Cost and competitive impacts of addressing aviation's full climate impact by the European Emissions Trading Scheme

Abstract

The EU Council intends to limit air transport’s full climate impact (CO2 and NOx, H2O, SOx, aerosols, contrails and contrail cirrus). A likely approach is the inclusion of all climate relevant species from aviation in the European Emissions Trading Scheme (EU ETS). We provide a proposal for this practice and analyze the economic impacts. Modelling results indicate that the cost effects of the EU-ETS addressing both CO2 and non-CO2 emissions will be much larger than under the current scheme. This is because under the new approach, all climate relevant species are regulated and not just CO2. The cost effects also depend on the length and altitude of the flight. Both has consequences for the competitive environment of the airlines under the scheme. Especially the full service network carriers will have to bear a competitive disadvantage. Remarkably, some cost effects are contrary to the respective findings for an ETS for the limitation of CO2 alone.