The UK government gave airlines nearly a quarter of a billion pounds in free pollution permits in a single year, enough for the entire industry to dodge a carbon emissions cap and trade scheme entirely, according to research.
In 2021 the UK Emissions Trading Scheme (UK ETS), which charges polluters per tonne of carbon emitted, handed airlines 4.4m free allowances and the industry only surrendered 3.4m back. In effect, UK taxpayers covered the entire cost of aviation industry emissions, plus some to spare.
At an average price per allowance of £55.59 in 2021, according to the analysis by the clean transport campaign group Transport & Environment, it amounted to a hidden subsidy of about £242m. “This meant that – in direct contradiction of the polluter-pays principle – the industry as a whole simply did not have to pay for any of the carbon emissions they released,” T&E said in a briefing.
The government’s generosity meant not only could the aviation industry pollute for free, but airlines were left with 900,000 excess permits that they could keep or sell on. T&E found that airlines could have made £72m if they had sold their spare permits for £79.20 each at the top of the market last year.
EasyJet was the biggest beneficiary of the scheme, T&E’s research found, with permits worth a potential £40m left over at the end of 2021. It was followed by British Airways with £23.5m worth of permits, Tui with £19.4m, RyanAir with £9.7m and Lufthansa with £5.5m.
Commercial confidentiality means taxpayers may never know whether airlines decided to save their spare permits to subsidise future pollution or sell them for a quick cash boost.
Matt Finch, the UK director at T&E, who carried out the research, said the drop in demand for passenger flights due to Covid meant it was almost inevitable that airlines would end up with more free permits than they could use.
Under the rules of the UK ETS, which covers a range of polluting industries, airlines must surrender one permit per tonne of carbon emitted by flights departing from the UK to other UK destinations, the European Economic Area or Gibraltar.
At the beginning of each year industries are awarded a number of free permits – or allowances – to mitigate “carbon leakage”, where polluting companies may choose to avoid charges by relocating to jurisdictions with laxer emissions rules.
Finch said airlines generally do not have this option, since they have to pick up passengers from the country they are travelling from. In theory, airlines could avoid paying some ETS allowances by changing their routes, but T&E pointed to studies that showed carbon leakage in aviation is all but nonexistent.
In any case, T&E pointed out, most carbon emissions from UK aviation come from long-haul flights that are not covered by UK ETS, with only 14% of British Airways emissions covered by the scheme in 2019.
T&E’s analysis comes as the government is considering what the next stage of the UK ETS will look like. Finch said: “The UK government has a golden opportunity to fix the problems of the carbon market for aviation, and apply the polluter-pays principle.
“Free pollution allowances in aviation never made sense, nor did limiting the scheme to just one continent. If the government wants to be seen as a climate leader, ending free allowances and applying the scheme to all departing flights is the only option.”
The Department for Business, Energy and Industrial Strategy 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.”
Sustainable Aviation, an industry group, called T&E’s research “misleading” and insisted the UK aviation industry was “100% committed to a net zero future”.
“The benchmark for free allocation under ETS does not change year on year, and during the pandemic there was significantly less flying,” Matt Gorman, the group’s chair, said. “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.”
EasyJet said it did not sell its leftover ETS allowances from 2021. The airline echoed Transport & Environment’s call for reform of the system.
A spokesperson for easyJet said: “The amounts 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.”
Tui declined to comment. BA, Ryanair and Lufthansa did not respond to requests for comment.
