EU carbon law hands airlines a windfall: study

BRUSSELS (Reuters) - Airlines could have already made up to 1.36 billion euros ($1.9 billion) in windfall profits from an EU law that forces them to pay for carbon emissions, a study by a Dutch consultancy said on Tuesday.

International fury at the law led the European Commission in November to freeze it for a year for intercontinental traffic to give a U.N. aviation body another chance to agree on an alternative global plan to curb airline emissions.

The law will still be enforced for internal EU flights.

Airlines and plane manufacturers have been at the forefront of opposition, saying the EU law is a financial burden in difficult economic times.

The report by Dutch consultancy CE Delft said, however, that airlines generated windfall profits by passing on the expected cost of carbon allowances to cover their emissions obligations.

The bulk of allowances (some 85 percent) is handed out free each year, but CE Delft said many airlines would pass on the full cost and not just the value of allowances they had to buy.

"It is very probable to assume that the airlines that are active in the geographic scope of the EU ETS have passed their anticipated extra costs due to EU ETS on to their clients at least until November 2012," the report said.

Some airlines announced fare increases when the law began to take effect in January last year, including Lufthansa AG and major U.S. airlines, which introduced a $3 surcharge per passenger for European flights.

Airline pricing is not fully transparent, but the report calculated windfall profits for 2012 could be as much as 872 million euros for all airlines, if the full value of the free permits were charged to passengers.

In addition, it said stopping the clock had generated one-off extra revenues of about 486 million euros, making for a total of nearly 1.36 billion euros.

The report says airlines still collected extra money from passengers to cover intercontinental emissions obligations even though the requirement to pay them was waived for this year.

COMPLEX SUMS

The International Air Transport Association (IATA) said it could not comment before reading the full, published report.

Industry sources said some private jet operators were refunding passengers, which involved complex calculations.

Environment campaigners say the airlines should give any windfall proceeds to a U.N. fund to help poor nations deal with the impact of climate change.

"Passengers have paid towards fighting climate change. It is unjust for airlines to retain these windfall profits," said Bill Hemmings, aviation manager at Transport and Environment campaign group, which commissioned the CE Delft report.

"Air carriers should act responsibly and contribute these additional profits to the U.N.'s Green Climate Fund."

To try to come up with an international alternative to the EU law, a high-level group has been set up to lead debate at the International Civil Aviation Organization (ICAO) in Montreal.

It held an initial meeting in December and meets again at the end of January.

The European Commission proposal would automatically reinstate the EU law for all airlines using its airports if the ICAO cannot agree this year on a different way of curbing aircraft emissions. ($1 = 0.7524 euros)

(editing by Jane Baird)

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