New EU emissions rules mean that airline passengers will pay more for their tickets

The era of cheap flights may be over as Brussels forces industry to pay more for pollutionAirline passengers are facing higher fares under newly strengthened EU rules designed to tackle aviation emissions to combat climate change, in a sign that the era of super low-cost air travel may be about to end.

Carriers are facing higher airfares after they raise prices to recover from the coronavirus pandemic.

According to analysts, the EU would like to see carbon-intensive industries pay more for their pollution. As a result, ticket prices could rise to EUR10 per return flight as a result of increased aviation emissions levies.

The EU legislators have approved an update to the bloc’s carbon pricing rules. This forces aviation and other industries to purchase enough allowances to cover their pollution under ETS.

By 2026, the rules will end the practice that airlines were able to get a large portion of their permits for free. Analysts expect that the total allowances will decrease over time. This will increase the cost of pollution.

Olivier Jankovec was the director-general of ACI Europe, the airports industry body. He stated that the EU was currently going through a “major policy reset” that would affect “the economics in the sector.” It will lead to higher costs for airlines, increased fares, and lower demand.

The industry lobby group Airlines for Europe stated that sustainability legislation, such as the EU’s, is essential to the future of the airline industry. . . Flying via EU hubs such as Amsterdam, Paris, or Frankfurt could become 23 to 29 per cent more costly in 2035. This could result in 17% fewer passengers traveling through EU hubs.

Ryanair boss Michael O’Leary previously stated that the age of “absurd[ly] cheap fares” is over due to rising environmental taxes and higher oil prices.

For the six largest intra-EU carriers (EUR0.5bn in 2019), the cost of compliance with the EU ETS will rise to EUR5bn in 2027. This is an increase from the EUR0.5bn that Alex Irving, Bernstein analyst, estimated. This is too much for airlines to absorb. . . He stated that prices will have to rise.”

He estimated that passengers would pay between EUR8-10 more for a return flight.

Jaime Rowbotham, a Deutsche Bank analyst, predicted that Ryanair and easyJet would each spend EUR785mn cumulatively on carbon allowances over their 2023 fiscal year. This is equivalent to EUR2.60 per passenger trip. He predicted that this could increase to EUR2.25bn by mid-decade.

EasyJet stated that it’s impossible to predict future prices but that more government support is needed to achieve net zero emissions.

Ryanair reported last year that it spent EUR51mn on credit and stated that in the medium- to long term, it will not be able “eliminate the effect of the rising cost allowances by forward hedge.”

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On Friday, the price of allowances within the EU system was close to its all-time highs. It was trading at EUR100 per tonne. The permits permit the holder to produce onetonnes of carbon dioxide. The ETS will generate revenue that can be used to support sustainable aviation fuels.

About 3 percent of EU greenhouse gas emissions are caused by airline emissions. The majority of these emissions come from international flights.

The EU’s emissions trading program is a key element in its plan to reduce greenhouse gas emissions by 55% by 2030, as compared to 1990 levels.

Climate change campaigners see the “polluter pays” scheme as an effective method to reduce carbon emissions and have advocated for its extension.

“Carbon pricing is an important tool to reduce emissions in Europe. . . It’s only fair that airlines pay their fair part for emissions,” Jo Dardenne (Aviation Director at Transport & Environment), an NGO.

Bas Eickhout is a Green MEP who has advocated for the elimination of free allowances as soon as possible. He called them a “fossil fuel subsidies”.

Since 2012, the ETS covers airlines for flights within the European Economic Area. China and the USA successfully resisted an attempt to expand this coverage to flights outside of the region.

European airlines face increased carbon emissions costs. The EU is also working to establish rules for the use of sustainable aviation fuels, which are less polluting than fossil fuels.

The update to the emissions trading system will not be effective until the final law is approved by the European Parliament and the EU environment ministers in spring.