1. Economic Analysis MBO’s
C/B review of Market Based Options for Reduction of CO2 from Aviation
Presented by
Hans Pulles

2. Measures Emission related levies (taxes and charges) Emissions trading
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 % reduction in projected emissions growth between 1990 and 2010
Target % 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 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 the AERO-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)
25%
50%
5% Kyoto

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

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