Decarbonization will cost Russian airlines $40 million, says VTB Capital

Already in 2025, Russian air carriers will have to spend 3 billion rubles ($40 million) due to the requirements to use biofuels, which on average will increase the cost of a ticket by 90 rubles ($1.20). Estimates of the cost of greening the industry were presented by VTB Capital analysts on the eve of the bank’s RUSSIA CALLING! Investment Forum.

According to the Fit for 55 laws presented by the European Union last summer, starting from 2025, all fuel used to refuel aircraft at European airports will have to contain at least 2% environmentally friendly fuel. According to VTB Capital analyst Elena Sakhnova, at the current biofuel price, Russian airlines in 2025 may spend an additional 3 billion rubles ($40 million), which is 90 rubles for each ticket sold to the EU. By 2030, the amount for the industry will increase to 11 billion rubles ($146.5 million) and 250 rubles ($3.35), respectively, which could represent a third of the cost of a low-cost carrier's ticket.

At the same time, global regulator the International Civil Aviation Organization (ICAO) is developing its own program - CORSIA (Carbon Offsetting and Reduction Scheme for International Aviation). According to this scheme, from 2027, all participants will have to offset emissions from their international flights, which will exceed the levels of 2019. Starting from 2027, the costs of the Russian aviation industry for CORSIA may amount to 20-30 billion rubles annually.

In October 2021, the goal of achieving zero emissions by 2050 was also set by the International Air Transport Association (IATA), the self-regulatory body in the global aviation industry. It includes 290 airlines from 120 countries of the world.

Elena Sakhnova, Analyst at VTB Capital, said:

“The annual carbon footprint of the global aviation industry is 1 billion tons, which is 2% of all global carbon dioxide emissions. We see several measures that will enable the sector to reduce its negative impact on the environment, comply with regulatory requirements and reduce potential losses from environmental payments. Firstly, it is about a gradual transition to biofuels, which can reduce emissions by 80% relative to conventional kerosene. Secondly, the development of new types of aircraft: electric and hydrogen. Third, improving fuel efficiency. Finally, all emissions that will not be reduced by effective methods can be offset through the use of “green credits”, which airlines will buy from certified “green” companies. However, we do not welcome compensatory measures and believe that competitiveness is ensured by energy conservation and the development of new technologies.”

The impact of ESG on the Russian and global economy is one of the topics that will be discussed at the 13th VTB Capital Investment Forum "RUSSIA CALLING!" The forum will be held on November 30 - December 1 in an online format. The broadcasts of the sessions and the forum program can be found on the official website.