A month after aviation was ­controversially brought into the EU's Emissions Trading System (ETS), the political wrangling over the move shows no signs of letting up.

While Europe's highest court in December ruled the EU's plan to include aviation in its ETS scheme did not breach international law, US carrier body Airlines for America - which filed the original lawsuit opposing the scheme - said it would study a further legal challenge in the English courts.

More than 20 countries have already voiced their opposition to the cap-and-trade scheme and government rhetoric opposing the scheme - notably from China and the USA - has continued. Indeed, the US Senate has set in motion legislation that would prohibit its carriers from taking part in the EU ETS scheme.

Under the ETS, airlines are required to surrender an allowance for every tonne of CO2 emitted on flights to and from Europe. In 2012, 85% of allowances will be issued free of charge and 15% will be auctioned, but this will drop to 82% from 2013.

With the scheme now in place, airlines have reluctantly put in place measures to pass on the initial cost of the ETS to their passengers. Lufthansa is raising fares to offset the tax, while American Airlines, US Airways, United Airlines and Delta Air Lines have all added surcharges on flights to Europe since the start of the year. Ryanair, which added an additional £0.25 ($0.38) charge per passenger on each one-way booking to cover the cost, estimates that inclusion in the ETS will cost it €15-20 million in 2012.

A report published in January by OAG found the total cost of the aviation industry's inclusion in the ETS was likely to be €3.5 billion per year, assuming a price of €30 per allowance. This would represent an average fare rise of approximately 3% per passenger, OAG says. IATA estimates the initial cost of ETS in 2012 to the airlines will be €900 million, rising to €2.8 billion in 2020.

This forecast, which IATA implies is a modest one, is based on a carbon permit price of €13/tonne for 2012, rising to €20/tonne in 2020.

IATA warns of the impact of additional costs when margins are already thin. "The cost of carbon is volatile, so it's hard to say what the impact will be in the long term," it says. "The problem with a tax like this is you're never sure where it's going to end up."

Source: Airline Business