Europe’s airlines increasingly have expressed worry that environmental regulations and their resulting costs will hinder the sector’s competitiveness and, ultimately, its decarbonization efforts.
Their concerns stem largely from elements of the European Green Deal, under which the European Commission has actively developed policies in the areas of energy, transport, and taxation with the objective of achieving climate neutrality for the European Union (EU) by 2050. Among its arsenal of initiatives, the “Fit for 55” package consists of a set of legislative proposals designed to curb net carbon dioxide emissions by at least 55 percent by 2030 compared with the levels recorded in 1990.
On paper, Europe’s aviation sector supports the EU's ambitious blueprint for sustainable growth and in 2021 mapped its own sustainability initiative, Destination 2050, which will see all flights within and departing the “EU+”—the 27 EU states, UK, and the European Free Trade Association countries—realizing net zero carbon dioxide (CO2) emissions by 2050. But many industry leaders question what they consider the one-sided approach regulators have taken toward achieving the goal.
A study conducted by consultants SEO Amsterdam Economics and the Royal Netherlands Aerospace Centre, released in March, calculated that the European aviation industry faces €820 billion in “premium” expenditures—or spending exclusively on sustainability—to achieve net-zero emissions by 2050. That comes on top of the €1.1 trillion in “business as usual” expenditures over the 32-year period from 2018 to 2050 considered in the Price of Net Zero study. “Business as usual expenditures alone will not generate on-time decarbonization,” the researchers noted. Expenditures involve investments in assets such as new aircraft and infrastructure as well as costs of developing alternative aviation fuels—including drop-in sustainable aviation fuel (SAF), hydrogen, and electricity—and technologies aimed at removing carbon from the atmosphere to achieve “negative emissions.”
Total expenditures to yield on-time net zero amount to €1.9 trillion, or €59 billion per year. Of the total, €820 billion will go towards new aircraft and fleet renewal, representing the largest expenditure at 43 percent. With a projected cost of €751 billion over the 32-year period, sustainable aviation fuels stand as the second largest expenditure, accounting for a 40 percent share, while €152 billion (19 percent) will go toward carbon pricing and economic measures, including emission trading and negative emission technologies.
“There is a new currency in town, CO2,” remarked Lufthansa Group CEO Carsten Spohr, speaking during the recent A4E Summit in Brussels. He criticized European policymakers’ lackluster approach toward incentives to increase production and the consumption of SAF. “We see [SAF] blending mandates for a product that does not exist,” he lamented. “There is global competition for green investments. Europe has to be careful; we might lose the [clean energy] race,” he said, warning that the U.S. Inflation Reduction Act (IRA) will drive SAF investments to the US. The IRA earmarks $370 billion in federal funds to assure the U.S. remains a global leader in clean energy technology, manufacturing, and innovation.
Much to airlines’ frustration, an important contributor to achieving net zero—the long-promised reform of Europe’s fragmented airspace—has shown little sign of progress. “The airspace reform is a net-zero priority. It’s been debated for over 20 years, it’s the quickest, least-expensive way to reduce emissions today,” remarked EasyJet chief executive Johan Lundgren, who described the Single European Sky (SES) discussions as “exhausting.” According to the European commissioner for transport Adina-Iona Valean, implementing the SES reform proposals would ensure “CO2 savings of around 10 percent through more fuel-efficient routes.”
Fall in demand
Achieving net zero comes with substantial costs, but some of the regulations proposed by the EU under its Green Deal objectives also will negatively affect the continent’s airlines and airports.
According to a research report commissioned by the European Parliament's transport committee, implementing the Fit for 55 measures for the aviation sector would lead to a 10 percent decline in demand for flights within the European Economic Area (EEA) and a 1.4 percent reduction in demand for flights beyond the EEA, provided consumers bear that the entire cost increase.
The researchers pointed out that the reduction in demand would disproportionally affect EU carriers, at least until regulators implement comparable policies in other regions. They also noted that decarbonization policies with an EU scope could affect the competitiveness of EU airports through the “hub-switching effect.” Specifically, they predict a 2.7 percent decrease in the number of passengers traveling to non-EEA destinations, either directly or through an EEA hub, by 2030. Additionally, the number of intercontinental passengers traveling through non-EEA hubs would rise by 1.9 percent.
The study did not consider measures to proactively reduce demand to curb CO2 growth. For Valean, the demand management or limitations measures increasingly contemplated across the region represent “some worrying trends.”
“I, myself, do not see flight bans or caps as a viable option,” she added. “They will only serve to restrict citizens' right to free movement, damage regional connectivity, and hamper aviation's ability to invest in its decarbonization.”