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Economic Analysis of Market-Based Options for Reducing CO2 from Aviation

This presentation by Hans Pulles discusses various market-based options for reducing CO2 emissions from aviation. It explores measures like emission-related levies, emissions trading, and voluntary measures to meet targeted reductions. The impact of these options on fuel costs, airline operations, and technology improvements is analyzed, emphasizing the importance of demand effects. The presentation concludes that open emission trading is the most effective approach, particularly for achieving ambitious emission reduction targets, although it may lead to costs leaving the aviation sector. Regional measures and revenue-neutral charges are also evaluated for different target scenarios and their implications on aviation and environmental benefits.

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Economic Analysis of Market-Based Options for Reducing CO2 from Aviation

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  1. Economic Analysis MBO’s C/B review ofMarket Based Optionsfor Reduction of CO2from Aviation Presented by Hans Pulles

  2. Measures • Emission related levies (taxes and charges) • Fuel/en-route tax • Fuel/en-route charge with re-channeling proceeds • Revenue neutral en-route charge • Emissions trading • Closed, open • Auctioning, grandfathering • Voluntary measures

  3. Targets • Target 1 - reduce 2010 emissions to 95% of 1990 levels • Target 2 - 50% reduction in projected emissions growth between 1990 and 2010 • Target 3 - 25% reduction in projected emissions growth between 1990 and 2010

  4. RTK’s and Global Fuel Burn(relative to 1998) 25% } } } 50% growth 5% }

  5. Mechanisms and Approach

  6. General effect of a MBO • It raises (fuel) costs to the airlines • General assumption: Costs are passed on to consumer • Airlines will raise fares and freight rates • Increased prices will have effect on demand • Average global fare elasticity -0.7 with regional differentiation -0.5 to -0.9

  7. General effect of a MBO(continued) • Based on economic criteria airlines will shift to more modern aircraft (better fuel efficiency) • Autonomous fuel improvement 1%/pa for newly purchased aircraft • Other possible effects: • accelerated technology development • (manufacturers response or supply side effect)

  8. General effect of a MBO(continued) • Other possibilities: • use funds from charges for early retirement older aircraft ----> re-channeling proceeds of charges • purchase emission rights from non aviation sources ----> Emission Trading

  9. Analysis Results obtained with theAERO-modelling system

  10. General conclusions • Demand effect is dominant over technology improvement • Exception in re-channeling cases • With open emission trading the main reduction is achieved by trading

  11. Conclusions • Results roughly the same for: • Fuel taxation • En-route CO2-modulated tax • Closed trading system • Voluntary agreements that reach the targets

  12. Reduction in traffic demand(expressed in % of total 2010 RTK’s) 50% 25% 5% Kyoto

  13. Reduction in traffic demand(expressed in % of total 2010 RTK’s) 50% 25% 5% Kyoto

  14. Reduction in traffic demand(expressed in % of total 2010 RTK’s) 50% 25% 5% Kyoto

  15. Conclusions Detailed Analysis • Kyoto targets: • High costs/demand implications • Open trading only viable option, money leaves the aviation sector • For less stringent targets a fuel/en-route charge where the proceeds are re-channeled become viable, but complicated to implement

  16. Conclusions Detailed Analysis(continued) • For even more relaxed targets a revenue neutral en-route charge are effective as well. • Regionally applied measures have less environmental benefits, a chance of distortions in the competition between airlines and increased permit prices

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