Volcanic ash cloud could reduce airlines’ carbon allowances

Market experts have warned that last week’s Europe-wide flight disruptions, following the volcanic ash cloud precaution, will affect the aviation industry’s carbon allocations under the European Union’s Emissions Trading Scheme (EU ETS) from 2012.

"This is not at the top of the list of airlines' concerns at the moment, but once the dust has settled, they will turn their attention to whether this will have an impact on 2012 allocations," says Stig Schjølset, senior analyst at carbon market research firm Point Carbon. "One obvious impact could be that the extra complications could delay aviation's inclusion in the EU ETS."

The Europe-wide flight ban, resulting from the Icelandic volcanic ash clouds from Thursday April 15 to Tuesday April 20, cost airlines $1.7 billion according to the Air Transport Association (IATA) and reduced overall emissions from aviation by 1.67 million tonnes.

The EU ETS is set to include the aviation sector on January 1, 2012, which will mean the industry will need to reduce 1990 emissions levels by 20% by 2020, but the amount of free allocations to be attributed to participants is still up in the air.

According to analysts, it is unclear whether these closures will be taken into account under current European Commission (EC) legislation. The EC is treating 2010 as a base year for deciding on the amount of allocations each airline will receive.

Airlines are also concerned that a substantial drop in their 2010 emissions count, as a result of the ban, will mean they will receive less free allocations in 2012, putting competitors that were not as heavily impacted by the ban at an advantage.

In order of severity, British Airways, Lufthansa, Air France, Ryanair and KLM have been most affected by the ban, according to data from RDC Aviation,

A spokesperson for Virgin Atlantic Airways, which experienced a 2.191% reduction from 351,671 million revenue tonne kilometres (RVK) to 283,606 million RVK as a result of the ban, said they expected the EC to take action on the issue. "We would expect the EC to put in place mechanisms to avoid any distortions arising from the closure of UK airspace for six days, which meant British carriers could not generate any RVKs during this time," said the spokesperson.

When questioned on the issue, a spokesperson for the EC said the Commission was examining any potential distortions to the review process. "The reduced activity over the past week could in principle affect the distribution of free allowances between aircraft operators. This distributional effect may occur if certain airlines had to cancel a greater proportion of flights than others," said the EC spokesperson.

However, the EC's spokesperson also commented that because airlines are likely to be much busier over the coming weeks as a result of the extra activity, this could plug the shortfall in recent activity reductions over the period of the flight ban.

The spokesperson said the airlines that experienced the most cancelled flights are likely to be the busiest due to them clearing out their backlog of passengers.