The Economic Impacts of EU Climate Policies on Intra-European Aviation

Abstract

This study analyzes the economic impacts of the Fit for 55 policy measures currently proposed by the European Commission for air transport. The methodology used in this paper is based on simulation modeling of different scenarios of how costs will increase and demand will decrease between 2023 and 2050. Various projected economic and key aviation-specific statistics serve as input variables for the model. The results indicate the following: All of the measures proposed by the European Commission have the potential to make flying more expensive, albeit to different degrees. Moreover, the full impacts of each measure take effect at different times in the future. Until 2035, the kerosene tax and the EU ETS have the largest impact on airline costs. The costs incurred by a SAF quota increase after 2035. The highest total cost impact is given in the medium term (2035–2040), when costs add up to 2.50 euros per 100 RPK in the reference scenario. With an increasing SAF ratio, the total cost impact decreases in the long run to 2.09 euros per 100 RPK in 2050. Assuming 100% pass-through to customers and negative price elasticities, the decrease in demand for intra-European transport amounts to a maximum of –23% in the reference scenario. Additional costs and decrease in demand are likely to be higher in the medium term (2035–2040) than in the long term (2050).