© AFP/File Peter Parks London, Jan 19: Airlines, including firms who have lobbied aggressively against climate change legislation could net billions of euros under the greenhouse gas plan by passing costs to the consumers without any real drop in emissions, say economists studying the situation.
According to them, the resulting rise in cost to individual airline tickets will be too small to deter customers, and so the reduction in greenhouse gas emissions will also be miniscule, at least in the short term.
Last month the European Commission outlined its plans to include the aviation industry in the continent-wide market for greenhouse gas emissions in a bid to bring down rising emissions from aviation under control.
However, the aviation trade organizations reacted angrily. While some US government officials said the move was illegal, many airlines even suggested that they would fight it in the courts.
But an economic analysis of the European Commission's proposals, due to appear in the March issue of the economics journal CESifo Forum, has said that the short-term effect will be that the aviation industry is handed several billion euros annually.
“The result doesn't mean that adding the aviation industry into the scheme is in itself a bad idea. Far from it, this helps to make airlines accountable for their emissions. But the way it is being done amounts to giving the industry a subsidy,” Nature quoted John Fitz Gerald and Richard Tol, economists at the Economic and Social Research Institute in Dublin as saying.
“The windfall is a consequence of the way emissions trading works. Industries in the scheme are allocated carbon dioxide permits that are traded in as emissions are generated. The permits can be sold if a firm emits less than its allowance, or bought if they wish to exceed it. Since industries are initially given almost enough permits to cover their usual amount of emissions, they should be able to continue business much as usual.
“But experience with other industries already in the scheme shows that they treat permits as assets — the permits are currently worth around five dollars per tonne of carbon. To compensate for having to lose the assets when accounting for their emissions, the firms charge extra for products. In the case of the electricity sector, this is estimated to have generated an extra 800 million pounds in annual profits for British firms between 2005 and 2007,” they said.
Tol said the same would happen in the aviation industry if the European Commission's plans proceeded and airlines joined the trading scheme in 2011.
According to his model, at current carbon prices, the industry would net three billion annually.
“This could even increase, because carbon has traded at around 30 per tonne — eight times the current value — in recent years,” Tol said.
“In the short-term, however, the impact on emissions is likely to be small. A flight between two European cities is likely to become just a few euros more expensive due to emissions trading, which is too little to put significant numbers of people off flying. The initial reduction in total worldwide emissions will be just 0.01 percent,” he said. (ANI)