Airlines might pass on to customers the cost of carbon allowances that they receive for free, providing a windfall that can be used to buy new aircraft, said the head of the bloc's climate department.

Airlines can use the extra revenue after charging customers for emission permits to cut greenhouse-gas output, Jos Delbeke, the European Commission Director-General for climate, said at a web-cast press conference in Brussels and posted on Bloomberg. The region will give out about 1.6 billion metric tons of free carbon allowances to airlines through 2020, based on data on the EU website.

"A significant share of allowances will be given for free, which represents EUR20 billion (US$27 billion)" during the next nine years, Delbeke said. Europe is easing the way for airlines to "upgrade fleets" and introduce efficiency procedures that cut emissions, he said. New aircraft can slash emissions by as much as 20 percent, he said.

It's unclear whether competition between airlines will allow them to pass on the entire carbon price to their customers, or only a portion of it, Delbeke said.

The European Union today set benchmarks to calculate the distribution of free carbon-dioxide permits among domestic and international airlines from 2012, when they join the bloc's emissions-trading system.

The regulator of the 27-nation bloc set a level of 0.6422 carbon allowances per 1,000 ton-kilometers for the eight years through 2020, the commission said today. Airlines will receive 0.6797 carbon allowances per 1,000 ton-kilometers in 2012, it said. The free allowances will be distributed over the nine years starting 2012 based on 2010 freight-and-passenger data.

Trading Expansion Challenged

The EU decided in 2008 that international aviation should become a part of the world's largest cap-and-trade program after airline discharges in Europe doubled over two decades. U.S. carriers including AMR Corp. (AMR)'s American Airlines and United Continental Holdings Inc. are challenging the carbon plan in court, arguing the EU exceeds its jurisdiction.

Deutsche Lufthansa AG, Europe's second-biggest airline, said its shortfall of EU carbon permits will cost EUR150 million to EUR350 million in 2012, according to an e-mailed statement from Peter Schneckenleitner, a company spokesman. That's based on a shortfall of at least 30 percent and a carbon price as low as EUR15 a metric ton and as high as EUR35, he said. The airline's cap of carbon allowances was set according to data from the three years through 2006 and the airline has grown since then, he said.

EU carbon allowances for December fell 4.1 percent today to close at EUR10.90 a ton on the ICE Futures Europe exchange in London.

"Real Costs"

"Lufthansa will only pass on the real costs caused by the EU emissions trading system," Schneckenleitner said today by phone and e-mail. "Due to the tough competition situation there is no chance to make any windfall profits," meaning the airline will only pass on the cost of paid-for allowances, he said.

"It is even questionable if we can pass on the real costs 1:1 to our passengers," he said. "All in all, prices for tickets and the revenues to be realized are set by the market, and of course Lufthansa will do everything to receive the best possible revenues under consideration of the market circumstances."

Aviation "needs a global solution" for climate protection, Schneckenleitner said today, after the EU published the portion of free allowances. The ratios were as expected by the airline, he said.

In the first seven months of this year, European airlines boosted passenger traffic by 11 percent on average, compared with the same period last year, according to figures published Sep. 1 on the website of the International Air Transport Association, a lobby group based in Montreal. That's the second best growth in the world after Latin America, which achieved 12.2 percent. EU freight traffic jumped 4.2 percent.