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Green tax to hit air passengers

South China Morning Post – 6 Sept. 2011

Carriers face a US$400m bill on flights to Europe next year due to levy on carbon emissions – and cost will ‘inevitably’ be passed on to customers

Asian airlines including Cathay Pacific (SEHK: 0293) are likely to have to pay up to US$400 million a year for their carbon emissions on European routes from January – a cost likely to be passed on to passengers.

The green tax, imposed by the European Union in an attempt to lower greenhouse gas emissions, would mean an extra cost of US$8 per passenger on average.

That figure was based on a total of 2.5 billion passengers and the 650 million tonnes of carbon dioxide emitted globally by carriers last year, said Andrew Herdman, general director of the Association of Asia Pacific Airlines.

A Cathay Pacific spokesman said yesterday: “It is inevitable that the increased costs will be passed on to the passengers.” Carbon credits, which are used to offset the carbon emissions, traded at an average of €15 (HK$166) to €20 per tonne on the European market last year.

It is estimated that the carbon footprint of one passenger on a round trip from Hong Kong to London – a total of 19,244 kilometres – is about 1.4 tonnes of carbon dioxide.

The extra cost seems affordable, but airlines operate on thin margins.

Global airlines made US$18 billion in net profit last year, their best year since 2000. That translates into a profit of approximately US$7 per passenger, compared with the US$8 in carbon pricing per ticket.

In three out of the past 10 years, when airlines turned a profit, their margins were between 1.1 per cent and 3.2 per cent. “The airlines industry is so competitive that any difference in the margin translates into market share gain and market share loss,” said Herdman. “That’s why we are demanding fairness in the scheme and are against any kind of distortion in the rules.”

Cathay agreed that a price should be put on the carbon footprint, but not through a “territory system”, said John Slosar, chief executive of the airline, at a press conference last month.

Airlines, which account for 2 per cent of global carbon emissions, protested against the EU scheme because it charged for the entire flight, even if the flights are over non-EU territories. This scheme penalises carriers operating at hubs far away from Europe, while benefiting those nearer, such as Middle East airlines.

US carriers have sued the EU in the European Court of Justice for including airlines in the emissions trading scheme. A panel of judges will publish an opinion on October 6.

The US case is key because its arguments focus on the legitimacy of the EU applying its emission scheme to all airlines. A ruling in favour of the US carriers would apply to others.

Air China (SEHK: 0753announcementsnews) and other mainland carriers have also threatened to sue.

Herdman predicted the lawsuit would eventually turn into political disputes between governments and would need to go through the International Civil Aviation Organisation, a specialised agency of the United Nations that governs airlines.

These political battles could be solved only by bilateral discussions between governments, he added.

Under the EU scheme, airlines are granted 85 per cent of their carbon emissions for free and need to buy the remaining 15 per cent through auctions, based on their traffic figures for last year. Those that cannot come up with a quota sufficient to cover their emissions will be subject to penalties equivalent to €100 per tonne of emissions.

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