Despite the handwringing now from airlines about the European Union carbon fee, the cost is negligible when shared and the money is spent on clean energy.
It was no surprise to the airline industry when the world’s first global carbon pricing began this month, with the EU’s imposition of a carbon cost on all fights that land in or take off from Europe. All airlines have known since 2008, when the EU announced the new rule, that in January 2012 they would have to join the EU cap and trade program if they emitted over 10,000 tons of CO2 a year. (Small aircraft were excluded.)
By 2009, each airline was required to submit a greenhouse gas emissions monitoring plan. And since 2010, they have all had to monitor emissions and submit verified reports, as we reported last April.
Under the “cap” part of the EU cap and trade program, the European Trading Scheme (ETS), all affected flights must reduce their emissions to 97 percent of a baseline of the emissions from 2004 to 2006, in the first year. That ratchets down each following year. (This is exactly why we’ve seen so many stories about the surge in interest from airlines in aviation biofuels like “Lufthansa To Lift Off With Biofuels” and “United Airlines Makes Successful Flight Using Synthetic Jet Fuel.”)
During the phase-in period there is a free allocation of 85 percent of the permits for this year; so the fee will be lower for the first year. Each year, the cap will be reduced, raising more funds, as a carbon emissions fee on every ton of CO2 emitted.
Standard & Poor’s calculated, “As of Jan. 21, 2011, the weekly average jet fuel price was about $890 per metric ton. With 1 tonne of jet fuel generating 3.15 tonnes of CO2 and a current carbon price of about 15 euros per tonne of carbon dioxide, we calculate that the additional carbon cost would be the equivalent of adding about 47 euros (about $64), or about 7 percent, to the cost of a tonne of jet fuel.” (Currently the ETS carbon price is about half that. The carbon price varies, depending on demand.)
Divvied up on a per passenger basis, the European Commission has assessed the impact on air fares at 2 to 12 euros per passenger – from $2.50 to $15 – depending on flight length. Less than baggage fees.
What happens to the money collected? The funds are invested in renewable energy projects globally under the Clean Development Mechanism (CDM) to reduce carbon emissions globally, in order to prevent climate change. The fees will be collected by the airlines and paid to the ETS by the end of each year.
EU law makes a provision to enforce fines of 100 euros for each ton of carbon dioxide emitted for which airlines have not surrendered carbon allowances. The penalties are 10 times the cost of complying. Airlines that fail to surrender their allowances after the end of each reporting year face a huge penalty: They are fined 100 euros per ton of excess carbon dioxide emitted – far more than the current market price of $9.55 a ton of carbon dioxide – and are required to make up the shortfall in the following trading year.
Like EU polluters already do in the ETS program, international aircraft operators may buy carbon allowances at the market prices. They can purchase something called certified emission reduction units (CERs) for up to 15 percent of their overall emissions. (The free allocations of the remaining 85 percent will phase out over the next few years.)
The CERs fund renewable energy projects, efficiency improvements (and sometimes reforestation of approved carbon sinks like forestry) in the developing world that would not have been developed otherwise. (For example: “Big Clean Energy Projects Seek Big EU Funding.”)
Just this week, there have been a record number of requests to the EU for 12.4 million CERs for use in CDM projects. Polluters who are unable to reduce their own emissions are allowed to essentially pay to reduce emissions elsewhere, instead.
The idea is that emissions are global, and the planet doesn’t care where the reduction in carbon dioxide comes from. Indeed, developing nations are likely to account for the majority of new greenhouse gas emissions as they build power stations.
Recently, the number of renewable projects in developing nations surpassed those being built in already industrialized countries, in part because of the fees being collected by the EU and funneled into renewable energy development there.
For example, it is largely CDM funding that is building many of the record-breaking huge solar and wind projects in Morocco and Egypt, including the first part of the visionary Desertec program – a gigantic solar plan to ship clean power from the deserts of North Africa to Europe.
The European Commission estimates that for the first trading year, the total collected will be the equivalent of about $1.6 billion. This is funds to build clean energy projects – the solution to climate change – just from the airline industry, just for 2012.
The EU believes that it will set the standard for other countries considering including airline emissions in regional or national cap and trade programs and they will link these with the original over time.
As with the Kyoto Accord, the EU is leading – even when others are balking – in the expectation that sooner or later others will follow.