Center for American Progress

RELEASE: Is the Sky Falling for Airline Profits in the European Union?
Press Release

RELEASE: Is the Sky Falling for Airline Profits in the European Union?

The Consequences for Airlines from the Inclusion of Aviation in the EU Emissions Trading System

Washington, D.C. — As 26 nations convene to discuss opposition to the European Union’s extension of its emissions market to aviation, a new report, “Is the Sky Falling for Airline Profits in the European Union?,” by Samuel Grausz and Nigel Purvis of Climate Advisers with Rebecca Lefton of the Center for American Progress, shows that the controversial inclusion of aviation in the European Union Emissions Trading System will increase airline profits in the near term because air carriers are likely to be overcompensated by aspects of the policy designed to reduce costs. The report is the first by the Blue Skies Project, a collaborative research initiative that works to help make aviation safe, affordable, secure, and clean.

“This in-depth look at the economic consequences of the inclusion of the aviation sector in the EU ETS clarifies the impact on the industry,” said Rebecca Lefton, Policy Analyst at The Center for American Progress. “We hope that this report will alleviate concerns and misconceptions about the costs of the program and help parties gathered in Moscow consider better options for resolving this dispute and pursue positive collaboration.”

Through reviews and comparisons of all 37 previous studies on the economic impacts of the inclusion of aviation in the EU ETS program, this new report finds that:

  • EU airlines will profit more than non-EU airlines because EU airlines have more flights covered by the new policy, even though the policy itself is not overtly protectionist.
  • Traditional so-called “network” airlines—those that use a traditional hub-and-spoke system for scheduling flights—will receive a larger increase in profits than low-cost airlines that operate mostly within the European Union because network airlines have more operations covered by the policy and because the demand for network airline flights is less responsive to changes in price.

“This report is the most comprehensive review of the economic impacts of the EU aviation policy to date,” explains report co-author Samuel Grausz. “It reviews economic impacts for all airlines, including important subgroups such as large and small carriers and airlines of different nationalities. We hope that by providing a credible, broad-based review of the economic impacts, we can create a more credible foundation off which to improve future policy discussions between nations, airlines, and civil-society organizations on all sides of this issue. This report is the first of many planned for the Blue Skies project; we plan to publish additional reports on the economic and legal issues surrounding this policy and welcome any feedback on what should be included in future studies.”

The aviation sector accounts for around 13 percent of global transportation sector greenhouse gas emissions and 3 percent of total global greenhouse gas emissions. Aviation greenhouse gas emissions are projected to quadruple by 2050 if not regulated. The inclusion of aviation in the EU Emissions Trading System requires airlines that fly into or out of Europe to start reducing global warming emissions this year. It is estimated that this policy will reduce aviation emissions by more than 70 million tons of carbon dioxide equivalent annually from 2013 to 2020.

Many nations, including the United States, India, and China, oppose the EU ETS aviation program arguing that it is a unilateral, extraterritorial imposition of the European Union’s policies. Some airlines also allege that the policy will result in substantial increases in costs and ticket prices, resulting in a decline in demand for air travel. Several major U.S. airlines brought a lawsuit challenging the directive in the European courts in 2009, which was joined by Airlines for America (formerly the Air Transport Association). On December 21, 2011 the EU Court of Justice ruled in favor of the EU ETS aviation directive, stating that the policy did not violate international law. Many airlines and governments are calling for a global approach through the International Civil Air Organization.

For questions or further information, please contact Samuel Grausz, of Climate Advisers, at 206-851-6156 or [email protected].

About the Blue Skies Project

The Blue Skies project is a collaborative research initiative that works to help make aviation safe, affordable, secure, and clean. The project provides in depth legal, political, and economic research on issues that vitally affect the aviation sector. Through this research and outreach to key stakeholders, the project seeks to build consensus and positive collaboration.