Economic Analysis of Environmental Policies

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Economic Analysis of Environmental Policies

• A Discussion of Past Practices
• The Aviation Environmental Portfolio Management
  Tool
• Peter Hollingsworth
• Georgia Institute of Technology

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This work was funded by the U.S. Federal
Aviation Administration, Office of Environment
and Energy, under FAA Contract No.
DTFAWA-05-D-00012, Task Order 0002. The APMT
effort is managed by Maryalice Locke.
Any opinions, findings, and conclusions or
recommendations expressed in this material are
those of the author(s) and do not necessarily
reflect the views of the FAA, NASA or Transport
Canada.
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The Issue and Past Practice

• Aviations benefits and environmental effects
  result from a complex system of interdependent
  technologies, operations, policies and market
  conditions
• Past analyses
• Generally focused on single metric
• Noise
• Air-quality
• Climate
• Generally focus on policy effectiveness or
  cost-effectiveness, e.g. /dB or /g-NOX
• Actions in one domain may produce unintended
  negative consequences in another
• Current tools and processes do not support
  recommended practices

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Specific Examples of Existing Tools Practices

• Aviation Emission and Evaluation of Reduction
  Options Modeling System AERO-MS
• Stratus Consulting Spreadsheet Model SCSM
• ICAO Committee on Aviation Environmental
  Protection (CAEP/6) Analysis

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Previous Tools

• AERO-MS
• Developed for NLR (Nationaal Lucht- en
  Ruimtevaartlaboratorium)
• Used by CAEP and The Netherlands
• Incorporates Analysis of
• Aircraft Technology (limited)
• Air transport demand and traffic
• Operating costs
• Direct (primary) economic impact
• General economy for the Netherlands
• Emissions Concentrations
• Climate change
• 1992 Base/Datum year
• SCSM
• Complemented AERO-MS for investigating CO2
  reduction policies
• Incorporated additional supply side responses,
  including global demand
• No-longer in active use

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The CAEP/6 Approach

• Focused on increased NOX stringency
• Basic assumptions included
• Two parties manufacturer and operator
• Cost are calculated where they occur, no
  translation into price of engine or fares
• Non-recurring technology acquisition cost paid
  for by manufacturers
• Recurring manufacturing, maintenance, operating
  costs paid for by operators
• Technology accounted for using Technology Levels

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Moving Toward Recommended Practice

• Every aircraft model has a different combination
  of noise, emissions, fuel burn and performance
• What is the right balance? Will tomorrows
  aircraft reflect this?
• What are the most economically-efficient
  strategies for achieving capacity growth and
  addressing environmental goals? (e.g. US Next
  Generation Air Transportation System)
• CAEP/6 NOx stringency
• Greater leniency for CO to enable more aggressive
  NOx standard was briefly considered
• What are the relative impacts of CO and NOx?
• No PM certification standard
• What is the health impact of PM vs. regulated
  emissions?
• Climate vs. local air quality vs. noise
• What are the relative impacts?

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FAA Office of Aviation Environment and Energy
Toolset

• Future aviation growth will require new and
  innovative ways of tackling environmental issues
• New, comprehensive suite of software tools
• Allows for thorough assessment of the
  environmental effects of aviation
• New capability to assess the interdependencies
  between aviation-related noise and emissions
  effects and associated environmental costs
• Toolset includes
• Environmental Design Space (EDS)
• Aircraft system-level trades, interdependencies,
  technology forecasting
• Estimates performance, cost, emissions, noise
  for future aircraft designs
• Aviation Environmental Design Tool (AEDT)
• Uses fleet and schedule inputs (historical or
  future scenarios)
• Estimates global emissions (SAGE), local
  emissions (EDMS), global noise (MAGENTA), and
  local noise (INM)
• Aviation Environmental Portfolio Management Tool
  (APMT)
• A modular suite of tools to better inform policy
  through rigorous environmental-economics analysis

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APMT overview

• Cost-effectiveness
• /kg NOx reduced
• / people removed from 65dB DNL
• /kg PM reduced
• /kg CO2 reduced
• Benefit-cost
• Net change in societal welfare ()
• Distributional analyses
• Who benefits, who pays
• Consumers
• Airports
• Airlines
• Manufacturers
• People impacted by noise and pollution
• Special groups
• Geographical regions

• Policy scenarios
• Certification stringency
• Market-based measures
• Land-use controls
• Sound insulation
• Market scenarios
• Demand
• Fuel prices
• Fleet
• Environmental scenarios
• CO2 growth
• Technology and operational advances
• CNS/ATM, NGATS
• Long term technology forecasts

APMT
inputs
outputs
Global, Regional, Airport-local
Slide courtesy of Ian Waitz/MIT
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APMT architecture overview
Policy, market and scenario inputs
Economic model of primary markets (consumers,
manufacturers, airlines, airports)
Model of world-wide aircraft operations (AEDT
SAGE INM MAGENTA EDMS)
Monetized environmental impacts (Local air
quality, noise, climate change)
Direct, indirect and induced effects on broader
economy
Collected costs and benefits organized in balance
sheets for different stakeholders
Slide courtesy of Ian Waitz/MIT
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APMT Component Description

• Primary Market
• Partial Equilibrium Block simulates economic
  flows in the aviation market (manufacturers,
  operators, consumers) given demand scenarios
  (e.g. FESG). Changes in prices lead to
  adjustments in supply and demand until
  equilibrium is reached within the aviation market
• World-wide Operations Model
• Fleet Operations Module converts PEB demand to
  select detailed aircraft types and flight
  schedules for input to AEDT
• AEDT models aircraft fuel-burn, emissions, and
  noise
• Impacts Monetization
• Benefits Valuation Block converts AEDT emissions
  and noise outputs to monetized welfare impacts
  (climate, community noise, local air quality)
• Scenario Inputs and Stakeholder Outputs
• Interface, Analysis and Display Block provides
  inputs to all blocks/modules and collects and
  processes outputs to form summary measures for
  cost-effectiveness and benefit-cost analysis

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Using APMT

• Will provide a flexible framework for informing
  policy decisions
• Can be used to estimate policy impacts under
• different scenarios
• different perspectives on how to value impacts
• different assumptions
• Cannot replace the human in the decision loop
• Inputs, model design, baseline choice, scenario
  choices, assumptions, interpretation of output,
  must be done by experienced experts (not
  computers)
• Will not predict the future (we know we cant do
  that)

It is for the policy-makers to decide how APMT
will be used, what assumptions will be made, what
scenarios will be tested
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APMT Prototype

• Objective
• Construct all of the functional modules of APMT
• Limited capabilities compared to that planned for
  the final versions
• Test the functionality of APMT for addressing
  various policy questions
• Assess and propagate module and system level
  uncertainties
• Guide the determination of high priority areas
  for future development and refinement
• Identify resolution of guidance provided
• Data flow is as critical/more critical then
  execution flow
• Data driven process
• Intermediate information is stored or accessible
  through central database
• Need to be able to run modules independently from
  each other
• APMT Prototype Work Plan and other reports are
  available at http//web.mit.edu/aeroastro/www/par
  tner/reports/index.html

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APMT Prototype Execution Data Flow
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Demonstrations Assessment

• Capability Demonstrations
• Baseline
• With and without new aircraft technology shift
• Reduced Thrust Take-Off
• Operations, noise and emissions impacts
• Fuel Price Change
• With and without new aircraft technology shift
• NOx Emissions Certification Stringency
• With and without new aircraft technology shift
• Noise Phase-Out
• No new aircraft technology
• Assessment
• Module and system level sensitivity
• Identification and propagation of uncertainty
• Initial expert review of techniques and methods

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Example ResultsReduced Thrust Demonstrator
Intermediate Result Noise Contours with and
without reduced thrust
Preliminary Results
Reduced Thrust
Baseline
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Example ResultsNPV Effect of Reduced Thrust
NPV Net Present Value
Preliminary Results
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Further Considerations

• Depending on the questions being asked more
  detailed analysis may be required
• Infrastructure changes
• Costs
• Timeframes
• Non-equilibrium demand-supply interaction
• Similar to what is included in USCAP aviation and
  security model
• Incorporation of more detailed market dynamics
• Emissions, noise, fleet and operations feedback
• Statistics-based improvements to runtime
  efficiency that show fidelity-speed trades
• Beyond usage of representative or average week or
  day

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Parting Thoughts

• The root of many problems lies not in the
  models themselves but in the way in which they
  are used. Too often we ask What will happen?,
  trapping us into the mug's game of prediction,
  when the real question should be Given that we
  cannot predict, what is our best move today?
  This subtle shift in emphasis from forecasting to
  informing resolves many of the conundrums...
• Instead of determining the best model that
  solves optimal strategies we should instead seek
  the most robust model that achieves a given
  level of goodness across myriad models and uses
  assumptions consistent with known facts.
• Steven Popper
• Senior economist, RAND Corporation, Santa Monica,
  California
• (In a letter to the Economist, July 2006)

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Questions?
The APMT Team
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APMT Proposed Architecture