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Designing Effective Aviation Emission Trading within EU ETS

This report presented by Ron Wit discusses the design and impacts of incorporating aviation into the EU Emission Trading System. Key elements, pros, cons, impacts on ticket prices, environment, and economics are analyzed. The study aims to address all climate impacts of aviation and explores policy options, allocation rules, and impact assessment. It aims to develop concepts for amending Directive 2003/87/EC, covering CO2 and non-CO2 climate effects. The report examines coverage of climate impacts, geographical scope, trading entities, and allocation methods. The EU approach to decision-making, impact on ticket prices, economic implications, and marginal effects on the EU ETS are explored, with the conclusion that including aviation in the EU ETS is feasible and effective in tackling climate change. For more details, visit www.ce.nl. Contact wit@ce.nl for the complete report.

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Designing Effective Aviation Emission Trading within EU ETS

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  1. Giving wings to emission trading Inclusion of aviation under the EU ETS: Design and Impacts Ron Wit, ECCP II, Brussels 24th October 2005

  2. Overview of talk Objectives 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

  3. 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

  4. 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

  5. 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

  6. 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

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

  8. Trading entity? • Aircraft operator most suitable • Other options (fuel supplier, airport, ATM, manufacturer) have one or more decisive disadvantages

  9. 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

  10. Selection of policy options

  11. 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)

  12. Impact on ticket prices in 2012

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

  14. Potential trade-offs of ‘CO2 only’ regime? • Overall NOx emissions will probably not increase- Contrails may increase due to cooler exhaust

  15. 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)

  16. - 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

  17. OverallConclusion • 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.

  18. achterpagina CE Thank you! E-mail: wit@ce.nl Final report and a separate management summary can be downloaded from: WWW.CE.NL

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