x Abu Dhabi, UAEWednesday 24 January 2018

Carbon taxes to hit Gulf airlines

Gulf airlines could see their growth checked this decade as a slew of environmental measures will tax their growth.

Environmental taxes in Europe, Australia and South Africa will cost Gulf airlines millions of dollars. Kamran Jebreili / AP Photo
Environmental taxes in Europe, Australia and South Africa will cost Gulf airlines millions of dollars. Kamran Jebreili / AP Photo

Gulf airlines are expected to pay out hundreds of millions of dollars to offset their carbon footprint over the next decade because of environmental taxes coming into force in Europe, Australia and South Africa.

Many environmental taxes, such as the EU's emissions trading scheme (ETS), which comes into effect in January, provide allowances for emissions from existing operations. But the huge growth plans of Emirates Airline, Etihad Airways and Qatar Airways, which between them will receive more than 400 additional aircraft this decade and plan to deploy them on new routes worldwide, are expected to force the carriers to become major investors in carbon trading to offset their increased emissions.

Etihad estimates it could pay up to €500 million (Dh2.63 billion) for carbon credits between next year and 2020 on the various trading exchanges worldwide to comply with the European scheme alone.

"Any airline that has growth plans will be penalised more than those that have fairly steady or flat growth," said Linden Coppell, the head of environmental affairs at Etihad. "We are now estimating [our costs] could be between €300m and €500m, if the carbon price is high."

That compares with estimates last week from Virgin Atlantic, based in London, of costs between €270m and €630m over the same period. The estimates come with a tonne of carbon currently costing about €15, but analysts predict a potential rise to €60 as demand for carbon credits rises, said Ms Coppell. While airlines advocate a single, global solution to offset emissions, a number of countries have begun imposing unilateral measures with the aim of reducing emissions. Many of these countries figure large in Gulf airlines' growth plans.

Last year, Germany announced plans to impose an aviation tax that will cost passengers €45 per long-haul flight, while the UK government is increasing airline charges under its air passenger duty.

In South Africa, the government is considering a tax based on a price per tonne of carbon emissions that could be in place by next summer. Meanwhile, Australia is introducing a carbon tax that will result in airfares to the country rising. Local airlines Qantas and Virgin Australia could pay more than A$150m (Dh597.9m) a year collectively under the scheme, according to estimates.

The added fees come with the Middle East aviation industry struggling to withstand challenging economic conditions. Collectively, the more than two dozen regionally based carriers are projected to earn US$100m (Dh367.3m) in profits this year because of high fuel prices and reduced demand from regional unrest, compared with $900m last year.

Tim Clark, the president of Emirates, said airlines would be forced to absorb part of the extra costs from what he called a growing "patchwork quilt of market-based measures by states".

"We are going to have to pay more and more, and we can't pass on all of that to the customers," he said.

He said many of these taxes would not aid vital projects to improve aviation infrastructure such as next-generation air traffic control systems, but go into states' public treasuries. "Money is going to leave the industry, one way or another."

Not all airlines oppose the incoming measures. Julie Southern, the chief commercial officer for Virgin Atlantic, said the European scheme would pave the way for better solutions. "We are supporters of EU ETS as a first step in a global emissions trading scheme," she said. "In general, a cap-and-trade scheme is a better way of dealing with emissions than blunt taxation."

However, she said the airline was concerned that the ETS scheme could "distort" competition between airlines based in Europe and their rivals.

Proponents of environmental taxes on aviation suggest the moves could incentivise airlines to purchase fuel-efficient aircraft or accelerate the introduction of biofuels.

In the Gulf, the big three carriers already operate some of the youngest aircraft fleets worldwide. Etihad and Qatar Airways are also investing in alternative, low-carbon fuels.