Giving wings to emission trading

Inclusion of aviation under the EU ETS:

Design and ImpactsRon Wit, ECCP II, Brussels 24th October 2005

Overview of talkObjectives of study

Design• Key design elements• Pros and cons of elements• Selection of policy options

Impacts• Impacts on ticket prices• Environmental impacts• Economic impacts• Marginal impact on EU ETS

Overall conclusion

Objectives of study

• Overarching objective:– To develop concepts for amending

Directive 2003/87/EC to address the full climate change impact of aviation through emission trading

• Specific goals:– How to address non-CO2 climate effects?– Design viable systems

• Geographical scope• Allocation and surrendering of allowances• Monitoring, reporting verification, etc.

– Impact analysis

Design: key elements

• Coverage of climate impacts• Geographical scope• Trading entity• Decision on allocation rules• Interplay with Kyoto Protocol• Allocation method• Monitoring method

• >> choices within each key design element

Coverage of climate impacts (1)

• CO2 and non-CO2 climate impacts from aviation

• Overall radiative forcing is 2 to 4 times larger than CO2 alone

IPCC, 1999

Coverage of climate impacts (2)Scenario 1: CO2 x multiplier (factor 2)

• GWP and RFI not a feasible multiplier, but multiplier based on GTP may be feasible

• less efficient: no incentives to reduce non-CO2 impacts

Scenario 2: effect-by-effect

• Not feasible (yet) to estimate impacts on individual flight level

Scenario 3: CO2 only, plus flanking instruments

• NOx LTO airport charge feasible: also reduces NOx cruise emissions

• Don’t need to be compatible with EU ETS

• ATM Flight procedures: contrails

Scope: CO2 emissions under various geographical scenarios(EU-ETS approx: 2200 Mt)

CO2 emissions in Mt in 2004

% of emissions in ETS

1) Intra-EU 52 Mt 2.4%

2) flights departing from EU Airports

130 Mt 5.9%

3) EU airspace 114 Mt 5.2%

4) Intra-EU and to/from KP states

72 Mt 3.3%

Trading entity?

• Aircraft operator most suitable• Other options (fuel supplier, airport, ATM,

manufacturer) have one or more decisive disadvantages

Decision on allocation rules

• Level to set total amount of allowances and rules to distribute allowances

• EU or member states?

• EU ETS: some degree of subsidiarity

• Two arguments for EU approach:– International aviation not included in

EU’s Burden Sharing agreement– Prevention of competitive distortions

Selection of policy optionsDesign element Option 1 Option 2 Option 3

Climate impacts CO2 x multiplier

CO2 only plus flanking instrument

CO2 only plus flanking instrument

Scope Intra-EU Departing from EU

EU airspace

Interplay KP Buy above baseline

Unrestricted trading (AAUs borrowed)

Gateway

Allocation method baseline Bench-marking

auctioning

Impact assessment

• Assumptions:– Emissions 2008 historic baseline– Results for the year 2012– Emissions growth 4% per annum– permit price of 10 to 30

euro/tonne CO2

– Multiplier of 2 (option 1 only)

Impact on ticket prices in 2012Return flight and 10 to 30 euro/tonne CO2 (lf=70%)

Option 1Intra-EU

and multiplie

r

Option 2100%

departing flights

Option 3EU

airspace/auctioning

Short haul 0.4 – 9.2 0.2 – 4,6 1.5 – 4.6

Medium haul

0.9 – 18 0.4 – 9.0 3.0 – 9.0

Long haul 0 1.0 – 19.8

2.3 – 6.9

CO2 reduction in 2012 compared to BaU emissions in 2012 (permit price: € 30 t/CO2)

Option 1Intra EU

Option 2all departures

Option 3EU airspace

BaU emissions in 2012

71 Mt 178.5 Mt 156.5 Mt

BaU emissions in 2008

60.7 Mt 152.6 Mt 133.8 Mt

Total reduction, of which:

20 Mt 25.9 Mt 22.7 Mt

Reduced within aviation sectorPurchased from other sectors

0.7 Mt

19,3 Mt

3.2 Mt

22.7 Mt

5.6 Mt

17.1 Mt

Potential trade-offs of ‘CO2 only’ regime?

-Overall NOx emissions will probably not increase-Contrails may increase due to cooler exhaust

Economic impacts• All carriers irrespective of nationality and

operator are subject to the same scheme

• Decrease in growth by 0.2 to 1.3% (option 1), 0.4 to 2.1% (option 2) and 1.4% (option 3), (permit price € 30 per t/CO2 )

• Therefore no significant impact on EU carriers’ economies of scale

• However: non EU carriers can more easy fly most efficient (=new) aircraft on EU routes

• Auction revenues: 1.3 to 4 billion euro (based on 2008 emissions and a permit price of 10 to 30 euro)

- Aviation would buy about 1% of allowances under the present EU ETS

- This percentage would be lower in case JI and CDM markets are taken into account

- In the short term no significant rise in the allowance price

- Long term impacts need further research

Marginal impact on EU ETS

Overall Conclusion

• Inclusion of aviation in the EU ETS is feasible

• Effectiveness and economic impacts depend on design choices

• Emission trading is a policy option that can be considered alongside emissions charges and fuel taxation to tackle the climate impact of aviation.

achterpagina CE

Thank you!

E-mail: wit@ce.nlFinal report and a separate

management summary can be downloaded from:

WWW.CE.NL