IPCC (1999), ICAO/FESG (2004a,b), Wit et al. (2002 and 2005), Cames and Deuber (2004), Arthur Andersen (2001) and others have examined potential economic instruments for mitigating climate effects from aviation.
At the global level no support exists for the introduction of kerosene taxes. The ICAO policy on exemption of aviation fuel from taxation has been called into question mainly in European states that impose taxes on fuel used by other transport modes and other sources of GHGs. A study by Resource Analysis (1999) shows that introducing a charge or tax on aviation fuel at a ‘regional’ level for international flights would give rise to considerable distortions in competition and may need amendment of bilateral air service agreements. In addition, the effectiveness of a kerosene tax imposed on a regional scale would be reduced as airlines could take ‘untaxed’ fuel onboard into the taxed area (the so-called tankering effect).
Wit and Dings (2002) analyzed the economic and environmental impacts of en-route emission charges for all flights in European airspace. Using a scenario-based approach and an assumed charge level of 50 US$/tCO2, the study found a cut in forecast aviation CO2 emissions in EU airspace of about 11 Mt (9%) in 2010. This result would accrue partly (50%) from technical and operational measures by airlines and partly from reduced air transport demand. The study found also that an en-route emission charge in European airspace designed in a non-discriminative manner would have no significant impact on competition between European and non-European carriers.
In a study prepared for CAEP/6, the Forecasting and Economic Analysis Support Group (ICAO/FESG, 2004a) considered the potential economic and environmental impacts of various charges and emission trading schemes. For the period 1998–2010, the effects of a global CO2 charge with a levy equivalent to 0.02 US$/kg to 0.50 US$/kg jet fuel show a reduction in global CO2 emissions of 1–18%. This effect is mainly caused by demand effects (75%). The AERO modelling system was used to conduct the analyses (Pulles, 2002).
As part of the analysis of open emission trading systems for CAEP/6, an impact assessment was made of different emission trading systems identified in ICF et al. (2004). The ICAO/FESG report (2004b) showed that under a Cap-and-Trade system for aviation, total air transport demand will be reduced by about 1% compared to a base case scenario (FESG2010). In this calculation, a 2010 target of 95% of the 1990-level was assumed for aviation on routes from and to Annex-I countries and the more developed non-Annex-I countries such as China, Hong Kong, Thailand, Singapore, Korea and Brazil. Furthermore a permit price of 20 US$/tCO2 was assumed. Given the relative high abatement costs in the aviation sector, this scenario would imply that the aviation sector would buy permits from other sectors for about 3.3 billion US$.
In view of the difficulty of reaching global consensus on mitigation policies to reduce GHG emissions from international aviation, the European Commission decided to prepare climate policies for aviation. On 20 December 2006 the European Commission presented a legislative proposal that brings aviation emissions into the existing EU Emissions Trading Scheme (EU ETS). The proposed directive will cover emissions from flights within the EU from 2011 and all flights to and from EU airports from 2012. Both EU and foreign aircraft operators would be covered. The environmental impact of the proposal may be significant because aviation emissions, which are currently growing rapidly, will be capped at their average level in 2004–2006. By 2020 it is estimated by model analysis that a total of 183 MtCO2 will be reduced per year on the flights covered, a 46% reduction compared with business-as-usual. However, aviation reduces the bulk of this amount through purchasing allowances from other sectors and through additional supply of Joint Implementation and Clean Development Mechanism credits. In 2020 aviation reduces its own emissions by 3% below business-as-usual (EC, 2006).
If emission trading or emission charges were applied to the aviation sector in isolation, the two instruments would in principle be equivalent in terms of cost-effectiveness. However, combining the reduction target for aviation with the emission trading scheme of other sectors increases overall economic efficiency by allowing the same amount of reductions to be made at a lower overall cost to society. Therefore, if aviation were to achieve the same environmental goal under emission trading and emission charges, the economic costs for the sector and for the economy as a whole would be lower if this was done under an emission trading scheme including other sectors rather than under a charging system for aviation only.
Alternative policy instruments that may be considered are voluntary measures or fuel taxation for domestic flights. Fuel for domestic flights, which are less vulnerable to economic distortions, is already taxed in countries such as the USA, Japan, India and the Netherlands. In parallel to the introduction of economic instruments such as emission trading, governments could improve air traffic management.
Policies to address the full climate impact of aviation
A major difficulty in developing a mitigation policy for the climate impacts of aviation is how to cover non-CO2 climate impacts, such as the emission of nitrogen oxides (NOx) and the formation of condensation trails and cirrus clouds (see also Box 5.1 in Section 5.2). IPCC (1999) estimated these effects to be about 2 to 4 times greater than those of CO2 alone, even without considering the potential impact of cirrus cloud enhancement. This means that the perceived environmental effectiveness of any mitigation policy will depend on the extent to which these non-CO2 climate effects are also taken into account.
Different approaches may be considered to account for non-CO2 climate impacts from aviation (Wit et al., 2005). A first possible approach is where initially only CO2 from aviation is included in for example an emission trading system, but flanking instruments are implemented in parallel such as differentiation of airport charges according to NOx emissions.
Another possible approach is, in case of emission trading for aviation, a requirement to surrender a number of emission permits corresponding to its CO2 emissions multiplied by a precautionary average factor reflecting the climate impacts of non-CO2 impacts. It should be emphasised that the metric that is a suitable candidate for incorporating the non-CO2 climate impacts of aviation in a single metric that can be used as a multiplier requires further development, being fairly theoretical at present. The feasibility of arriving at operational methodologies for addressing the full climate impact of aviation depends not only on improving scientific understanding of non-CO2 impacts, but also on the potential for measuring or calculating these impacts on individual flights.