instance, is a far graver issue when it comes to pure CO2 emissions. But that's not to say aviation plays no part in the climate discussion. Three percent in developed nations (it's thought to be 2 percent globally) is nothing to ignore.

   'If other sectors manage to reduce their emissions, then aviation's share would rise,' Peter Bombay, an official with the EU Director General for Energy and Transport, said at the TIACA forum. 'European refineries and cement production facilities produce a lot less CO2 than aviation.'

   Bombay added that aviation's carbon emission impact is exacerbated by the altitude at which emissions are released, making the industry's relative contribution more problematic than it appears in raw numbers. He said the aviation industry is not a gross polluter, but does create a significant amount and should not be in denial about it.

   At a low cost carriers conference in London in October, Bombay emphasized the point. 'The sector is not the new tobacco industry – tobacco is inherently bad, air travel is inherently good,' he said. 'Underline your environmental track record. The sector has been doing good things. Over the past 40 years you have improved fuel efficiency by 70 percent and that is a major achievement. But do not use this track record – and IATA is very good at this – to conclude that in the future technology and operational measures will solve everything. They won't.'

   Bombay said the emissions trading scheme will give carriers with environmentally sound fleets a competitive advantage over their rivals. 'The ETS is oriented to reward those carriers with modern fleets and high load factors,' he said.

   But Jensen said the key is transitioning the vast majority of carriers from inefficient planes to fuel-efficient ones. And that is not possible at a time when operational costs eat away at the money carriers can invest in newer planes. Adding taxes would only further subvert those efforts, he argued.

   'To continue to improve environmentally, airlines must have money to invest,' Jensen said. 'High costs take away opportunities for the industry to renew its fleet.'

   For example, he said the forecast fuel and operating costs for planes in the U.S. domestic market jumped so high between 2007 and 2008, the industry could have bought 286 new narrow-body jets with the difference.

   With fuel prices retreating, that extra cost has reduced and so with it the number of jets that could have been purchased. But the point is, Jensen said, any costs get in the way of the industry modernizing its fleet and becoming more fuel efficient.

   Herdman said the problem with the emission-trading scheme is that the money that would be gleaned from airlines paying the offsets wouldn't stay within the industry to make aviation cleaner.

   He said the cost of fuel, not taxes, is an inherent driver to make airlines more fuel efficient.

   'The fuel cost alone provides every incentive to strive for fuel efficiency within the industry,' he said. 'The benefit of emissions trading comes from the application of funds outside the industry.'

   This is a key point, since most in the industry believe that any carbon taxes or offsets airlines pay would go to government general funds or to companies outside the aviation industry that are already clean.

   In any case, Herdman said airlines must plan for the day when a carbon tax, in whatever form, is a reality.

   'Strategic planning for the air transport industry must factor in likely increases in the cost of carbon-based fuels, inclusive of emissions charges, and the potential impact on projected growth rates,' he said.

   Aside from the cost issue, there's also the issue of differing regulations globally. Jensen bemoaned 'a regulatory hodgepodge' that global carriers must operate within.

   'There are proposals all over the place, which is another barrier for the aviation industry,' he said.

   He also said, not as a threat but as a matter of likely fact, that the EU legislation 'will most certainly be litigated if it goes forward.' That's because carriers, and the United States, will argue the legislation does not tackle the emissions issue in a method that's fair to all parties.

   The current political climate makes it unlikely that any government or group of governments will compromise on aviation emissions, Herdman added. That means he, like Jensen, stressed that government inertia and the tangle of legislation proposed globally would make it difficult for the industry to respond to the challenge of climate change.

   The potential cost of carbon emissions offsets would be about 5.5 percent of the air cargo industry's total annual revenue and 12 percent of its fuel bill.

   'Such additional costs are only bearable if applied in a non-discriminatory way and subject to international agreements,' he said. 'As a globally competitive, energy-intensive industry, we would prefer a globally harmonized, sector-specific approach to international aviation emissions.'

   But Bombay said the EU, through the ETS, is attempting to harmonize the way airlines operating in the region would pay for their environmental impact. In other words, carriers operating in different countries in the EU might today be subject to two different country-imposed carbon taxes. The EU is encouraging its member states to do away with such taxes.

   'Waiting for a global system is not a replacement for doing nothing, which is why the EU has moved forward,' Bombay said. 'If ETS works out, then we have an argument to go to our member states to say your taxes are not as effective.'

   Herdman said he's not convinced the ETS would operate in lieu of individual national aviation taxes. For instance, the United Kingdom this year introduced a proposed aviation duty that would affect passengers and air cargo – both freight moving in the belly of passenger jets and on freighters – independent of the ETS.

   'This threatens to completely undermine the competitiveness of the U.K. freight industry,' he said.

   Whether or not the aviation sector is included in the ETS – and Herdman agreed with Jensen that lawsuits will follow if it is – the AAPA chief said the aviation industry must continuously improve fuel efficiency so that the sector's share of global emissions doesn't rise as other industries reduce their carbon footprint. The industry is targeting a 25 percent improvement in fuel efficiency by 2020.

   He also said the industry must win the public relations battle.

   'Aviation must be seen making a wider contribution to global efforts to address the challenge of climate change,' he said.