How would ambitious CO2 prices affect air transport?

Abstract

In the last years, scientists as well as political activists proposed the introduction of ambitious prices for all CO2 emitting sectors, including aviation. Suggested prices range from about 45 to 350 € per ton of CO2. Such prices are considered an indispensable element of a strategy aiming at stabilizing the global temperature increase well under 2.0 degrees Celsius (Paris objective). For comparison: As of May 2020, the price for European Emission Allowances in the European Emission Trading Scheme was about 20 €/t CO2. European Air Transport has been participating in this scheme on a mandatory basis since 2012. How would such ambitious CO2 prices affect air transport? How likely are a significant increase in airfares and a corresponding decrease in demand? This paper investigates the potential impacts of high CO2 prices on airfares and growth in aviation. For this, we analyze the relevant literature and conduct some model-based estimations. In addition, we provide a rough estimate of the economic impacts in case not only CO2 but all climate relevant species from aviation (NOx, SOx, H2O, aerosols, contrails and contrail cirrus) would become subject to emission pricing.