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Costs of airline climate deal may be peanuts for passengers

Wednesday, October 5, 2016 - 11:14

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The proposed United Nations accord to limit pollution from international flights could cost airlines billions. For passengers, the price may be less than an in-flight glass of pinot noir.

[NEW YORK] The proposed United Nations accord to limit pollution from international flights could cost airlines billions. For passengers, the price may be less than an in-flight glass of pinot noir.

The UN's aviation organization has estimated the measure being debated this week in Montreal may cost airlines between US$2.9 billion and US$12.4 billion annually by 2030.

That could add between 31US cents and US$12.10 per seat, according to Bloomberg calculations based on cost estimates and trade group data on a handful of sample flights.

The deal, which would be the first global climate accord for a single industry, calls for companies to offset their emissions growth after 2020 by funding environmental initiatives.

While the price of that effort is forecast to grow to as high as US$23.9 billion by 2035, the amount would be a tiny fraction of airlines' budgets.

It will be up to individual companies to determine how to recover the costs. The expense is so low that customers may never notice.

"This is a highly competitive industry," said Haldane Dodd, a spokesman for the Air Transport Action Group.

"Some airlines might pass the cost onto consumers, others won't.''

Emissions from international flights were excluded from the Paris Climate accord. They account for about two per cent of global greenhouse gases and are forecast to more than triple over the next few decades.

The 15-year agreement being brokered by the UN's International Civil Aviation Organisation would not force airlines to cut pollution.

Instead, companies would compensate for new emissions beyond 2020 by buying credits that back renewable energy projects, efforts to capture industrial gases or other environmental initiatives.

The European Union approved the ratification of the Paris deal Tuesday, and it's expected to come into force this year.

The credits for a 870-kilometre flight in 2030 from Casablanca to Madrid, for instance, would cost airlines between US$51 and US$131, using a Boeing 737-800 aircraft, according to a fact sheet issued by Air Transport Action Group, citing data from trade group International Air Transport Association.

At 162-seats, that breaks out to 31 US cents to 80 US cents a passenger.

For comparison, a glass of pinot noir or chardonnay aboard United Continental Holdings Inc. flights costs $7.99.

The cost of offsetting longer flights would be higher. A 7,500-mile route from Dubai to Sydney on an Airbus 380 would cost between US$2,542 and US$6,585, according to the Air Transport Action Group fact sheet.

At 325 seats, that would be US$4.67 to US$12.10 per passenger.

While some environmentalists have criticised the accord, saying the cost of offsets lets airlines off easy, Annie Petsonk, international counsel for the Environmental Defense Fund, said the objective is not to punish airlines.

Rather, she said, it's a way to compensate for their emissions growth until the carriers find ways to become more efficient.

While the cost per passenger may seem like a pittance, she said, the billions the accord could generate would go a long way in developing nations.

"For travelers, the cost will be lost in the noise of the overall ticket price,'' Ms Petsonk said. "But for some countries, it could mean a significant source of low-carbon development financing.''

BLOOMBERG

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