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Airline Industry Begins To Assess Carbon Costs

by Robert Lee,, London

04 December 2007

The airline industry is only now beginning to consider the impact of the EU Emissions Trading Scheme (EU ETS), according to a survey of aircraft operators by PricewaterhouseCoopers.

According to the PwC study, entitled ‘Ready for take-off?', only one in four respondents has carried out a meaningful assessment of the business impact of climate change regulation. The EU has proposed to extend the current scope of the scheme to include aircraft emissions by 2011, and some member states are supportive of an earlier start date.

All of the airlines responding to the survey expected that inclusion within the EU ETS would affect costs. Despite this, two-thirds reported that the proposal had yet to be factored into their strategic planning. At an operational level only around 40% of the twenty carriers surveyed currently monitor and report emissions data, yet most are confident in the quality and verifiability of the data. None of the respondents were confident that their IT systems were ready for emissions trading. This suggests that much work will need to be done to collate the required data for the allocation process, and to support the full implementation of the scheme.

Klaus-Dieter Ruske, global transport and logistics leader, PricewaterhouseCoopers, commented:

“PricewaterhouseCoopers's survey indicates that European aircraft operators are far from prepared for the requirements of the EU Emissions Trading Scheme. The scheme will bring operational implications and a need to demonstrate compliance but the overall impact will be more fundamental. Carbon thinking requires an integrated approach across the organisation which will affect investment planning, merger and acquisition strategy and tax and accounting matters. Many industry players are waiting for the legislative process to produce binding rules, but experience shows that early preparation pays off.”

The absolute contribution of airline emissions to the overall greenhouse gas burden is widely debated. What is clear though, PwC argued, is that the rate of growth in recent years and projected growth of airline emissions is significant, and, even with some scope for improving fleet fuel efficiency, the sector's strong future growth has the potential to undermine emission reductions achieved in other industries.

The EU ETS is the world’s largest emissions trading regime to reduce CO2 emissions. At present, the scheme serves to limit the emissions of ‘installations’, such as factories, in five energy-intensive sectors, by either cutting their emissions, investing in international emission reduction projects or trading emissions allowances on the EU market. Failure to cover emissions with allowances has led to fines of EUR40 per tonne of CO2, rising to EUR100 per tonne from 2008.

Hans Schoolderman, global carbon assurance leader, PricewaterhouseCoopers, concluded:

“It is worrying to see the lack of preparedness by the airline industry for the EU Emissions Trading Scheme. Aircraft operators could benefit from being more proactive now while they still have the opportunity to participate in the debate and influence the final shape of the rules and market dynamics. Engaging now is particularly important given the concerns expressed in the survey on whether or not the EU ETS will ensure a level playing field between carriers based in different member states and those based outside the EU."

“Companies who are better prepared are less likely to encounter costly hurdles once the legislation is in place. Perhaps more importantly, the investment community and consumers are also looking to companies to take the lead in heading off climate change.”

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