Why the UK gave “pollution permits” to airlines
Emissions trading extends far beyond oil and gas. Smruthi Nadig takes a look at one of the largest sectors creating Scope 3 emissions for oil and gas, and how emissions reductions will affect future demand for aviation fuels.
As the source of the world’s petrochemicals, the oil and gas industry takes centre stage in the push against greenhouse gas emissions. It acts as the source of all fossil fuels, with the emissions of other reliant industries falling into the “Scope 3” emissions of oil and gas.
One of the largest of these dependent industries is aviation, which accounted for over 2% of global energy-related CO2 emissions in 2021. These contribute significantly to global warming, with over-sized practical effects due to planes depositing emissions directly into the upper atmosphere.
According to the European Aviation Safety Agency (EASA), the CO2 emissions of all flights departing from the EU and European Free Trade Association airports reached 147 million tonnes in 2019. This marked a 34% increase on levels in 2005, coming from a 15% increase over the same time period.
Climate researchers believe that aviation alone could potentially cause the planet to warm by 0.1℃ by 2050. Half of this rise has already happened, with the rest coming over the next three decades. Although flights were suspended during the Covid-19 pandemic, this is said to have delayed the related warming by only five years.
Aviation emissions reduction schemes
The European Commission estimates that demand for airborne travel will increase aviation emissions by 300% over 2005 levels if governments continue to not take measures to reduce them.
In the EU and UK, countries use a “cap and trade” system. In this, central governments set an overall emissions cap, and companies are allowed to “trade” emissions in order to keep their on-paper emissions within their given carbon budget.
After leaving the EU’s scheme, the UK Emissions Trading Scheme (UK ETS) first charged polluters for emitted carbon in 2021. Power generation and aviation fell under this scheme, covering UK domestic flights, flights between the UK and the British territory of Gibraltar, and all flights departing the UK to European Economic Area states.
The UK Government gave industries several emissions permits at the beginning of each year to help prevent companies from moving business to jurisdictions with less effective emissions rules, known as “carbon leakage”.
The UK’s system is modelled on that used in the EU, known as the EU ETS. This system operates by reducing the total number of allowed licenses every year, frequently sparking debate over whether the allowed level lies to high or too low.
“As a key part of our mobility system, the aviation sector must fully contribute to achieving the EU’s climate and environment goals,” said European Environment Agency executive director Hans Bruyninckx
“Reflecting the costs from aviation environmental and climate impacts within market prices and enhancing the consistency of taxation across sectors would provide meaningful incentives to accelerate the transition of the EU transport sector towards sustainability.”
Should the government grant free permits to profitable airlines?
In 2022, research by the campaign group Transport and Environment showed that the UK Government gave airlines approximately £300m of “pollution permits” in a single year.
Budget airline EasyJet was the biggest beneficiary of the scheme, with permits worth almost £40m remaining at the end of 2021. British Airways was awarded almost £23.5m worth of permits, Ryanair £9.7m, and Lufthansa £5.5m.
The free permits saved airlines the equivalent of £336m ($421m), based on the annual average carbon price of 39% more than in 2021. However, a study by Frontier Economics for the UK’s Department for Business, Energy and Industrial Strategy found that permit giveaways would decrease airline profits and improve market competition, as independent media outlet Open Democracy reported.
The UK should apply the ‘polluters pay’ principle in its own Emissions Trading Scheme.
These permits mirror those granted to oil and gas companies, which were awarded more than £1bn ($1.25bn) worth of free pollution permits in 2022.
Daniele de Rao, aviation policy officer at Carbon Market Watch, told Open Democracy: “Despite several studies showing that the risk of carbon leakage in the aviation sector is insignificant, airlines still receive an enormous amount of free allocation.
“The UK should apply the ‘polluters pay’ principle in its own ETS and, following the EU’s example, should end the handout of free pollution permits to airlines as soon as possible.”
As Covid-19 declines, airline profits rise
Last month, British Airways owner International Airlines Group announced profits of £1.3bn, following a loss of £2.47bn incurred in 2021. In the same year, the UK Government gave ExxonMobil free CO2 permits worth £160m even though the company declared profits of £46.6bn for 2022.
At the end of September, UK airline EasyJet announced revised estimates above market expectations of profits for the full year. According to the airline company, pricing was “strong” over winter, with revenue rising 40% to £66.46 for each passenger seat.
Matt Finch, UK director at campaign group Transport and Environment, said: “The UK Government put in place a scheme meant to reduce aviation emissions, yet it grants get-out-of-jail-free cards.
“Last year was doubly absurd: airlines were allowed to pollute for free, and the UK Government awarded excess free allowances that the airlines could sell. That’s a gap in the public coffers needed for public services that taxpayers had to fill instead.”
Sustainable solutions for aviation emissions
The International Energy Agency (IEA) argues that hydrogen can be used via direct combustion in jet engines by generating electricity for electric motors through fuel cells. However, it says that using hydrogen in aircraft poses challenges, including the need for innovative fuel storage and delivery methods as well as low costs.
Sustainable aviation fuel commercial sales would depend on blending limits. “Increasing sustainable aviation fuel use from less than 0.1% of all aviation fuels in 2021 to around 10% by 2030, in line with the [IEA’s] Net Zero Scenario, will require investment in production capacity and new policies such as fuel taxes, low-carbon fuel standards and mandatory blending,” the report reads.
In the short term, no obvious replacement for aviation fuel has emerged. While battery-powered aircraft are growing, with companies creating new designs alleging to give the power density needed, air travel remains difficult to decarbonise, and commercial air travel is more so.
It is clear that decarbonising aviation will take more than emissions trading schemes like the UK ETS to double its total renewable electricity supply to meet the net-zero targets. Schemes like the UK Government’s Jet-Zero Strategy set the timeline for reaching net-zero aviation emissions by 2050.
To get there, research and investment in green hydrogen, biofuels, ammonia, synthetic fuels, and e-fuels must remain important subjects.