U.S. carriers could harvest a windfall profit from unused carbon allowances now that the European Union has “stopped the clock” on applying the emissions trading system (ETS) to international aviation.
When the ETS went into effect, airlines were granted free allowances that, given the rules of the ETS, had to be used for 2012 emissions, an industry source familiar with the matter tells Aviation Week.
Airlines are required to record their carbon emissions for 2012, but because the EU has suspended the ETS, they are not responsible for covering the emissions with allowances or buying allowances on the carbon market, the source adds.
The free allowances could be sold to airlines that operate within Europe, as the ETS continues to remain in force for those operations. Some portion of the allowances also could be used by international carriers that operate intra-EU flights, which are still governed by the ETS.
But if airlines sell the allowances, they could be responsible for paying U.S. capital gains taxes, the source says. Some U.S. carriers began raising fares to cover projected ETS costs by adding a charge per transatlantic segment. However, because airlines were not responsible for paying the carbon tax, it remains unclear if these fees now must be returned to the U.S. Treasury as tax, refunded to customers or governed by U.S. regulations on ancillary revenues, the source says.
The airline industry refutes the notion of a windfall profit. “There is not a scenario, given the way that airline finances and prices work, for the airlines to realize a profit from [the ETS],” says Nancy Young, Airlines for America’s VP-environmental affairs.