The impact of ETS on airlines Jasper Faber III Workshop on Transport Economics, Barcelona
CE Delft •
Independent, not-for profit consultancy, founded in 1978
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Environmental policies in Transport, Energy, Economy
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Based in Delft, the Netherlands
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20+ years of experience with environmental policies for aviation
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Clients include European Commission, UNFCCC, ICAO, national governments, airlines, airports, NGOs
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Outline of the presentation •
Policy context
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Impact of the EU ETS on airlines • Free allowances • Hub location • Scope for additional cross-subsidisation
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Conclusions
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Policy context •
2008: inclusion of aviation in EU ETS • Opposition from non EU airlines, mainly from US (A4A) • Opposition from EU network carriers
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2013: stopping the clock • Changes geographical scope from ‘all arriving and departing’ to ‘intraEU’ • Opposition from low cost airlines
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Can the airlines positions be understood by analysing the impacts of the system on them?
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Impact of ETS on airlines •
Costs of ETS (static) • Emissions in geographical scope • Free allowances • RTK in geographical scope in base year • CO2/RTK for relevant flights • Ability to pass on costs (including opportunity costs) • Admin costs
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Costs of ETS (dynamic) • Potential to minimise emissions in geographical scope • Location of hub • Cross-subsidisation
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Impact of ETS on airlines: free allowances •
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Free allowances / unit of emissions: RTK/CO2 • Highest for long haul flights (network carriers) • Lowest for short haul flights with low seating density (network carriers) Original geographical scope • Non-EU carriers have mainly long haul flights: relatively many free allowances • Large network carriers have many long haul flights: average amount of free allowances • Small network carrier and low cost airlines: relatively few free allowances Stop the clock • Only short and medium haul • Low cost airlines receive relatively more allowances
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Impact of ETS on airlines: hub location •
On long haul flights were there is a possible transfer at a non-EU hub
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Los Angeles to Stockholm • Transfer at Amsterdam (both legs in ETS, one with STC) • Transfer at Chicago (one leg in ETS, none with STC) Shanghai to London • Direct (in ETS, but not with STC) • Transfer at Frankfurt (both legs in ETS, one with STC) • Transfer at Istanbul (one leg in ETS, none with STC)
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Hubs (and their home carriers) just outside the EU become more competitive
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Impact of ETS on airlines: cross subsidisation Cross-subsidisation is widespread in aviation Is the competitiveness of airlines determined by the share of emissions in the system? • Airline markets are city pairs • On each city pair, competition with airlines: • Fully included • Partially included • Not included • If fares are set to maximise profits, no scope for additional cross-subsidisation • •
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Impact of ETS on airlines: stop the clock •
Stopping the clock unexpectedly excluded flights to and from non-EU destinations from the ETS
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Airlines are likely to have raised income on these routes to cover for costs • US airlines: USD 3 per flight to EU
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Stopping the clock reduces the costs to zero
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Airlines gain a windfall profit • Total profit for all airlines estimated at EUR 250 – 500 million
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Conclusion •
Airlines are affected in different ways by ETS
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The impacts have changed after stopping the clock • Non-EU airlines received most generous allocation of free allowances • Non-EU airlines have benefitted most from stopping the clock
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EU network carriers may be affected by their hub location
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Network carriers have experienced a windfall because of stopping the clock
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The position of airlines with regards to the EU ETS cannot be explained by how they are affected competitively
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Thank you for your attention! Jasper Faber
[email protected] www.cedelft.eu
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References These reports (and more) are available at www.cedelft.eu CE Delft and MVA, 2007, Implications of EU Emission Trading Scheme for Competition Between EU and Non-EU Airlines CE Delft, 2007, Allocation of allowances for aviation in the EU ETS: The impact on the profitability of the aviation sector under high levels of auctioning CE Delft, 2011, The Inclusion of Aviation in the EU Emissions Trading System: An Economic and Environmental Assessment CE Delft, 2013, Costs and Benefits of Stopping the Clock: How Airlines Profit from Changes in the EU ETS
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