Reuters reports EU airlines are buying up carbon credits on the cheap. Recently carbon credit prices have dropped to about half what they were trading at a year ago.  This move is quite different from other non-EU airlines; whose reaction has either to join the or, in the case of China, to refuse to pay them.  The most extreme case has been AirAsia X which simply withdrew from the market because the ETS, and other costs were too much.

Interestingly Ryanair announced would charging customers €0.25 per leg to offset the ETS fee.  The airline thinks its 2012 ETS bill will be around €20 million – equivalent to just under 80 million passengers for 2012.  Meanwhile said it would need to pass on €130 million in ETS costs to its customers. In 2011 Lufthansa carried 90.2 million passengers (group figure).  This means the airline needs an ETS offset of approximately €1.44 per passenger assuming they carry the same numbers in 2012.

As EU airlines move on the slump in carbon credit prices, hedging much as they do on fuel, prices are likely to firm.  In the meantime we are now able to define with more clarity what the impact will be for travelers.  Certainly, given some of the onerous and levies (the UK APD being the worst), the ETS offset fee is not going to be high enough to hurt air travel. At the moment at least.

Which makes the current non-EU airline position seem more about fighting EU laws than anything else.  Given the EU’s determination to enforce the new rule, airlines may have to simply swallow their pride and buy credits to offset ETS charges.  Of course ETS costs per passenger are low now.  As soon as the airlines start to get on board, we suspect the EU will increase the ETS to test how much revenue they can squeeze out of travelers. No can resist seeing how hard it can squeeze any gold egg laying goose. And in doing so, the EU risks getting the airline industry even more irritated. But the EU has demonstrated its deaf ear before.

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