Economic Analysis MBOs

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Economic Analysis MBOs
C/B review ofMarket Based Optionsfor Reduction
of CO2from Aviation
Presented by Hans Pulles
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Measures

• Emission related levies (taxes and charges)
• 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

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Targets

• Target 1 - reduce 2010 emissions to 95 of 1990
  levels
• Target 2 - 50 reduction in projected emissions
  growth between 1990 and 2010
• Target 3 - 25 reduction in projected emissions
  growth between 1990 and 2010

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RTKs and Global Fuel Burn(relative to 1998)
25



50
growth
5

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Mechanisms and Approach
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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 -0.7 with
  regional differentiation -0.5 to -0.9

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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)

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General effect of a MBO(continued)

• Other possibilities
• use funds from charges for early retirement older
  aircraft ----gt re-channeling proceeds of charges
• purchase emission rights from non aviation
  sources ----gt Emission Trading

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Analysis Results obtained with
theAERO-modelling system
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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

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Conclusions

• Results roughly the same for
• Fuel taxation
• En-route CO2-modulated tax
• Closed trading system
• Voluntary agreements that reach the targets

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Reduction in traffic demand(expressed in of
total 2010 RTKs)
50
25
5 Kyoto
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Reduction in traffic demand(expressed in of
total 2010 RTKs)
50
25
5 Kyoto
14
Reduction in traffic demand(expressed in of
total 2010 RTKs)
50
25
5 Kyoto
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Reduction in traffic demand(expressed in of
total 2010 RTKs)
50
25
5 Kyoto
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Additional Airline Operating Costs(expressed as
a of 2010 total operating costs)
50
25
5 Kyoto
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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

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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

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Other emissions

• Most options result in a demand reduction
• In those cases there will be also a reduction in
  NOx and SO2
• Only under an aggressive fuel efficiency scenario
  there might be an increase in NOx