A briefing document published by campaign group Transport & Environment (T&E) has said that due to UK airlines receiving more UK ETS allowances in 2021 than they were required to submit, the industry received a “direct subsidy” from British taxpayers, but the government has said it “rejects this characterisation” and that the current policy is a temporary measure designed to ensure continuity for operators from the EU ETS to the UK ETS.
Aviation free allocation is currently calculated based on historic 2010 or 2014 aviation activity data, and does not account for activity changes, according to information provided by BEIS. The department has recently closed its consultation on changes to the UK ETS, in which one proposal was to phase out the free allocation policy for aviation. The department has said it is currently reviewing responses.
T&E’s analysis of the UK Aviation Allocation Table states that the industry received 4.4 million allowances, which they term “free pollution permits”, and calculates that using the average 2021 UK ETS price of £55.59, these allowances were worth £242 million.
However, the briefing says that only 3.4 million of these allowances were required to be submitted to make up for airline emissions under the ETS - largely due to fewer flights being made due to the Covid-19 pandemic.
The document continues: “This meant that on top of receiving free allowances to cover their ETS costs, airlines could sell the ‘excess’ allowances on the ETS secondary market and financially profit. If airlines sold at the height of the market (£79.20 per allowance), these excess allowances equalled a potential direct subsidy from the British taxpayer to the airline industry of £72 million.”
T&E list the airlines which benefited most from the first year of the ETS as EasyJet, British Airways, Tui, Ryanair, and Lufthansa, and have called for an overhaul of how the carbon emissions trading system works.
“Clearly awarding free allowances to airlines is environmentally absurd,” concludes the campaign group, who also criticise the system for excluding long-haul flights from the ETS.
While the idea behind ETS allowances is that they prevent “carbon leakage”, where companies relocate to avoid climate policy costs, the campaigners say that this argument does not stack up in the case of aviation, where the basis of the business model requires aircraft to move between different territories.
“The UK government now has a golden opportunity to correct the mistakes from the first year of the UK ETS operation,” says the briefing, and calls for allowances to end for airlines from 2024, when the UK plans to make changes to the current system which aligns closely with the EU’s, and for the scope of the UK ETS to be extended to all departing flights, regardless of destination.
However, the T&E report has been criticised by Sustainable Aviation, an aviation industry group, who described it as “misleading” to the Guardian.
Matt Gorman, the group’s chair, said: “The benchmark for free allocation under ETS does not change year on year, and during the pandemic there was significantly less flying. This meant free allowances were more likely to cover the lower emissions generated, at a time when the aviation industry was losing billions of pounds in revenues.”
Commenting, the department for business, energy and industrial strategy (BEIS) said: “We reject this characterisation. The aviation sector received more free allocations last year only as a result of the unprecedented impacts of Covid-19 on air travel, an extraordinarily rare occurrence.”
EasyJet has emphasised that it did not sell its leftover ETS allowances from 2021, and echoed T&E’s call for reform of the system.
A spokesperson said: “The amounts that are distributed to airlines by the government are set by law according to 2010 market share. We recognise the distribution of allowances would benefit from being updated to reflect the current market.
“At the same time, we think it is important that the UK ETS is applied equally to all flights leaving the UK, in order to decarbonise our sector. According to government figures, 73% of emissions from UK departing flights are not currently included in the scheme. Including all UK departing flights would be much better for the environment.”
Lufthansa and Tui declined to comment. Ryanair and British Airways did not respond to a request for comment from ENDS.