Two Airlines May Have to Buy EU Carbon to Give Back to U.K.

March 18 (Bloomberg) -- Two unspecified airlines regulated by the U.K. may have to buy replacement European carbon allowances so they can return them after they were granted free of charge, the Department of Energy & Climate Change said today.

The department published draft rules that would apply to airlines after the European Union decided to temporarily freeze including flights to and from airports outside the bloc in its carbon market. Those flights were previously meant to be included starting last year.

Airlines taking advantage of the rule changes, known as a derogation, will probably return the carbon permits they received for free, cutting compliance costs, the department known as DECC said in an impact statement published on its website. The airlines that had already removed the allowances from their registry accounts “may encounter some cost in recovering an equivalent number of allowances,” it said.

At least 79 percent of 201 airlines covered by the U.K. have said they plan to take advantage of the derogation, according to the statement.

Should an airline choose not to take advantage of the new rules, they must comply with the full scope of the carbon market rules by “surrendering allowances for the emissions corresponding to all their intra and extra EU routes,” DECC said today in an e-mailed response to questions.

“Provided that they fulfill their compliance requirements they are otherwise free to decide what to do with their free allowances,” the department said.

Societal Costs

Total increased costs of the rule changes over the nine years through 2020, including the societal costs of higher emissions, would be 50.4 million pounds ($65.4 million), DECC said. Benefits, including lower emissions-trading compliance costs, would be 19.4 million pounds, it said.

The statement didn’t include lower revenue for the nation from carbon permits that it sold, DECC said.

In December the U.K. said it would get 400 million pounds from EU carbon permit sales in the year through March this year, 300 million pounds less than a March 2012 estimate, according to an Office for Budget Responsibility report published on its website.

The report didn’t separate revenue from carbon sold to airlines, factories and power stations. Carbon revenue in the year to March 2017 would be 1 billion pounds, 800 million pounds less than previously estimated, the report said.

EU carbon for December has fallen 57 percent in the past year and was at 3.57 euros ($4.63) a metric ton today on the ICE Futures Europe exchange in London at 4:48 p.m.

--Editors: Alessandro Vitelli, Rob Verdonck