EU ETS scope expansion for aviation. Effects on ticket prices and demand

Currently, the EU ETS applies to intra-EEA flights as well as departing flights to Switzerland and the UK. Intercontinental flights have been temporarily excluded from the EU ETS scope until January 2027. Depending on its assessment of ICAO’s CORSIA scheme, the European Commission may propose to extend the EU ETS scope to extra-EEA flights.
If the EU ETS scope is extended to departing extra-EEA flights, a price increase for these flights could be expected. This study, which was commissioned by Carbon Market Watch, addresses two research questions:

1. By passenger segment and route, how much would ETS expansion increase ticket prices and what is the expected demand response?
2. How much do non-price factors – such as value of time, airline loyalty and airport attractiveness – affect ticket demand in aviation?

The demand response due to an EU ETS scope expansion depends on both the cost pass-through rate (what share of costs are passed on through ticket prices?) and price elasticities (how do passengers adjust their demand as a result of ticket price increases?)

• We found that cost pass-through rates differ significantly between market segments. Airlines tend to pass-through a smaller share of costs in less competitive markets, at congested airports and when their flights have a relatively high carbon intensity compared to competitors.
• The price elasticity of passengers varies significantly between market segments, with private aviation, business travel, frequent flyers and long-haul flights being relatively insensitive to price changes.

These results show that a single EU ETS price can lead to different demand responses across market segments. At current EU ETS price levels, the effect on demand responses is relatively small for most segments (at most a few percentage points).