Economic incentives to mitigate greenhouse gas emissions from air transport in Europe
This study examines the feasibility of economic incentives to mitigate greenhouse gas emissions from air transport in Europe, with a view to encouraging airlines to integrate such emission reduction into their business objectives.
The incentives considered are designed to add the external costs of greenhouse gas emissions to the en route charges already collected by Eurocontrol. The following two policy variants were developed:
An environmental charge Under this methodology an aircraft would incur a charge proportional to the volume of greenhouse gas emissions it discharged in the airspace of the European Union. Revenues would therefore be raised.
A Performance Standard Incentive (PSI) Under this methodology the better an aircraft performed relative to a ‘performance standard’, the more money it would receive, and the worse it performed, the more it would pay. This variant is designed to be revenue-neutral, with the sum of payments and revenues equalling zero.
The incentive level adopted in this study for both policy variants is based on the external costs of the climatic impacts of aviation. This suggests mid-range working values of € 30 per tonne of CO2 and € 3.6 per kg of NOX emitted; in a sensitivity analysis, low (€ 10 and € 1.2, respectively) and high (€ 50 and € 6) variants were also considered. It is to be stressed that the ultimate choice of incentive level is a political issue.
The main impacts of the environmental charge would be:
a cut in forecast aviation CO2 emissions in EU airspace of about 10 Megatonnes (9%) in 2010, the result of technical and operational measures by airlines (4.4 percentage points) and reduced air trans-port demand (4.5 points)
a rise in average ticket prices of roughly € 3 to € 5 for short one way flights (500 km) and € 10 to € 16 for long flights (6000 km).
The main impact of a revenue-neutral PSI would be a cut in forecast aviation CO2 emissions in EU airspace of almost 6 Mtonne (5%) in 2010. This would accrue almost entirely from technical and operational measures by airlines. The impact on ticket prices depends very much on the precise definition of the ‘performance standard’. The PSI does not place a net financial burden on the industry as a whole. By its very nature, though, introduction of the PSI may mean that some market segments benefit and others suffer.
The study also shows that no significant economic distortions are likely to arise among airline companies as a result of the policy options and incentive levels considered.
An environmental charge would generate annual revenues of € 1 bn - € 9 bn, depending on financial valuation of emissions. The revenues generated could be allocated to individual EU Member States or to a su-pranational fund for financing emission abatement measures. By definition, a revenue-neutral PSI will not generate any revenues.
From the point of view of international law and bilateral air service agreements there are no legal obstacles to introduction of a charge or Performance Standard Incentive in EU airspace. However, there are several conditions that should be taken into due account.
Authors: Ron Wit, Jos Dings, Pablo Mendes de Leon, Louis Thwaites, Paul Peeters, Dan Greenwood and Rigas Doganis