Cost Impacts of the Inclusion of Air Transport into the European Emissions Trading Scheme in the Time Period 2012-2020

Abstract

Since January 2012, international aviation has been included in the emissions trading scheme of the European Union (EU ETS), in accordance with EU Directive 2009/29 EC. From this year up to (at least) 2020, all flights starting from or landing at European airports are subject to the EU ETS, apart from a few exemptions. In 2012, the CO2 emission target for aviation is 97 per cent of the historical emissions of the years 2004-2006. From 2013 onwards, this reduction target will be lowered by another 2 per cent. In September 2010, the ICAO Assembly agreed to an exemption clause for market-based measures which could be applied to the EU ETS. Whether this should be the case is a controversial issue on the international political level. Model-based empirical estimations presented in this study indicate significant impacts of the EU ETS on airline costs, airfares and competition within the airline sector: in the year 2020, more than 50 per cent of the required allowances will have to be purchased by the airlines. Assuming an allowance price of 20 € per tonne of CO2, the resulting costs for the aviation sector will amount to about 20,502 million € in 2012-2020. In addition, competitive distortions can be expected if the ICAO exemption clause is introduced to the EU ETS.