Carbon Credits and the Icelandic Volcano

This entry was posted by on Monday, 10 May, 2010 at

A volcanic eruption spewed out a huge amount of carbon into the atmosphere, and clogged the air with flakes of ash for several weeks. Flights are grounded because of the eruption, so planes cannot run their usual routes in Europe and connect travelers on the Atlantic coast to airports across the ocean. Surprisingly enough, the volcano eruption has another effect, on the airlines’ allocation of carbon credits from the European Union.

Since the volcano eruption grounded flights, airliners will fly less hours. According to the Environmental Leader, this will lead to increased carbon credit costs for airlines. The reason is that airlines are not currently covered by the mandatory European carbon credit exchange, which will affect them in 2012. This means they will have a lower baseline carbon emissions standard to use as a comparison in 2012.

The article doesn’t mention a huge disincentive here. This volcano forces airliners to fly less, leading them to appear like they used less energy, which is used in the regulatory calculations of the European Union. This suggests that airliners would gain an advantage by not attempting any form of carbon emissions reduction for their current flights, so they would have a higher base point to start from. Airliners even have an incentive to waste additional fuel now, since if flying less hours will raise their costs in two years, flying more hours now will give them targets that are much easier to meet in the future. This is extremely counterproductive. Since the Environmental Leader mentions that the airlines will be paying more than $3 billion for these credits each year, increasing in the future, an incentive to waste additional fuel and produce more emissions in the next two years which will lower airliners’ future costs needs to be addressed. Fortunately, according to Business Green, the expected effect of the volcanic eruptions so far is two percent of the total carbon emissions for the year, not a huge factor by itself. This article further mentions that the flight reductions caused by the international recession further decrease flights, adding an additional factor that lowers the baseline energy usage of the airliners.

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