Pollution Permits: How Airlines Trade And Fly

The UK government has been criticized for providing airlines with millions of pounds in free pollution permits, allowing the aviation industry to pollute for free and avoid paying for their carbon emissions. In 2021, the UK Emissions Trading Scheme (UK ETS) handed out 4.4 million free allowances, exceeding the number of permits surrendered by the industry. This resulted in a hidden subsidy worth approximately £242 million, paid for by UK taxpayers. The scheme is intended to charge polluters per tonne of carbon emitted, but the excess permits granted to airlines have led to concerns about the effectiveness of the system in reducing emissions. While the government claims that these permits support the industry's transition to net zero, critics argue that it contradicts the polluter-pays principle and needs to end immediately.

The UK government gave airlines £300m+ of free permits in 2021

The UK government gave airlines £300 million+ worth of free permits in 2021, according to data obtained by OpenDemocracy. The UK's Emissions Trading Scheme (ETS) is designed to reduce carbon emissions by forcing big polluters to buy permits for each tonne of carbon they emit, with the proceeds going to the public purse. However, the UK aviation sector was handed more than four million "pollution permits" last year, free of charge. This allowed airlines to avoid extra charges that would have otherwise cost £336 million, calculated against the annual average carbon price.

The UK ETS charges polluters per tonne of carbon emitted. In 2021, the scheme handed airlines 4.4 million free allowances, but the industry only surrendered 3.4 million back. This meant that UK taxpayers covered the entire cost of aviation industry emissions, plus some to spare. At an average price per allowance of £55.59 in 2021, the hidden subsidy amounted to about £242 million. This effectively contradicted the polluter-pays principle, as the industry did not have to pay for any of the carbon emissions they released.

The government has defended its actions, stating that it is committed to tackling climate change and protecting its industry from "carbon leakage", where companies may choose to avoid emissions charges by relocating to jurisdictions with laxer emissions rules. The UK's system is modelled on the EU's ETS, and the government has already allocated 12.2 million free permits for the next three years, which will be worth £965 million at last year's carbon price.

However, critics argue that the government is letting aviation companies get away with it and forcing the public to pick up the tab. Caroline Lucas, the Green MP for Brighton Pavilion, has called for an end to free pollution permits, stating that high-carbon companies must pay for the climate-wrecking damage they are causing. Matt Finch, the UK director of campaign group Transport & Environment, echoed this sentiment, questioning the government's commitment to tackling climate change while allowing such permits.

Airlines could have made £72m+ selling excess permits

In 2021, the UK Emissions Trading Scheme (UK ETS) gave airlines 4.4 million free pollution permits, which were worth £336 million. This was an increase of 39% from the previous year. The UK ETS charges polluters per tonne of carbon emitted, but the industry only surrendered 3.4 million permits, meaning that UK taxpayers covered the entire cost of aviation industry emissions, plus some to spare. This amounted to a hidden subsidy of about £242 million. The UK government gave these permits to incentivise long-term decarbonisation and support the industry in the transition to net zero in the context of high global energy prices. However, this also meant that the industry as a whole did not have to pay for any of the carbon emissions they released, directly contradicting the polluter-pays principle.

T&E, a clean transport campaign group, found that airlines could have made £72 million if they had sold their spare permits for £79.20 each at the top of the market last year. EasyJet was the biggest beneficiary of the scheme, with permits worth a potential £40 million left over at the end of 2021. This was followed by British Airways with permits worth £23.5 million, Tui with £19.4 million, Ryanair with £9.7 million, and Lufthansa with £5.5 million. However, commercial confidentiality means taxpayers may never know whether airlines decided to save their spare permits to subsidise future pollution or sell them for a quick cash boost.

The UK's system is modelled on the EU's Emissions Trading Scheme, which also operates on a "`cap and trade`" system. In this system, the government sets an overall emissions cap, and companies are allowed to trade emissions to keep their on-paper emissions within their given carbon budget. While some airlines have criticised the scheme, claiming it will not have any environmental benefit, others have embraced it. For example, Air France-KLM has planned to buy emission permits throughout the year, and Lufthansa has said it would need to buy 35% of the permits it needs on the open carbon market.

The UK government's decision to provide free pollution permits to airlines has been controversial. Caroline Lucas, the Green MP for Brighton Pavilion, criticised the government for "letting aviation companies get away with it" and "forcing the public to pick up the tab". She called for an end to the handout of free pollution permits to airlines. Similarly, Matt Finch, the UK director at T&E, stated that the government's scheme meant to reduce aviation emissions was granting get-out-of-jail-free cards to airlines.

EasyJet, RyanAir and British Airways were the biggest beneficiaries

The UK government gave airlines approximately £300 million of "pollution permits" in a single year. EasyJet, RyanAir, and British Airways were the biggest beneficiaries of the handouts, bagging permits worth £84 million, £73 million, and £58 million, respectively. EasyJet was the biggest beneficiary of the scheme, with permits worth a potential £40 million left over at the end of 2021. It was followed by British Airways with permits worth almost £23.5 million, Ryanair with £9.7 million, and Lufthansa with £5.5 million.

The UK Emissions Trading Scheme (UK ETS) charges polluters per tonne of carbon emitted. However, 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.

The free permits saved airlines the equivalent of £336 million ($421 million), based on the annual average carbon price of 39% more than in 2021. The government claimed that handing free permits to airline giants would "support industry in the transition to net zero in the context of high global energy prices while incentivising long-term decarbonisation". However, critics argue that the government is "letting aviation companies get away with it" and "forcing the public to pick up the tab".

UK taxpayers covered the entire cost of aviation industry emissions

In 2021, the UK Emissions Trading Scheme (UK ETS) handed out 4.4 million free pollution permits to airlines, amounting to nearly a quarter of a billion pounds in value. This allowed the aviation industry to dodge a carbon emissions cap and trade scheme, with UK taxpayers effectively covering the entire cost of the industry's emissions. The UK ETS, which replaced the EU ETS in the UK in 2021, charges polluters per tonne of carbon emitted. However, the free allowances provided to airlines far exceeded their emissions, resulting in a hidden subsidy of about £242 million. This contradicts the polluter-pays principle, as the industry did not have to bear the cost of their carbon emissions.

The UK government's rationale behind providing free permits is to support the industry's transition to net zero and incentivize long-term decarbonization. Additionally, these permits are intended to mitigate "carbon leakage," where companies may relocate to jurisdictions with less stringent emissions regulations. While the UK aviation industry has expressed commitment to net zero, critics argue that the government is letting aviation companies off the hook and forcing the public to shoulder the costs of their pollution.

The UK ETS covers a range of polluting industries, including power generation and aviation. Under the scheme's rules, airlines must surrender one permit per tonne of carbon emitted by flights departing from the UK to other UK destinations, the European Economic Area, or Gibraltar. While the scheme aims to reduce carbon emissions, it has faced criticism for providing free permits to major polluters, including the aviation industry.

The aviation sector in the UK is significant, comprising aircraft manufacturers, fuel producers, and air service providers. The industry has set ambitious targets for achieving net-zero emissions by 2050. However, there are technical and structural challenges associated with decarbonizing the sector, and the development of low-carbon technologies may not proceed fast enough without government support.

The UK government has taken steps to address emissions from the aviation industry through initiatives like the Jet Zero Council, a partnership between the industry and the government, aiming for zero-emission transatlantic flights within a generation. While the government recognizes the need for emissions reductions, there are concerns about the industry's ability to meet its targets, with projections for unabated emissions remaining high.

The EU ETS cap and trade system reduces carbon footprints

The EU Emissions Trading System (EU ETS) is an international cap-and-trade system that was established in 2005 and is currently in its fourth trading phase (2021-2030). It is the world's first international emissions trading system, and it covers emissions from European power and industry plants, as well as the maritime transport sector. The system sets a limit or "cap" on the total amount of greenhouse gas emissions that can be emitted by installations and operators covered under the system. This cap is reduced annually in line with the EU's climate targets, ensuring that overall EU emissions decrease over time.

Under the EU ETS, companies are required to monitor and report their emissions on a yearly basis and surrender enough allowances to fully account for their annual emissions. These allowances are sold in auctions and may be traded on the EU carbon market. Each allowance gives the right to emit one tonne of carbon dioxide equivalent (CO2 eq). As the cap decreases, the supply of allowances to the market also decreases, making them more valuable.

The revenue generated from the sale of allowances flows to national budgets, and Member States must use it to support investments in renewable energy and energy efficiency improvements. The EU ETS has raised over EUR 175 billion since 2013, and a share of this revenue also supports low-carbon innovation and the EU's energy transition through the Innovation Fund and the Modernisation Fund.

The cap-and-trade system provides an incentive for companies to reduce their emissions cost-effectively. If a company reduces its emissions, it can sell its spare allowances or keep them for future use. This system ensures that overall emissions decrease while also providing flexibility for companies to manage their emissions reductions in a way that makes economic sense for their business.

The EU ETS has been successful in reducing emissions from European power and industry plants. By 2023, emissions had decreased by approximately 47% compared to 2005 levels. The system has also undergone several revisions to align with the EU's climate targets, including tightening the cap to bring emissions down by 62% by 2030 compared to 2005 levels. These targets and revisions ensure that the EU ETS remains an effective tool in the fight against climate change and helps to reduce the carbon footprints of covered industries.

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