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Airlines alliances take cartel approach to carbon trading
January 20, 2012 / 10:26 AM / 6 years ago

Airlines alliances take cartel approach to carbon trading

A Fokker 100 of Star Alliance airline is seen behind a church tower during its approach for a landing at Zurich Airport in the town of Kloten April 12, 2011. REUTERS/Arnd Wiegmann

LONDON, Jan 19 - International airline partnership Star Alliance will likely tender for a broker this year to help its members buy CO2 permits, while Air France, a member of rival group SkyTeam, said its alliance partners would give first refusal to each other when selling allowances.

The French carrier, a subsidiary of Air France-KLM, last week bought its first carbon units directly from market via Paris-based emissions exchange BlueNext, Pierre Albano, head of environment at Air France, told Point Carbon News on Tuesday.

“As soon as we fly, we are buying the credits ... and for the time being, we are buying on the spot market,” Albano said, without confirming the quantity.

He added that Air France was currently testing its procurement strategy involving buying both EU Allowances (EUAs) and Certified Emissions Reductions (CERs) to cover its own flights, but not those of partner KLM.

From January 1, around 4,000 airlines that fly to and from EU airports were included in the bloc’s Emissions Trading Scheme ETS.L and must next year surrender carbon credits against their 2012 emissions.

The carrier expects fleet emissions of 16-17 million tonnes in 2012, meaning it would need to buy around 4 million permits on top of its free allocation of 12.6 million EUAAs, the aviation CO2 units distributed under the ETS.

Albano said Air France-KLM will in total emit 30 million tonnes versus its free quota of around 23 million EUAAs.

SHARING

Albano said SkyTeam members, including Delta, Alitalia and China Southern Airlines, are collaborating by sharing procurement and compliance strategies, and would also look to offer excess CO2 permits internally before selling them on the open market.

“We have a kind of unwritten agreement to have first right within SkyTeam ... before going outside, but it’s more than likely all our members will be short permits,” he added.

Rival coalition Star Alliance, which boasts members Lufthansa, United Airlines and U.S. Airways, does not have a similar arrangement, its director responsible for emissions trading told Point Carbon.

“We’re evaluating the current situation, but no final decision has been made ... and there’s currently no trading activity within Star Alliance,” Andreas Naujoks said.

“There is a lot of uncertainty for the carriers in deciding when to enter the market ... We don’t know yet what China, the U.S. and Russia will do.”

The countries, along with Canada, India and some African nations, have attacked the EU aviation scheme for being imposed unilaterally and infringing on their sovereignty.

RISK

The European Court of Justice ruled last month that the plan was legal, but the U.S. and China have escalated their protests, warning of counter-measures that could spark the world’s first carbon trade war.

As a result, Naujoks said Star Alliance members, in evaluating the risk associated with buying units now versus in the future, may not see the value in entering the market at a time when there is still considerable uncertainty, both in regards to carbon prices and the future of the entire scheme.

EUA prices have collapsed to 7 euros from 17 last May on slow EU economic growth and ballooning credit supplies, and some analysts are predicting further falls.

“It’s a tough decision on the carriers’ part to decide whether to buy now or wait,” Naujoks said, adding that, to his knowledge, Lufthansa was the only Star Alliance to have started buying carbon.

The Germany operator, the world’s fourth largest, joined Leipzig-based EEX last April and is buying permits on behalf of subsidiaries Austrian Airlines and Swiss Air.

TENDERS

Star Alliance in late 2010 said it was considering tendering for a broker to handle its members’ CO2 needs, but Naujoks on Wednesday said nothing had been decided due to the ongoing legal battle.

However, he believes interest from Star Alliance members remains “rather high” since many are smaller, non-European carriers that are not able to secure the broker fee discounts that a large industry group could achieve.

But some Star Alliance members do not hedge fuel costs, he added, and therefore may not hedge carbon either, instead passing a market-based cost onto passengers at the time of booking.

“I think if the decision to tender for a broker is made, the majority of our carriers will join ... If we do something, we will certainly start this year and finalise it, at the latest, by the beginning of next year,” Naujoks said.

Star Alliance in mid-2010 held a similar tender for emissions verifiers, eventually selecting consultants PricewaterhouseCoopers (PwC) and Deloitte.

Air France’s Albano said SkyTeam would not likely launch any carbon-related tenders.

“We didn’t see any opportunities for synergies in either verification or trading. Most costs are unit costs, which don’t decrease with volume,” he said, adding that it made more sense for SkyTeam members to use existing contracts with environmental data verifiers.

Officials at oneworld, another major global airline alliance, could not be reached for this story.

Reporting by Michael Szabo

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