January 22, 2013 / 9:34 PM / 5 years ago

UPDATE 1-EU carbon law hands airlines a windfall -study

* European Commission proposes freeze of law
    * Airlines at forefront of opposition to carbon law
    * U.S. body A4A denies airlines making money from EU ETS

 (Adds reaction from A4A, paragraphs 13, 14)
    By Barbara Lewis
    BRUSSELS, Jan 22 (Reuters) - Airlines may have already made
up to 1.36 billion euros ($1.9 billion) in windfall profits from
an EU law that forces them to pay for carbon emissions, a study
by a Dutch consultancy said on Tuesday.
    International fury at the law led the European Commission in
November to freeze it for a year for intercontinental traffic to
give a U.N. aviation body another chance to agree on an
alternative global plan to curb airline emissions.
    The law will still be enforced for internal EU flights.
    Airlines and plane manufacturers have been at the forefront
of opposition, saying the EU law is a financial burden in
difficult economic times. 
    The report by Dutch consultancy CE Delft said, however, that
airlines generated windfall profits by passing on the expected
cost of carbon allowances to customers to cover their emissions
obligations.
    The bulk of allowances (some 85 percent) is handed out free
each year, but CE Delft said many airlines would pass on the
full cost and not just the value of allowances they had to buy.
    "It is very probable to assume that the airlines that are
active in the geographic scope of the EU ETS have passed their
anticipated extra costs due to EU ETS on to their clients at
least until November 2012," the report said of the emissions
trading scheme in which airlines buy allowances to cover their
emissions under EU law.
    Some airlines announced fare increases when the law began to
take effect in January last year, including Lufthansa AG
 and major U.S. airlines, which introduced a $3
surcharge per passenger for European flights.
    Airline pricing is not fully transparent, but the report
calculated windfall profits for 2012 could be as much as 872
million euros for all airlines, if the full value of the free
permits were charged to passengers.
    In addition, it said stopping the clock had generated
one-off extra revenues of about 486 million euros, making for a
total of nearly 1.36 billion euros.
    The report says airlines still collected extra money from
passengers to cover intercontinental emissions obligations even
though the requirement to pay them was waived for this year.
    
    COMPLEX SUMS
    Industry sources said some private jet operators were
refunding passengers, which involved complex calculations.
    U.S. airlines industry group A4A said in an emailed
statement: "There is no scenario under which U.S. carriers are
making - or will make - money off the EU ETS."
    "If the EU were to go forward with its full scheme, it would
cost U.S. airlines $3.1 billion through 2020."
    Environment campaigners say the airlines should give any
windfall proceeds to a U.N. fund to help poor nations deal with
the impact of climate change.
    "Passengers have paid towards fighting climate change. It is
unjust for airlines to retain these windfall profits," said Bill
Hemmings, aviation manager at Transport and Environment campaign
group, which commissioned the CE Delft report. 
    "Air carriers should act responsibly and contribute these
additional profits to the U.N.'s Green Climate Fund."
    To try to come up with an international alternative to the
EU law, a high-level group has been set up to lead debate at the
International Civil Aviation Organization (ICAO) in Montreal.
    It held an initial meeting in December and meets again at
the end of January.
    The European Commission proposal would automatically
reinstate the EU law for all airlines using its airports if the
ICAO cannot agree this year on a different way of curbing
aircraft emissions.
     
 ($1 = 0.7524 euros)

 (editing by Jane Baird and Andrew Hay)

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