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Inclusion of air transport into the EU-ETS in 2012

FACT SHEET NO.: Cat-No.1 / Subcat-No.1.2-3

General Information

Title

FACT SHEET NO.: Cat-No.1 / Subcat-No.1.2-3

Category

1. Pricing

Subcategory

1.2 Internalisation of external costs

Transport policy measure (TPM)

Inclusion of air transport into the EU-ETS in 2012

Description of TPM

The EU Emissions Trading System (EU ETS) is a so-called "cap and trade" scheme. The EU has imposed a cap on the total level of emissions for the aviation sector based on emissions levels during the period of 2004-2006 and will distribute a fixed number of emissions allowances to airlines which can be traded. A proportion of these allowances will be distributed for free and a proportion will be auctioned.

Implementation examples

Europe-wide

Objectives of TPM

The overall objective of the inclusion of aviation in the EU ETS is to tackle the climate impact of aviation:In 2020 CO2 emissions will be 21% lower than in 2005.

Choice of transport mode / Multimodality

Possibly shift to (high speed) rail for shorter inner-European routes; however, there are many other factors to consider such as comparative modal prices, journey length, convenience and price elasticity, e.g. business vs. leisure.

Origin and/or destination of trip

No impact

Trip frequency

No impact

Choice of route

No impact

Timing (day, hour)

No impact

Occupancy rate / Loading factor

No impact

Energy efficiency / Energy usage

About 1% fuel efficiency improvements per year are expected [2, p.17]

Main source

[1] EU Directive 2008/101/EC, 2009
[2] Anger A., Allen P., Rubin J., and Köhler J. (2008): Air Transport in the European Union Emissions Trading Scheme.
www.landecon.cam.ac.uk/research/eeprg/4cmr/pdf/OmegaStudy_finalreport.pdf.
[3] CE Delft (2005): R. C. N. Wit, B.H. Boon, A. van Velzen, M. Cames, O. Deuber, D.S. Lee Giving wings to emission trading – Inclusion of aviation under the European emission trading scheme (ETS): design and impacts. A report for the European Commission, DG Environment.
[4] Frontier Economics (2006): Economic consideration of extending the EU ETS to include aviation: A Report Prepared for the European Low Fares Airline Association (ELFAA): http://www.elfaa.com/documents/FrontierEconomicsreportforELFAAEconomicconsideration_005.pdf.
[5] DfT (2009): UK Air Passenger Demand and CO2 Forecasts. Department for Transport, UK.
[6]Eur-lex: Impact assessment on the internalisation of external costs. http://eurlex.europa.eu/LexUriServ/LexUriServ.do?uri=SEC:2008:2208:FIN:EN:PDF.
[7] J. Scheelhaase, W. Grimme, M. Schaefer (2007): The impact of the European Commission's proposal on the integration of air transport into the emissions trading scheme on competition between European and non-European airlines. Proceedings of the European Transport Conference.
[8] R. Malina, D. McConnachie, N. Winchester, C. Wollersheim, S. Paltsev, I. Waitz (2012): The impact of the European Union Emissions Trading Scheme on US aviation. Journal of Air Transport Management 19.
[9] P. Morrell (2007): An evaluation of possible EU air transport emissions trading scheme allocation methods. In: Energy Policy.
[10] A. Anger, P.Allen, J. Rubin, J. Köhler (2008): Air Transport in the European Union Emissions Trading Scheme.
http://www.omega.mmu.ac.uk/Events/OmegaStudy_17_finalreport_AAPMA_2-1__240209.pdf.

Traffic Impacts

Passengers 

         

Transport operators 

           

Unassigned 

         

Travel or transport time

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Risk of congestion

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Vehicle mileage

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Service and comfort

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Overall impacts on social groups

Implementation phase

Operation phase

Summary / comments concerning the main impacts

- The impact on the demand in air travel is diverse and varies by alternative cost pass-through assumptions. Some studies estimate aviation activity to grow at an average annual rate of about 2.5% (exceeding 3% until 2015 and less thereafter) and incorporates about 1% fuel efficiency improvements per year. The growth is despite the inclusion of the aviation section in the ETS and not a consequence. Other studies assume average yearly growth rate of about 4% (see for example [3]). The lower projected growth rate in aviation activity in the reference scenarios means that, all else equal, aviation emissions and demand for allowances will be smaller than if a larger growth rate had been used for aviation activity [10].
- The TPM predicts small reductions in the demand for air travel services.

Quantification of impacts

See above

Economic Impacts

Passengers 

         

Transport operators 

           

Unassigned 

         

Transport costs

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Private income / commercial turn over

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Revenues in the transport sector

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Sectoral competitiveness

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Spatial competitiveness

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Housing expenditures

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Insurance costs

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Health service costs

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Public authorities & adm. burdens on businesses

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Public income (e.g.: taxes, charges)

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Third countries and international relations

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Overall impacts on social groups

Implementation phase

Operation phase

Summary / comments concerning the main impacts

- It is expected that most airlines will pass on at least some of the administrative and allowance costs to the air passengers via ticket prices, although the impact has so far been minimal.
- Impacts on the GDP in the EU are predicted to be between – 0.002% and 0.026% over the 10 year trading period. The decrease in economic activity in the aviation sector was assumed to be offset by increased income and employment generated from substitute activities. By 2020, changes in real GDP (base year 2000) with and without inclusion of air transport as a part of EU ETS might be 0.022% (allowance price of €40), and the medium and low price scenario show no change [4].
- Concerning the competitiveness of European and non-European airlines, network carriers based outside the European Union will most likely gain a significant competitive advantage for long-haul services compared to European network carriers. [7] [8] The impact of the EU-ETS on airline profitability depends on the cost pass-through assumptions [8].
- Particular regions will fare better or worse depending on the extent to which their economies are dependent on airline services and the business models of the airlines servicing the area. In particular, nations or regions predominantly served by discount airlines, that serve travellers with greater price sensitivity, may suffer larger impacts. It is argued that including aviation in the EU ETS may have particularly negative consequences for the new EU Member States, slowing down their economic growth and decreasing their welfare [4].

Quantification of impacts

- According to [4], GDP rates are affected slightly more in old Member States than in new ones. This is the opposite result to that in other studies [5]. For example, in 2020 the change in UK GDP will be about - 0.002% compared to Polish GDP which may increase by 0.024% (allowance price of €40) in comparison to no action scenarios.
- Related reductions in CO2 emissions will be - 0.193% and -0.001 respectively. These results can be explained by the fact that old Member States have more developed air transport sectors that count for a larger share in their GDP and CO2 emissions (e.g. 6.3% of total UK CO2 emissions in 2005 - [5]) .
- That imposes extra costs on air transport in these countries which may result in larger impact on GDP. Also increasing costs in old Member States may give some advantage to some of the new Member States were for example labour costs are lower. These developments can lead towards carbon leakage inside the EU itself.

Social Impacts
Environmental Impacts

Passengers 

         

Transport operators 

           

Unassigned 

         

Air pollutants

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Noise emissions

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Visual quality of the landscape

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Land use

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Climate

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Renewable or non-renewable resources

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Overall impacts on social groups

Implementation phase

Operation phase

Summary / comments concerning the main impacts

It should be noted that the emissions reductions won’t necessarily be made in-sector as operators can choose not to reduce their own emissions but to buy allowances to cover any excess for which they don’t have free allowances. At the EU level, including aviation in the emissions trading scheme may result in change of yearly CO2 emissions by 0.09% (allowance price of €5), 0.23% (an allowance price of €20) and – 0.23% (allowance price of €40) in 2020 compared with no action scenarios [2]. [10] even predicts a reduction up tp 7.5 % of CO2 by 2020 (allowance price of €40). The aviation sector is likely to be a net buyer of allowances under the EU ETS, and that emission reductions have to be made in other sectors to cover the demand of allowances by the aviation sector. Additionally, these numbers reflect the relatively small share of the air transport industry in the EU ETS. It is expected that the non-aviation sectors reduce their emissions and sell their allowances to the air transport sector. Under all the price scenarios, the power sector will be the major seller of the allowances [2, p.20].

Quantification of impacts


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