The E.U. “Airline Tax”

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.

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Shi-Ling Hsu is Associate Professor at the University of British Columbia Faculty of Law. Previously, he was Associate Professor at the George Washington University Law School, Senior Attorney and Economist for the Environmental Law Institute in Washington, DC and Deputy City Attorney for the City and County of San Francisco.


About Shi-Ling Hsu

Shi-Ling Hsu is Professor at the University of British Columbia School of Law, where he has taught since 2004. Dr. Hsu has also been an Associate Professor at George Washington University. He has taught courses in Environmental Law, Climate Change, Law and Economics, and Property. Prior to his academic career, Dr. Hsu was Senior Attorney and Economist for the Environmental Law Institute in Washington D.C; Deputy City Attorney in San Francisco; and practiced law with Fenwick & West in Palo Alto, California. Professor Hsu has a B.S. in Electrical Engineering from Columbia University, a J.D., from Columbia Law School, and a M.S. in Ecology and Ph.D. in Agricultural and Resource Economics, both from the University of California, Davis.