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Wing Clipping: European Airlines Face Mounting ETS Costs

Europe’s cash-strapped airlines could be saddled with mounting costs to buy emissions certificates after a volcanic ash cloud that swept across Europe cut the number of free certificates they stand to receive.

Most of Europe’s airspace was closed for nearly a week from April 15 after a huge ash cloud from an Icelandic volcano stranded millions of business passengers and holidaymakers and paralyzed freight and businesses.

The International Air Transport Association (IATA) said the airlines lost more than $1.7 billion of revenues due to the volcano crisis.

But that’s not the end of it. The less European airlines’ planes can fly this year, the fewer free certificates they will get when the European Emissions Trade System (ETS) is extended to include airlines in 2012.

Under the ETS, each airline gets a certain number of free certificates, or licenses to pollute the air, which is partly based on its emissions in 2010.

Beyond that, airlines need to pay for certificates. IATA has put the industry cost at 3.5 billion euros in the first year, with an increase in costs every year after that.

Airlines operating flights in northern Europe, which were the most affected by grounded flights, will be the ones worst hit in terms of getting fewer allowances.

“If there’s no adjustment, airlines in northern Europe like British Airways would be at a disadvantage to those in the south that were able to continue flying,” said Trevor Sikorski, director of carbon research at Barclays Capital.

British Airways was one of the airlines hit the hardest by the airspace closures, with a daily cost of 15-20 million pounds ($23-31 million). Germany’s Lufthansa lost nearly 200 million euros ($266 million) in total.

Lufthansa has estimated its annual costs from the ETS at 150-350 million euros once airlines join the scheme.

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