Lufthansa to pass carbon costs to passengers

FRANKFURT: Deutsche Lufthansa AG will pass on to its customers an expected 130 million euros ($169 million) of costs for carbon permits it needs this year under a new European Union Emissions Trading Scheme (ETS).

Germany's biggest airline said on Monday it will add the costs from the ETS to its fuel surcharge, becoming the first carrier to provide details of how it plans to cope with the additional burden.

"In the face of intensive competition, especially of companies from non-EU countries whose production is subject to emissions trading to only a small degree, Lufthansa will have to pass on the burden via ticket prices, as suggested by the EU," it said in a statement.

However in the short term Lufthansa will not raise its existing surcharges, which it had increased last month to between 102 euros and 122 per flight leg for intercontinental flights and to 31 euros for domestic and European flights though it said at the time this was just to cover higher fuel costs.

From this year, all airlines touching down or taking off in the EU will have to account for their CO2 emissions as part of an expansion of the world's largest carbon market.

Airlines and their associations have balked at the scheme and even challenged it in court, saying it further burdened an industry already saddled with soaring fuel prices, fierce competition and national taxes.

Global airlines group IATA has said it estimates the annual industry-wide cost of the ETS will rise to 2.8 billion euros by 2020 from 900 million this year.

Europe's highest court last month backed the scheme, meaning all airlines will have to pay for emissions permits, drawing anger from the United States and China.

Airlines will collectively receive in 2012 free permits amounting to 85 percent of the sector's total emissions, but because the limit is based on emissions over 2004 through 2006, most carriers are expected to need to buy more.

Lufthansa, which has said in the past that competition was too tough for airlines to pass on costs to their customers, said it will need to buy 35 percent of the permits it needs for 2012.