U.S. airlines could boost their profits by more than $2.5 billion by 2020 thanks to their inclusion in the European Union's Emissions Trading Scheme (ETS), a new study part-funded by the U.S. Federal Aviation Administration has concluded, according to Reuters. The researchers of the study, from the Massachusetts Institute of Technology and Germany's University of Muenster, said this was because airlines were likely to pass on the full cost of EU carbon emission permits to passengers, even though they currently receive most of their permits free. The finding contradicts warnings from U.S. airlines and their associations that the disputed EU scheme, which entered force on Jan. 1, will hit profit margins already squeezed by rising fuel prices, fierce competition and national taxes. "If carriers pass on all additional costs, including the opportunity costs associated with free allowances, to consumers, profits for U.S. carriers will increase," said the study, which was published by the Journal of Air Transport Management. "On the other hand, if airlines are only able to pass on the costs of allowances purchased or are unable to pass on any costs, U.S. airline profits will decrease," the researchers said. Under the EU scheme, all airlines landing or taking off in the 27-nation bloc and three neighbouring countries must submit permits to cover the carbon emissions of these flights. Currently, all airlines receive 85 percent of their emission allowances free of charge, opening up the possibility of windfall profits for airlines that pass on the cost of these allowances to passengers. "Consistent with profit-maximising behaviour in competitive markets, most studies assume that airlines will pass on the full cost of CO2 allowances, including opportunity costs associated with 'free' allowances," the researchers said.
