Airlines and Carbon Trading

Research for the Association of European Airlines finds that the changes are estimated to increase the cost to EU airlines from £36bn to £91bn over the 11 years of the current proposals.

The original scheme, proposed to be introduced by 2011, would force airlines to buy credits for any emissions above a pre-set cap, broadly based on their 2005 emissions.

In BA\’s case that would involve buying credits for emissions above 16.1m tonnes of CO? a year. Today the airline emits 16.6m-16.8m tonnes.

Amendments by members of the European Parliament propose to lower the cap and potentially force airlines to pay for 100pc of their emissions.

Mr Walsh challenged legislators to look at the wider picture at a time when oil was topping $130 a barrel and UK airlines already faced a 50pc rise in duty to £3bn a year by 2010 as a consequence of the Chancellor\’s replacement of Air Passenger Duty with a new aviation tax.

Credits should all be paid for, of course. Free allocation of credits is a corporate subsidy. The auctioning of all credits ends up being very like a carbon tax (although you end up targetting an amount of CO2, rather than a price).

However, at the same time as the credits come in, the APT should be abandoned. You don\’t want to tax the same emissions twice.

Now I don\’t know about this but I suspect that there\’s something of a turf war here. I have a feeling that the revenues from the auctions go to the EU, while the revenues from the APD (and if it were enacted instead, a carbon tax) go to national governments. So that there\’s always going to be, at EU level, a presumption that the cap and trade is the best way to go.

I argue the other way around (not just because it\’s the EU involved): instead of targetting an emissions level we should be targetting a price of carbon. This is because we don\’t actually want to stop climate change: we want the socially optimal amount of it. Thus adding the social cost of carbon to market prices will lead us to our desired solution via simple market processes.

That outcome might mean emissions continue to rise, they might fall as well: gbut it\’s the only way we have of actually finding out how people do value the future.

2 thoughts on “Airlines and Carbon Trading”

  1. Agreed. Free permits are nuts. But the coolest way of getting money off airlines is to auction landing/take-off slots, that covers all the other external costs as well and could replace a whole raft of stupid taxes without depressing economic activity.

  2. The last thing we need is the EU to get hooked on fuel taxes as well.

    We have had $300 dollar oil for years in the UK (effective petrol pump price) – at that price every alternative is cheaper… Add that to the fact that the government makes more from petrol than the sandy places that own the original oil, the companies that make the petrol and deliver it or the bloke who sells it you….

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