Carbon trading: Emissions law bears down on small operators

The EU’s emissions trading scheme, linchpin of the bloc’s plan to lead the world in the fight against global warming, has proven about as popular among large airlines as a flock of geese on a busy runway.

United Airlines, Luft­hansa, and Qatar Airways, among others, have complained that this law – which forces them to pay for their carbon emissions on all flights that take off or land in Europe – will push up costs, saddle them with regulation and possibly ignite a trade war.

Yet the majors can count themselves lucky. Private aircraft owners and small operators are set to bear a much heavier burden under the law.

“For companies in the business aviation industry, this is going to make things much more expensive,” says Sue Barham, a partner specialising in aviation at Holman Fenwick Willan, the law firm.

Such operators, Ms Barham notes, “are obviously much smaller and do not have the same resources” as the big commercial airlines.

Consider estimates from the European Commission, the EU’s executive arm, of the number of carbon permits that airlines will have to purchase in the years ahead.

Each permit gives a company the right to emit a tonne of carbon dioxide without penalty.

Those that exceed an annual benchmark must buy additional permits to offset their pollution.

In an effort to soften the blow for large carriers, the commission has said that it will supply about 85 per cent of their necessary permits free next year.

In terms of passenger costs, the commission estimates that the law, which came into effect in January, will add no more than a €6- €12 surcharge on a transatlantic ticket.

But private operators will receive only 4 per cent of their permits free, forcing them to buy the remainder through auctions or on the open market – a staggering proportion by comparison.

“We have to pay much, much, more than commercial airlines,” says Fabio Gamba, chief executive of the European Business Aviation Association (EBAA), a Brussels-based trade group.

Mr Gamba estimates that 15-20 of his group’s members would be forced to pay about €4m between them next April, when the first bill for emissions is due.

The reason for the difference is the formula the commission uses to award permits. It measures an aircraft’s passenger or cargo weight against miles flown. On that basis, a small aeroplane with three passengers ranks far worse than a big one with hundreds.

Private operators also face a disproportionate blow when it comes to the administrative work necessary to comply with the law. They are subjected to many of the same reporting requirements as large carriers, yet they may have a fraction of the staff.

“It’s a nightmare,” says Martina Becher of TAG Aviation, a Swiss private jet company that operates 120 aircraft

The EU’s bureaucracy does not make it any easier. Ms Becher must submit flight data to authorities in the UK, France and Germany – each of which demands the data in a different format.

“Everything we do related to the EU emission trading scheme we have to do three times,” she says.

The company is still puzzling over what to do about its Hong Kong arm, since the Chinese government has forbidden its airlines from taking part in the scheme – even though they risk fines and penalties from the EU.

Not surprisingly, private operators and small business airlines are lobbying to change the law. An EBAA briefing paper sought to challenge the high-polluting reputation of business jets by arguing that they are “a productivity tool with benefits to nations, communities and industries”, noting that their fuel efficiency has improved 40 per cent over the past 40 years.

The group has had some success. The law has been tweaked so that operators emitting fewer than 25,000 tonnes of carbon a year (about 12 aircraft, depending on size, flying 600 hours a year) can follow a simplified reporting requirement – up from a previous threshold of 10,000 tonnes (or a fleet of about five aircraft flying 600 hours annually).

But its request that all operators whose annual emissions fall below 10,000 tonnes be exempted from the scheme was rebuffed. At present, commercial operators are excluded below that level, but private owners and corporate jets are not.

Given their customers’ wealth – and the fact that they have been spared the indignities of modern commercial air travel – private jet operators acknowledge that it has not been easy to find a sympathetic ear.

“In the eyes of the politicians and environmentalists, we are the bad guys,” Ms Becher says.

On the bright side, carbon permits are trading at near record lows, which should ease compliance costs for all carriers. Private carriers can also pass on costs to deep-pocketed customers.

As Mr Gamba observes: “Our passengers are less price-sensitive than those on commercial flights.”

(Copyright The Financial Times Limited 2012.)

(By Joshua Chaffin)