Wednesday, 28 December 2011

The EU "Airline Tax" on Flights in and out of the EU

The charge that airlines will have to pay for flying in and out of the EU is not a "tax" at all, but the cost of airlines having to hold tradable emissions permits under the EU Emissions Trading System. Starting January 1, 2012, airlines will have to hold permits for the carbon dioxide their airplanes emit during the entire length of a flight that originates or terminates in the EU zone [see EU reg]. Since it has to pay for a permit that is traded on an open market, the price is not known. It is not a tax.

In my recent interview on Seattle Public Radio KUOW, I received a question from a caller who claimed to have had to pay a "carbon tax" of something like $600. That sounded high to me, as it did to host Steve Scher, but I should have done the back-of-the-envelope calculation and concluded she was nuts. Here is the simple arithmetic of the cost to an airline of flying in or out of the EU. Boeing reports that a 747-400 consumes about 5 gallons per mile, assuming a flight of about 3500 miles, about the distance from JFK airport to Heathrow. A direct flight from Seattle to Heathrow is longer, 4780 miles, but we'll assume that the fuel burn rate is about the same, even though it could well be longer because the plane would have to carry more fuel to fly the longer distance. The carbon content of jet fuel is 9.57 kg of CO2 per gallon, or 0.052746 tons per mile (5 x 9.57 x conversion factor for kg to short tons). Thus, a 4780-mile flight from Seattle to Heathrow would emit about 250 tons of CO2 for the flight. The 747-400 seats about 416 passengers in a 3-class configuration, so assuming that there are 350 passengers on board (a generous assumption given the fullness of flights these days), each passenger would account for about 0.72 tons of CO2. EUETS allowances have been trading at about 8 or 9 Euros lately, or about 11 US dollars. So the "tax" for this Seattle passenger going to visit family in the UK should really have been about eight or nine U.S. dollars. Of course, British Airways may mark up the cost a bit, but that is still two orders of magnitude off from her estimate of $600. And I suppose that the price of the EUETS permits are relatively low right now, and the Euro is taking it in the shorts, so maybe it is not a fair calculation to make right now. Perhaps, an estimate of fifteen or twenty U.S. dollars is more realistic over the long run. But on the other hand, even this estimate might be high; the EUETS might not cost passengers anything in 2012, because for the first year of the airlines' participation in EUETS, allowances equal to 97% of historical emissions will be allocated free, and 95% in 2013. There may not be any costs to pass on to passengers in 2012 and 2013!

So there you have it. For most passengers flying in and out of the EU, the cost of their airline having to comply with the EUETS will likely be close to zero for the first two years, and rising up to something on the order of fifteen or twenty dollars. Makes the threatened lawsuit by Chinese air carriers and the threatened US Congressional attempt to fine American carriers for complying with the EUETS mandate  seem more than a little hot-headed.

Monday, 5 December 2011

A Loss for All of Us

I try not to get personal or off-theme on this blog, but the passing of a fine person in the Canadian oil industry is reason for us to pause and reflect on a legacy that above all is best described as civility in the maelstrom of controversy. The loss of Rick Hyndman, formerly a senior economist with the Canadian Association of Petroleum Producers, is a loss not only to the varied stakeholders that have engaged with the Canadian oil industry, be they green, brown, or any other colour. Rick was exceptionally knowledgeable about the world oil business, savvy about Canada's role in that global industry, but in all of his dealings polite and respectful, even when, as he recalled six years ago, he was labeled a "climate criminal" by some green groups. The best of the greens, know better, though. In 2005, I headed up a panel on energy policy as part of a CIAJ conference, and invited Rick and now-Ecojustice legal advocate Karen Campbell. Rick accepted that invitation, as he did a more recent one from me, with the response that he "would be honoured to participate," a humbleness that masked his vast storehouse of knowledge and razor-sharp intellect. It was a highlight of my career to remember, as Rick and Karen had their lively and fruitful exchange during the conference, B.C. Supreme Court Justice Bruce Cohen, the eminent chair of the conference organizing committee, turning to me and whispering excitedly, "these guys are great!"

Without impugning Rick's views, positions, and work, I would like to say that they have for me served as a source of inspiration not only for substantive views, but a commitment to civilized and mutually respectful discourse. There was something utterly Canadian about Rick in that regard.