In the current market environment there are many factors causing volatility in the Income Statement – political, economic, financial and industry specific factors that to try to manage some of this volatility or report it in a sensible manner is the objective of many treasurers. The aim of the EU Emissions Trading Scheme (EU-ETS), tarted on 1st January 2005, is to reduce emissions in a cost effective manner allowing companies to trade emission allowances and thereby determine how and where they reduce emissions. Following legislation in 2009 the aviation industry is now included. From 1st January 2012 all airlines flying to and from the European Union are required to match their carbon emissions with carbon credits. Although each airline receives an allowance on an annual basis this is unlikely to match actual emissions incurred and hence the airline will be exposed to this very volatile commodity.
Although aviation only accounts for approximately 2% of the world’s greenhouse gas emissions it has the fastest growth factor across all sectors, primarily as air travel is becoming cheaper and more popular. It is stated that someone flying from London to New York and back generates roughly the same level of emissions as the average person in the EU does by heating their home for a whole year. Hence the scrutiny from the world that is now very focused on making our planet greener.
This publication is the first in a three part series through which we will explore:
Part I – What is the issue?
Part II – The accounting implications and considerations, and
Part III – A case study from an airline ragarding their emissions hedging