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Airlines' duty to compensate for climate damages won't hike prices for now

Tallinn Airport.
Tallinn Airport. Source: Priit Mürk/ERR

Although the EU is moving toward making airlines pay more for the climate damage caused by aviation, Tallinn Airport foresees the cost of flying out Estonia stabilizing, not going up in the near future. In the face of tight European competition, airBaltic doesn't deem hiking flight prices likely this year either.

Last week, Finnish daily Helsingin Sanomat wrote (link in Finnish) that the cost of plane tickets in Europe will be going up in the coming years. Nordea senior climate specialist Matti Kahra outlined three reasons for the impending increase: the EU is tightening and possibly expanding aviation emissions trading, the entry into force of the EU's regulation on sustainable aviation fuels (SAFs) – known as the RefuelEU aviation regulation – as well as global regulations requiring offsetting the increase in emissions.

The direction is clear, in any case: airlines and passengers are clearly going to start paying more for climate damages, the paper asserted, adding that the transition began at the start of the new year already, with quotas being reduced by a quarter this year and half by next.

While the EU Emissions Trading System (EU ETS) currently only applies to flights within the European Economic Area (EEA), the RefuelEU aviation regulation approved last October concerns long-haul flights as well.

Nonetheless, flying out of Tallinn shouldn't get more expensive anytime soon, Tallinn Airport CCO Eero Pärgmäe told ERR, noting that the higher volume of seats on the market during both the winter and summer seasons this year will likely have a more favorable effect on prices.

"This boosts competition, thereby also slowing the increase in prices," Pärgmäe said, adding that they moreso see prices stabilizing, on top of deals being offered by airlines lately.

Latvian state-owned airline airBaltic told ERR that changes related to the EU ETS are being implemented gradually in the aviation sector, and therefore won't affect ticket prices in the near future.

"However, these obligations will be offset by future incentives, in particular provisions to bridge the price gap between SAFs and conventional aviation fuel," the airline explained. "The use of SAFs will also lead to a reduction in emissions, which will also reduce the obligation to compensate for emissions."

AirBaltic is forecasting a gradual increase in costs over the coming decades, but the precise financial impact thereof remains difficult to pinpoint. It nonetheless confirmed that it is not currently planning any price hikes for this year in connection with the environmental aspect.

More broadly speaking, airfare prices and changes thereto depend on classical economic principles, i.e. supply and demand and the competitive situation on the market, however the European aviation market has long been characterized by tight competition, the Latvian flag carrier said.

Other unexpected factors can impact prices as well, the airline added, citing current factors including inflation and high fuel prices, but also increased fuel consumption as a result of flights having to be rerouted to avoid Ukrainian airspace.

Aviation and shipping currently account for nearly 8 percent of all EU emissions. The EU has set a 55 percent reduction in emissions as its target for 2030, in order to reach climate neutrality by 2050.

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Editor: Aili Vahtla

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