The European Union has approved the Emissions Trading Scheme (ETS) designed to reduce greenhouse gas emissions by imposing a buy and trade system for airlines taking off and landing at EU airports. The ruling will include non-European carriers. This has most airlines up in arms, warning that higher fares may result.

ETS sets a limit or cap on the amount of pollutants that can be emitted by a particular industry. Companies or other groups are issued emission permits and are required to hold an equivalent number of allowances (or credits) which represent the right to emit a specific amount. The total amount of allowances and credits cannot exceed the cap, limiting total emissions to that level. Companies that need to increase their emission allowance must buy credits from those who pollute less. ETS is targeting a 20% reduction of CO₂ emissions by 2020.

So what has the airlines upset over the EU decision? For the first time, the aviation industry is being included as a contributor (admittedly small, but growing) to the global warming debate. With this ruling, any airline operating in the EU will be subject to the ETS rules from 2012. This includes international airlines based outside the EU. Some governments, particularly those in the United States and Japan, have expressed their objection over what they consider to be a unilateral decision to impose a regional system on international aviation. IATA, which represents airlines around the world, supports emissions trading but not this decision by the EU. The organization would prefer that ICAO, the international civil aviation body, administer a global cap-and-trade system instead.

Airlines such as Germany's Lufthansa claim that the additional bureaucracy created by the emissions trading scheme will add costs to an already cash-strapped industry. Airlines argue that money for more fuel-efficient technology and aircraft will instead be used to guarantee compliance with ETS. In addition, ticket prices will most likely increase as this new cost of doing business is passed on to the consumer. If power companies in Europe are any example, the threat to raise prices is real. Power companies operating under the trade scheme include emission credits as a cost – whether they are part of their free allowance or purchased. These costs are added to power prices and passed onto the consumer. The resulting windfall profits make it an attractive model to follow.

Do you agree with the EU decision to include aviation in the emissions trading scheme? Will this give airlines another reason to pass on costs to consumers? Is this a secret tax on the flying public? What are your ideas for a greener aviation industry? Share your thoughts.