Airlines given little consideration in ETS white paper

Unlike industries such as coal fired electricity generation and petroleum airlines would have to purchase their carbon credits on the open market without any subsidy from the government.

“The Government considers that the emissions intensities of competitors in the aviation industry are sufficiently similar that firms in the industry will be able to pass on a large portion of the costs of the scheme to consumers,” it said.

Qantas, Virgin Blue and Skywest had all tried to argue during the green paper process that an ETS would force them to pass on the costs of any such system to consumers through increased ticket prices. Virgin Blue and Qantas argued that this would inevitably make some marginal services uneconomic, with a possible affect on the tourism industry.

In particular, Qantas has expressed concern that domestic aviation would be “trade exposed” as the added cost on tickets could force some travellers to holiday overseas, rather than in Australia.

However, the report downplayed the affect that increased airline ticket prices may have on domestic tourism. “It is relevant to note that international aviation will not be covered by the scheme,” the report said. “The arguments of Qantas and Virgin Blue suggest that the scheme creates potential distortions to arise through substitution between domestic aviation, which is covered by the scheme, and international aviation, which is not.”

But as Qantas’s chief risk officer Rob Kella told Australian Aviation, the airline is still concerned about the uneven playing field it sets up. “We remain concerned that the design of the ETS will lead to inequitable outcomes for the domestic aviation sector. Australian tourism will also be adversely affected given the global competitive nature of this sector.”

As well as its domestic flying, Qantas also faces the prospect of having to purchase carbon credits for its flights to Europe as a result of the controversial decision by the European Union to include international operators in its own emissions trading scheme from 2012.

Away from the airlines, smaller operators who emit less than the 25,000 tonne threshold would not be covered directly by the CPRS and as such would not have to purchase their own carbon credits.

However the costs of the scheme on fuel refiners would ultimately lead to an increase in operating costs, which Regional Aviation Association of Australia CEO Paul Tyrell says could hurt regional operators particularly. “We believe that the government has to make sure that there is a cut in the excise on aviation to offset extra costs which will be applied to fuel as a result of the Emissions Trading Scheme. Otherwise, it will add more strain to our members’ already thin margins, and ultimately hurt regional and remote areas,” he said.

Tyrell also called on the government to commit the funds it will raise from aviation’s inclusion in the CPRS into assisting the development of lower emissions technologies for aviation. “We see this as a dead-weight tax which will add to the cost of aviation operators without anything going back into the industry to encourage the development of cleaner flying. If the government was really serious about lowering emissions and saving the environment, they should be aiding the industry to be part of the solution,” he said.

He also noted that it was difficult for airlines and other operators to effectively campaign for a general exclusion from the ETS. “The difficulty for our industry is that if we oppose the ETS, we are branded as not having the environmental interests at heart, which is simply not true,” said Tyrell.

Rob Kella also stressed that Qantas was supportive of efforts to reduce emissions, but still had concerns over the proposed ETS. “We support efforts to accelerate the development and implementation of initiatives that will reduce aviation emissions generally, provided that solutions are equitable and there is no reduction in the competitiveness of Australian industries and businesses,” he said.

On the current timetable, the CPRS would begin in 2010, but with the Opposition recently attacking the wisdom of adding more costs to businesses at a time when the world economy is still volatile, it appears that there is more life in the debate on emissions trading. Kella also said that Qantas is continuing to liaise with the government as part of the white paper process.