Aviation and the Global Atmosphere

Aviation and the Global Atmosphere
. Uncertainties about future trends in technology, underlying trends in traffic growth, and aircraft fleet mix. This uncertainty is illustrated by recently revised
projections for fleet NO x emission index (EI) made by Boeing for 2015, showing more than a 50% increase from its previous estimate, caused primarily by
reassessment of technology likely to be present in the 2015 fleet (Sutkus, 1997).
In addition, uncertainty has arisen regarding whether new worldwide standards for aircraft engine emissions would encourage additional local rules by airports and
governments, leading to a reduction in the value of the existing aircraft fleet. Two studies reported in the economic analysis subgroup (EASG) report to CAEP/3
(EASG, 1995) concluded that emissions stringency options under consideration would lead to a reduction in existing aircraft fleet values for this reason. Some
subsequent studies commissioned by the forecasting and economic support group (FESG) and included in its report to CAEP/4 found that the limited quantitative data
available provide inconclusive evidence of any material impact on aircraft fleet values arising from an earlier change in the worldwide emissions stringency standard
agreed at CAEP/2 for NO x (ICAO, 1998a).
CBA may have to be applied somewhat differently in the context of environmental levies. All environmental mitigation measures aim to internalize external costs, but
environmental levies achieve this internalization more explicitly and to a greater degree. External costs arise where, for example, the cost of pollution from an
economic activity does not accrue to the party responsible for it. Placing monetary values on external costs may eliminate the need for CBA, so the focus of economic
analysis can be compliance costs, economic distortion, and the environmental effectiveness of alternatives. With aircraft emissions, however, the monetary value of
these external costs is subject to a wide range of uncertainty, as discussed in Section 10.4.3. In these circumstances-and in particular under a regime of emissions
targets introduced on the basis of the precautionary principle-CBA techniques will be necessary in providing assistance to decisionmakers on the most economically
efficient means of meeting such targets.
10.3.3. Elasticity of Demand Considerations
The extent to which cost increases arising from environmental mitigation policies are passed on to consumers and affect demand for aviation services depends on
elasticity of demand (the responsiveness of consumers to fare increases).
Evidence regarding fare elasticities is particularly relevant in considering the impact of environmental levies (charges or taxes) that directly increase the cost of air
travel. If demand is relatively unresponsive to fare increases (i.e., price is inelastic), such measures will have little impact in reducing emissions through dampening of
demand. Conversely, if passenger responsiveness is high (i.e., price is elastic), policy measures will have a greater impact. This analysis can be illustrated as follows:
A fare elasticity of -0.5 would mean that a 10% increase in fares would result in a 5% reduction in traffic volume; a fare elasticity of -2.0 would mean that a 10% fare
increase would reduce traffic by 20%.
Estimates of fare elasticities differ by journey purpose; leisure travel generally is significantly more price elastic than business travel. Fare elasticities also exhibit some
regional variation; for example, studies show comparatively higher price elasticities in North America than in other regions of the world. A study commissioned by the U.
S. Federal Aviation Administration (FAA) (U.S. Department of Transportation, 1995) reviewed more than 25 price elasticity studies and found that most presented
elasticity of demand estimates in the range of -0.8 to -2.7.
Studies examining the effectiveness of environmental levies have had to make assumptions about the reaction of airlines and how the demand for air transport
changes in response to a change in fare. Many commentators agree that in the long term, in addition to encouraging more energy-efficient technological alternatives,
an increase in the price of fuel will lead to an increase in the cost of travel and consequent reduction in demand. However, airlines operate in a highly competitive
environment, and in the short term many may absorb fare increases at a cost to profitability rather than pass them on to passengers.
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