Aviation and the Global Atmosphere

Aviation and the Global Atmosphere
Although the OECD study did not attempt to identify a direct relationship between fuel price and energy intensity over the scenario period, it did suggest that
cumulative fuel levies resulting from an increase in the price of aviation fuel of up to 5% per year could result in at least a 30% reduction in aviation energy use in 2020
relative to the reference scenario. However, if charges were not applied at a uniform global level, the study concluded that the increase in fuel price would lead to a
distortion of competition and a weakening of incentives to develop and adopt energy-efficient aircraft. It further concluded that a fuel charge was unlikely to have any
substantial long-term effect on air traffic growth, particularly if it were introduced gradually.
In its report to CAEP/4, the Focal Point on Charges (FPC) (ICAO, 1998a) considered the potential economic and environmental impacts of various environmental
levies. It concluded that, among the options studied, the most effective options for addressing global emissions were a fuel levy and en route charges. The report
showed that any resulting cost increases passed on to consumers would result in a reduction in emissions. This result would occur primarily through lower traffic
demand, but airline and manufacturer supply-side responses also would be stimulated, with limited impact on airline operating results. The portion of the fuel price
increase not passed on to customers would be borne by the airlines, affecting their profitability, cash flow, and retained earnings-which, in turn, could affect the ability
of airlines to purchase more environmentally beneficial equipment.
The report considered alternative applications of the proceeds of environmental levies. The revenue-neutral approach did not cause a problem with the redistribution of
revenues, but the environmental benefits were found to be limited. Although general taxes are feasible on implementation grounds, they raise serious problems of
equity and acceptability. A prevention cost approach using revenues to fund future technology improvement was regarded as better than general taxation in reducing
total emissions; however, rechanneling of revenues to the aviation industry would give rise to administrative complexities and raises equity problems and risks of
distortion of competition.
A feasibility study by the Centre for Energy Conservation and Environmental Technology (CE) (Bleijenberg and Wit, 1998) considered the feasibility of introducing an
environmental charge on civil aviation in Europe. Using a scenario-based approach and an aviation fuel price to include the environmental cost at 125% of the cost of
the fuel, the study found that the rate of growth in aviation emissions in Europe would be approximately halved. A charge based on calculated emissions was found to
have similar environmental effectiveness to a fuel charge, but the former had smaller economic distortions and fewer legal obstacles than the latter. The study found
that an emissions charge in European airspace would have little impact on competition between domestic and non-European carriers. A revenue-neutral emissions
charge was judged to be the most feasible option, with high environmental effectiveness and relatively few economic distortions.
Several comparisons may be made of the main features of these three studies. In the FPC study, most of the benefits arose from a reduction in the growth of demand,
whereas in the OECD and CE studies, the supply-side influence was predominant. Partly as a consequence of the strong supply-side effect, the OECD and CE studies
estimated a larger reduction in total emissions than did the FPC report. Both the FPC and the OECD considered options to rechannel revenues for technology
improvement within the aviation sector. The FPC study found greater distortions to competition between airlines arising from a European emissions or fuel charge than
the CE study.
Two areas require further study. The first is the applicability of environmental levies to the circumstances of countries other than those in OECD and countries in
transition; the other is how revenues generated from a levy would be used.
10.4.3.2. Other Market Approaches
Emissions trading of greenhouse gases has been adopted as part of the Kyoto Protocol as a potential means of achieving reductions in these gases at the lowest
possible costs. Emissions trading allows market forces to operate to achieve the lowest possible costs of achieving an environmental goal. It can provide companies
such as airlines with the flexibility to reduce their own emissions or to purchase equivalent reductions from others, if doing so would be less expensive. It gives firms
the incentive to employ innovative technologies and reduce emissions beyond what any standard would require.
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