Airlines to receive 85% of EU ETS allowances free in 2012

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Airlines will receive 85% of their emissions allowances free of charge in the first year of the European Union's emissions trading system (ETS), dropping to 82% in the period from 1 January 2013 to 31 December 2020.

In the first year, airlines will have to purchase the remaining 15% of their allowances through an auctioning process.

However, the European Commission has set aside 3% of remaining allowances in the 2013-20 period as a "special reserve", which will be available to new entrants and fast-growing airlines.

The benchmark for each period was calculated by dividing the total annual amount of free allowances for the 2012 and 2013-20 trading periods by the sum of tonne-kilometre data sent to the EC by aircraft operators.

As a benchmark, during the first year of participating in the ETS an airline will receive 0.6797 allowances per 1,000 tonne-kilometres, said the EC. This will drop to 0.6422 allowances per 1,000 tonne-kilometres in the 2013-20 period.

"At current market prices, these free allowances represent more than €20 billion ($27 billion) over the decade," said EU climate action commissioner Connie Hedegaard. "With these potential revenues, airlines could invest in modernising their fleets, improving fuel efficiency and using non-fossil aviation fuel."

Hedegaard added that while the EC would prefer to see a global emissions trading system, "we can't defend that the aviation sector is exempted from contributing because they can't agree internationally".

The formal allocation of free allowances to each aircraft operator will be carried out by EU member states, which will multiply the benchmark by the 2010 tonne-kilometre data of each aircraft operator.

Aviation's inclusion in the ETS will have a "limited impact" on ticket prices, according to the EC.

Based on current carbon prices, it estimates that the cost of a transatlantic ticket will increase by less than €2, as long as the value of the free allowances is not passed on to passengers. This will rise to €12 if it is passed through to the passenger.