Isramart : Kenya Airways complies with EU carbon emissions trading scheme

Isramart news:
Kenya Airways’ blueprint on curbing carbon dioxide emissions has secured a nod from the European Union, effectively dodging restrictions or a possible ban of its flights to Europe.

As part of compliance with the EU regulations on carbon emissions by airlines, the UK Environment Agency has allowed KQ to roll out its Carbon Emissions Management and Monitoring Plan.

The agency is the regulator assigned to KQ by the European Commission. The move will see Kenya Airways account for its planes’ emissions to enhance environmental conservation as required by the EU Emissions Trading Scheme (ETS).

In a bid to cut aviation-generated carbon emissions in Europe, the EU has made it mandatory for airlines operating within the region to have carbon management plans and an offsetting scheme by 2012.

The development, announced by KQ last week, is a relief for passengers who could have been barred from flying to the Netherlands, the UK and France — the three EU nations the airline flies to directly — had the airline failed to comply with the requirement.

This means KQ has joined a growing list of airlines flying to and from Europe, which have complied with the regulation.

The EU implementation schedule shows that from 2010 to 2012 operators are to monitor their annual emissions and submit a report to the EU for auditing. The first trading period will run from 2012 to 2013.

Under the EU plan, airlines that do not monitor their emissions will face penalties and a potential ban from the EU airspace.

KQ chief executive, Mr Titus Naikuni, said the move would enable the airline to “accurately account” for greenhouse gases the airline emits and invest in programmes that counter the emissions.

The aviation sector has come under criticism as a major contributor to climate change due to carbon emissions.

In the recently concluded Copenhagen Conference on Climate Change the industry — airlines, airports, air navigation service providers and aeroplane manufacturers — committed to improve fuel efficiency by an average of 1.5 per cent per year to 2020.

Globally, the aviation industry has a four-pillar plan to address climate change. The plan includes investing in new technology, flying smart, building efficient infrastructure, and taking advantage of positive economic measures.

The European Union’s emissions trading scheme is the largest multi-national carbon trading scheme in the world. It monitors various sectors, with aviation emissions being the latest addition in November 2008.

The ETS has been in existence since 2005 after being passed by the European parliament.

The scheme initially focused on large industrial emitters.
The EU has an objective of cutting its emissions by 20 per cent by 2020. Airlines will either have to cut their own emissions, trade them in the European market, or invest in emission reduction projects internationally, depending on the most cost-efficient approach. Analysts say the shift into a carbon emission management plan will be a huge cost burden for airlines, which will be passed on to their customers.

Airlines will, for example, have to set up an administrative structure to oversee such schemes, according to the EU regulatory requirements, as well as amend contracts with commercial partners and leasers.

In addition, the emissions must be accounted for on the balance sheet.

“It is likely to have an impact on KQ, especially its operating profit, though we shall have to wait and see the total impact,” said Carol Musyoka, a financial analyst with Bungani Consulting.

She, however, notes that the airline has ways of mitigating the emissions, thus reducing exposure to increased costs. “With the Dreamliner on the way it could help the airline reduce its carbon footprint.”

For the 2008/2009 financial year, Europe contributed 13 per cent or Sh522 million of the Sh4 billion operating profit that Kenya Airways earned.
KQ could not state implications of the new development and whether passengers would see an increase in taxes.

In a November 2009 interview, Mr Naikuni told Business Daily that the scheme would have an impact on the airline, adding that it was looking at a number of strategies to reduce the impact. He said the industry should not move towards taxes, adding that there were other ways of addressing the issue.

A European Union report says every airline covered by the scheme will be treated equally. “Airlines can be expected to pass on, to a large extent or even in full, compliance costs to customers,” says the report by the European Federation for Transport and Environment.

This could see air fares to EU member states increase as operators move to comply with the carbon emissions scheme.

A study by Merrill Lynch, released in September 2008, says the potential cost to airlines in 2012, the first period of trading, could be Sh374 billion annually. This is estimated to reduce in 2015 to Sh321 billion. According to ACEND, a consultancy firm in the aviation industry, the ETS is a fuel tax that is set by market forces.

Higher prices

Every litre of jet fuel burnt leads to 2.5 kilogrammes of carbon emitted in the air. And, a 2009 PricewaterhouseCoopers report says customers will eventually have to pay higher prices for flight distance and weight transported especially once the purchase of credits begins in 2012.

Under the plan, airlines will be allocated carbon credits, which they will use to “pay” for their CO2 emissions on an annual basis.

The scheme allocated KQ a limit. In the event that carbon emissions generated exceed the limit, the airline will buy carbon credits from the market through investment in the UN Certified Cleaner Development Projects as stipulated in the Kyoto Protocol.

The carbon credits allow industrialised countries to invest in ventures that reduce emissions in developing countries to counter pollution in their own countries.
Almost 4,000 operators worldwide will have to comply with the EU regulations.

All major African carriers flying the EU route were allocated an administering member state, with France getting 10 of the 15 airlines. They include Air Mauritius, Royal Air Moroc, Tunisair, Nouvelair, Air Algerie, Air Seychelles, Afriqiyah of Libya, Air Madagascar, Jet4you and Atlas Blue (both from Morocco).

Main regulations

The UK was to administer Kenya Airways, South African Airlines, and Egypt Air, while Italy watches over Ethiopian Airlines, and Portugal has TACV of Cape Verde.

KQ handed over its emissions monitoring plan to the EU last November. With the approval, the airline will have to comply with two main regulations of the scheme that require monitoring tonne-kilometre data from aviation activities carried out in 2010 in accordance with a benchmarking plan and reporting schedule.

Regulation 11 requires KQ to prepare a report of tonne-kilometer data monitored which must be verified by an independent body and comply with the EU ETS directives.

The report is to be submitted to the UK Environment Agency by March 31, 2011 which will in turn submit it to the European Commission.

Social responsibility

Once the allowance is decided, 85 per cent will be given for free, while 15 per cent will be auctioned.

Kenya Airways has moved some of its corporate social responsibility activities to the scheme, including the Ngong Hills Ecosystem Restoration Programme which has seen the airline plant thousands of trees.

According to its 2009 financial report, the project began in 2007 with over 400,000 trees being planted along with other corporate partners.

The airline has so far contributed Sh16.5 million towards the project. In total Kenya Airways and partners such as Coca-Cola, Rolls Royce and KLM have invested Sh47 million in the project.

In addition, said Mr Naikuni, the airline is looking at various initiatives to reduce its carbon emissions. They include buying new ground handling equipment, recycling waste products, and using fuel saving operational techniques.

Fuel consumption

Reducing fuel consumption is however seen as the key in the industry’s move towards reduction of emissions.
The airline has reducing its fuel burn through various techniques including idle reverse on landing and single engine during taxing, continuous descent approach and optimal fuel take off among others.

The airline has ordered for the fuel efficient Boeing 787, Dreamliner, which has been touted as environmentally friendly, to help reduce its fuel bill as well as its emissions.

However, due to technical reasons KQ hopes to receive the first delivery in 2013. The aviation industry is also moving towards the use of biofuels, with Virgin Atlantic being the first airline to use the fuel in February 2008. British Airline flew with 20 per cent biofuel mix.

Since then other carriers such as Air New Zealand, Japan Airlines and the US-based Continental have done similar experimental flights.

The International Air Transport Association has set a 10 per cent target of airline fuel use from alternative sources by 2017 while the industry consortium, Sustainable Aviation Fuel Group, is pushing for planes to use at least 600 million gallons of biofuel by 2015.