Emissions Trading Could Be Inevitable
By Madhu Unnikrishnan 
Political will in the U.S. is moving ever closer toward using cap-and-trade mechanisms to mitigate greenhouse gas emissions, and the airline and energy industries recognize that market-based measures may be inevitable.
Last week, Rep. Henry Waxman (D-Calif.) and Rep. Edward Markey (D-Mass.) released draft legislation that would create a cap-and-trade system in the U.S., and although the 648-page-long proposal is long on ideas, it is short on details, aviation industry insiders say.
The bill, similar to the Lieberman-Warner bill that died in the Senate last year, would affect airlines by requiring oil companies to buy tradable credits for the emissions created by the fuel they sell. Airline industry groups say this amounts to a tax on fuel, not permitted by ICAO guidelines and contrary to bilateral agreements the U.S. has with foreign countries (DAILY, April 3).
But the proposed legislation signals a broader trend, said Adam Sieminski, chief energy economist for Deutsche Bank. “We are moving toward the idea of getting a price on carbon,” he said. “There is building scientific consensus that [carbon dioxide] is a problem, and building political consensus that we have to do something about it.”
Economists agree that whatever system is created should be economy-wide and should not exclude certain industries, Sieminski said. But the costs could be significant. It is estimated that every dollar per ton of carbon dioxide translates into one cent per gallon in added fuel costs, Sieminski said. In other words, if carbon prices went as high as $50 per ton, that could add 50 cents to each gallon of jet fuel, which, at today’s prices, would raise fuel costs by one-third, he said.
Phasing airlines into the system would make the most sense, Sieminski said, but the draft bill leaves unclear the question of whether a portion of the allowances would be granted to companies versus 100% auctioning of permits.
A source close to Waxman said the question of how to allocate allowances and what to do with the revenues raised by the system have been left deliberately vague in order to allow the House Energy and Commerce members debate the bill during markup next month.
However, the political landscape has changed dramatically since the Lieberman-Warner bill fizzled last year, and it is one of Waxman’s priorities to build consensus on the bill and move it quickly through the House and on to the Senate, the source said.
This timetable could be ambitious, as the House digests some of the proposed legislation’s unintended effects. The airline industry, already stressed, could face even more difficulty if passengers turn away due to passed-on emissions costs, said Frank Maisano, a Washington-based energy expert who represents refiners, utilities and energy companies.
The airline industry is motivated by the price of fuel to reduce emissions, said Nancy Young, ATA VP for environmental affairs. ATA doesn’t believe market-based measures are necessary, but the organization recognizes that they may be imposed. “At a certain point, we’re realists,” Young said. “It appears that Congress and the [Obama] Administration are looking to adopt such a measure, and in that case, we want to work with them to productively shape the measure.”
Photo: Airbus
