A viation Environmental P ortfolio M anagement T ool (APMT)

1. Aviation Environmental Portfolio Management Tool (APMT) BB&C Presentation to ICAO CAEP/FESG February 22, 2006 Montreal, Canada Vital Link Policy Analysis

3. Objectives for this presentation • Review APMT background and status • Highlight changes since the September presentation to FESG in Reykjavik • Discuss near term (1 year) APMT goals • Invite FESG guidance, participation, collaboration • Document review (http://spacestation.mit.edu/partner) by March 31st APMT: a broad modular suite of tools to better inform policy through rigorous environmental-economics analysis

4. APMT progressing rapidly • September 2005 (Reykjavik): • Requirements and Architecture defined • February 2006 (Montreal): • Prototype work plan developed • International review of Requirements Study, Architecture Study and Prototype Work Plan (first responses due Feb. 14, extended to March 31st) • International team formed; includes key members of AERO-MS development team • $1.6M APMT Prototype contract in place (12 month period) • Kick-off meeting held Feb 16-17, 2006. • All milestones, dates and task owners defined

5. APMT progressing rapidly • Near term goals areaggressive: • All components of APMT Prototype coded and provided to integration team by May 31, 2006 (3.5 months from now!) • First integrated APMT Prototype August 31, 2006 • Component and system-level assessment and functionality testing by Dec. 1, 2006 • Detailed report on assessment APMT Prototype and recommendations for development of APMT version 1 by Dec. 31, 2006.

6. Motivation • Aviation benefits and environmental effects result from a complex system of interdependent technologies, operations, policies and market conditions • Policy and R&D options are largely considered within a limited context • only noise, only local air quality, only climate change • only partial economic effects • Actions in one domain may produce unintended negative consequences in another • Current tools and processes do not support recommended practice • NPV of benefits-costs is recommended basis for informing policy decisions in U.S., Canada and Europe

7. Better informed policy: examples • Every aircraft model has a different combination of noise, emissions, fuel burn and performance • What is the right balance? Will tomorrow’s aircraft reflect this? • What are the most economically-efficient strategies for achieving capacity growth and addressing environmental goals? (e.g. NGATS) • CAEP/6 NOx stringency • Greater leniency for CO to enable more aggressive NOx standard was briefly considered • What are the relative impacts of CO and NOx? • No PM certification standard • What is the health impact of PM vs. regulated emissions? • Climate vs. local air quality vs. noise • What are the relative impacts?

8. High-level goals • More effectively assess and communicate environmental effects, interrelationships, and economic consequences based on integrated analyses • Facilitate international agreements on standards, recommended practices, and mitigation options • Enable more informed international and U.S. policy and budgetary decision-making • Start with cost-effectiveness analysis, progress to benefit-cost analysis • Desired characteristics • Internationally-accepted • Inclusive, not competitive • Transparent • Rigorous • Explicitly represent uncertainty and different viewpoints

9. Relationship to international standard setting (e.g. ICAO CAEP/FESG) • Desire is to work collaboratively to develop models • That will encompass existing FESG practices • That will provide additional capability beyond existing practices • That FESG will find to be valuable and useful • The models cannot replace the function of FESG • Inputs, model design, baseline choice, scenario choices, assumptions, interpretation of output, must be done by experienced experts (not computers) • We hope the models will enhance the existing functions of the FESG

10. APMT overview • Cost-effectiveness • $/kg NOx reduced • $/# people removed from 65dB DNL • $/kg PM reduced • $/kg CO2 reduced • Benefit-cost • Net change in societal welfare ($) • Distributional analyses • Who benefits, who pays • Consumers • Airports • Airlines • Manufacturers • People impacted by noise and pollution • Special groups • Policy scenarios • Certification stringency • Market-based measures • Land-use controls • Sound insulation • Market scenarios • Demand • Fuel prices • Fleet • Environmental scenarios • CO2 growth • Technology and operational advances • CNS/ATM, NGATS • Long term technology forecasts APMT inputs outputs Global, Regional, Airport-local

11. APMT architecture overview Policy, market and scenario inputs Economic model of primary markets (consumers, manufacturers, airlines, airports) Model of world-wide aircraft operations (AEDT = SAGE + INM + MAGENTA + EDMS) Monetized environmental impacts (Local air quality, noise, climate change) Direct, indirect and induced effects on broader economy Collected costs and benefits organized in balance sheets for different stakeholders

12. Policy Scenarios demographic economic technical Measures & Strategies Impulse response functions for aviation climate impacts as ∆T Future Air Transport Demand Health and welfare impacts as f(∆T) associated with global emissions Aviation Operating & Manufacturer Costs CLIMATE Fares Assumption Meteorological and other environmental data Non-aviation emissions inventories and scenario Airline Operating Costs AEDT Emissions & Noise from planes performing operations Incidence of various health Impacts associated with ground level emissions Concentration- response curves linking health & welfare endpoints to pollutants Simplified box model for local air quality chemistry Pollutant concentrations as functions of time and space near airports (exposure) Manufacturer Costs & Profit Assumptions LOCAL AIR QUALITY Population and demographic data Monetization and Economic values Database Air Transport Movements Aviation Operations Generator Future Fleet & Schedule New (EDS) Technology Incidence of impacts associated with ground level noise NOISE Coefficients from meta-analyses linking noise, annoyance and welfare impacts Current Air Transport Data Base Current Schedules, Fleet, & Technology Partial Equilibrium Benefits Valuation General Economy (via simple multipliers) COLLECTED COSTS MONETIZED BENEFITS Cost-Effectiveness Analysis Benefit-Cost Analysis EDS AEDT Distributional Analysis (Balance Sheet) APMT Analysis and Display Graphical User Interface and Output EXTERNAL DATA APMT architecture detail APMT AEDT EDS

13. How does it all fit together? • APMT • A broad modular suite of tools to better inform policy through rigorous environmental-economics analysis • EDS • Aircraft system-level trades, interdependencies, technology forecasting • Takes scenario input (policies, market conditions, technological capabilities, etc.) • Estimates performance, “cost”, emissions, noise for future aircraft designs • Module is within the primary market economic block of APMT • AEDT • Takes fleet and schedule inputs (historical or future scenarios) • Estimates global emissions (e.g. SAGE), local emissions (e.g. EDMS), global noise (e.g. MAGENTA), and local noise (e.g. INM) • AEDT block sits between primary market block and benefits valuation block of APMT

14. Series of three APMT studies • Requirements document • Detailed functional requirements and guidance on implementation • Supporting discussions to place requirements within context of current practice • Recommended time frames for development and use • Geographical and economic scope for analyses • Architecture study • Components of APMT architecture, interfaces among components, interfaces with tools that exist or are underdevelopment including Environmental Design Space (EDS) and Aviation Environmental Design Tool (AEDT) • Reviews existing tools, assesses their suitability for use in APMT, and establishes what additional development necessary to achieve APMT requirements • Prototype work plan • Initial APMT prototyping effort that is intended to identify gaps or weaknesses in architecture and stimulate advancements in development • Delineates entities necessary for analyses, roles, data requirements, and proposed schedule

15. Nomenclature • Adopted standard nomenclature from environmental-economics literature • “Benefits” = changes in health, welfare and ecosystem impacts of pollution • “Costs” = changes in monetary flows in markets • Benefits can be positive or negative • Costs can be positive or negative

16. Requirements study • Extensive review of literature and tools (aviation and non-aviation) • Key literature sources: • EPA Guidelines for Preparing Economic Analyses [EPA, 2000] • OMB Circular A-4, Best Practices for Regulatory Analysis [OMB, 2003] • UK HM Treasury Green Book on Appraisal and Evaluation in Central Government [UK HM Treasury, 2003] • UK Cabinet Office, Better Regulation Executive Regulatory Impact Assessment Guidance [UK BRE, 2005] • OECD The economic appraisal of environmental projects and policies – A practical guide [OECD, 1995] • Transport Canada Guide to Benefit Cost Analysis in Transport Canada [TC, 1994] • WHO Air Quality Guidelines for Europe [WHO, 2000a] • Kopp, Krupnick, Toman, Resources for the Future, Cost Benefit Analysis and Regulatory Reform: An Assessment of the Science of the Art. [RFF, 1997] • Krupnick, Ostro, and Bull Peer Review of the Methodology of Cost-Benefit Analysis of the Clean Air for Europe Programme, [Krupnick et al., 2004] • Clean Air for Europe (CAFÉ) Programme Methodology for the Cost-Benefit Analysis for CAFÉ Vol. 1 [CAFÉ 2005]

17. Every requirement drawn directly from U.S. and European policy guidanceExample BCA.1.1 Monetization of Benefits APMT must be capable of monetizing the benefits through best available techniques including revealed preference methods, stated preference methods, out-of-pocket expenditures, and hybrids of these methods. • To the extent feasible and warranted by their contribution to the results, as many of the effects of a policy as possible should be monetized. This enhances the value of the conclusions to policy makers weighing the many, often disparate consequences of different policy options and alternatives.[EPA, 2000, p176] • The general rule is that benefits should be valued unless it is clearly not practicable to do so. [UK HM Treasury, 2003, p19] • The quantification of potential social, health or environmental impacts normally requires an alternative approach to valuation. Techniques to establish money values for this type of non-market impact generally involve the inference of a price, through either a revealed preference or stated preference approach.. [UK HM Treasury, 2003, p57] • Etc….

18. Cost-effectiveness vs. benefit-cost analysis • Why not stop at cost-effectiveness analysis? • $/unit reduction in pollution, e.g. $/D tonne-NOx • Downstream environmental effects are not linearly related to emissions • Emissions ambient pollution concentrations human health $ value • $10/1 tonne-NOx ≠ $20/2 tonne-NOx • Cost-effectiveness does not tell one if there is a net benefit to society • Of several options for NOx reduction, the least expensive is $30,000/tonne-NOx; does this produce a net benefit to society? • Cost-effectiveness does not allow trade-offs to be evaluated in common terms • If a policy option leads to changes in more than one environmental impact (noise dB and tonne-NOx), how does one weigh the relative values? • Benefit-cost analysis designed to estimate net changes in social welfare • Requires estimates of health and welfare costs • E.g. if policy costs are $30,000/tonne-NOx and 1 tonne-NOx produces $2000 of environmental damages, then implementing the policy does not produce a net increase in social welfare

19. APMT Requirements Timeline

20. Competing objectives • Transparency vs. complexity • Practicality vs. thoroughness • New methods vs. existing practices • The framework is general, but our development recommendations lean towards • Transparency • Practicality • New methods AND incorporation of existing practices • Examples: • To capture ripple effects in broader economy we recommend using a carefully chosen, referenced, range of multipliers NOT a general equilibrium model • To estimate fares pass-through of costs we recommend choosing a range of scenarios and/or adopting simple constraints like AERO-MS • For converting FESG forecasts to operations we recommend starting with the MAGENTA approach but modifying it to include new technology aircraft from EDS

21. Development recommendations

22. Prototype work plan • Describes steps in first year to develop an APMT Prototype • APMT Prototype will be constructed to identify gaps or weaknesses in architecture and stimulate advancements in development of APMT • Objective is to construct all of the functional modules of APMT, although with more limited capabilities than planned for the final versions • We will then test the functionality of APMT for addressing various policy questions • We will also assess and propagate uncertainties from the module level to the APMT system level to guide the determination of high priority areas for future development and refinement

23. APMT Prototype status AERO-MS developers • Team formed: • MIT+GT+MITRE+Volpe+FAA+Wyle+MVA+BB&C+Vital Link • Funding received February 6, 2006 ($1.6M, year 1) • Kick-off meeting February 16-17, 2006 • Schedule is aggressive • Build functional prototypes of all modules by 3.5 months from program start • Integrate all modules by 6.5 months from program start • Component and system-level assessment and detailed plan development of APMT version 1 by 12 months from program start

24. APMT Prototype milestones and owners finalized

25. Policy Scenarios General Economy Preliminary definition of interfaces and data flows

26. A well-qualified international team Sponsored by the FAA Participant organizations from the Netherlands, United Kingdom and United States: BB&C Vital Link Policy Analysis With members from around the world:

27. Summary • Desire tools to further enhance understanding of interdependencies and policy options • Cost-effectiveness analysis (Version 1) • Benefit-cost analysis (Version 2) • Development of prototype launched • Complex, challenging task • Seeking input and guidance • Document review by March 31st • http://spacestation.mit.edu/partner • login=iaw, password=partnerweb • Seeking collaboration

28. Additional charts

29. Functional requirements: analysis • CEA.1 Benefits Assessment • CEA.2 Cost Assessment • BCA.1 Social Benefits Assessment • BCA.1.1 Monetization of Benefits • BCA.1.1.2 Benefit categories to be considered • BCA 1.1.3 Effect-by-Effect Benefits Analysis • BCA.1.1.4 Adoption of existing benefits studies and flexibility to incorporate new work. • BCA.1.2 Indirect and Induced Benefits Assessment • BCA.2 Social Costs Assessment • BCA.2.0.1 Cost categories to be considered • BCA 2.1 Direct Primary Market Social Costs Assessment • BCA 2.2 Indirect and Induced Social Costs Assessment • DA.1 Economic Impact Analysis and DA.2 Equity Assessments

30. Functional requirements: general • GE.1 APMT-AEDT Interface, Input/Output and Consistency • GE.2 Uncertainty • GE.3 Sensitivity Analyses • GE.4 Policy Baselines • GE.5 Time Span for Analysis • GE.6 Discounting • GE.6.1 Discounting Non-Monetized Effects • GE.7 Alternate assessments of risk • GE.8 Exogenous Technological Change

31. Guidelines for development and use • DU.1 Full-disclosure and transparency • DU.2 Thoroughness and Practicality • DU.3 Engagement of Stakeholders • DU.4 Treatment of Non-Quantified Impacts • DU.5 Professional Judgment • DU.6 Documentation of APMT Development • DU.7 Assessment and Improvement

32. Policy Scenarios demographic economic technical Measures & Strategies Future Air Transport Demand Aviation Operating & Manufacturer Costs Fares Assumption Airline Operating Costs AEDT Emissions & Noise from planes performing operations Manufacturer Costs & Profit Assumptions Air Transport Movements Aviation Operations Generator Future Fleet & Schedule New (EDS) Technology Current Air Transport Data Base Current Schedules, Fleet, & Technology Partial Equilibrium COLLECTED COSTS EDS AEDT Cost-Effectiveness Analysis APMT Distributional Analysis (Balance Sheet) EXTERNAL DATA Analysis and Display Graphical User Interface and Output APMT Version 1

33. Policy Scenarios demographic economic technical Measures & Strategies Impulse response functions for aviation climate impacts as ∆T Future Air Transport Demand Health and welfare impacts as f(∆T) associated with global emissions Aviation Operating & Manufacturer Costs CLIMATE Fares Assumption Meteorological and other environmental data Non-aviation emissions inventories and scenario Airline Operating Costs AEDT Emissions & Noise from planes performing operations Incidence of various health Impacts associated with ground level emissions Concentration- response curves linking health & welfare endpoints to pollutants Simplified box model for local air quality chemistry Pollutant concentrations as functions of time and space near airports (exposure) Manufacturer Costs & Profit Assumptions LOCAL AIR QUALITY Population and demographic data Monetization and Economic values Database Air Transport Movements Aviation Operations Generator Future Fleet & Schedule New (EDS) Technology Incidence of impacts associated with ground level noise NOISE Coefficients from meta-analyses linking noise, annoyance and welfare impacts Current Air Transport Data Base Current Schedules, Fleet, & Technology Partial Equilibrium Benefits Valuation COLLECTED COSTS MONETIZED BENEFITS Cost-Effectiveness Analysis Benefit-Cost Analysis EDS AEDT Distributional Analysis (Balance Sheet) APMT Analysis and Display Graphical User Interface and Output EXTERNAL DATA APMT Version 2

34. Policy Scenarios demographic economic technical Measures & Strategies Impulse response functions for aviation climate impacts as ∆T Future Air Transport Demand Health and welfare impacts as f(∆T) associated with global emissions Aviation Operating & Manufacturer Costs CLIMATE Fares Assumption Meteorological and other environmental data Non-aviation emissions inventories and scenario Airline Operating Costs AEDT Emissions & Noise from planes performing operations Incidence of various health Impacts associated with ground level emissions Concentration- response curves linking health & welfare endpoints to pollutants Simplified box model for local air quality chemistry Pollutant concentrations as functions of time and space near airports (exposure) Manufacturer Costs & Profit Assumptions LOCAL AIR QUALITY Population and demographic data Monetization and Economic values Database Air Transport Movements Aviation Operations Generator Future Fleet & Schedule New (EDS) Technology Incidence of impacts associated with ground level noise NOISE Coefficients from meta-analyses linking noise, annoyance and welfare impacts Current Air Transport Data Base Current Schedules, Fleet, & Technology Partial Equilibrium Benefits Valuation General Economy (via simple multipliers) COLLECTED COSTS MONETIZED BENEFITS Cost-Effectiveness Analysis Benefit-Cost Analysis EDS AEDT Distributional Analysis (Balance Sheet) APMT Analysis and Display Graphical User Interface and Output EXTERNAL DATA APMT Version 3

35. Partial equilibrium block Policy Scenarios demographic economic technical Measures & Strategies Future Air Transport Demand Aviation Operating & Manufacturer Costs Fares Assumption Airline Operating Costs Manufacturer Costs & Profit Assumptions Aviation Operations Generator Future Fleet & Schedule New (EDS) Technology EDS AEDT Current Air Transport Data Base Current Schedules, Fleet, & Technology Partial Equilibrium APMT EXTERNAL DATA

36. Benefits valuation block Policy Scenarios demographic economic technical Measures & Strategies Impulse response functions for aviation climate impacts as ∆T Health and welfare impacts as f(∆T) associated with global emissions CLIMATE Meteorological and other environmental data Non-aviation emissions inventories and scenario Incidence of various health Impacts associated with ground level emissions Concentration- response curves linking health & welfare endpoints to pollutants Simplified box model for local air quality chemistry Pollutant concentrations as functions of time and space near airports (exposure) LOCAL AIR QUALITY Population and demographic data Monetization and Economic values Database Incidence of impacts associated with ground level noise NOISE Coefficients from meta-analyses linking noise, annoyance and welfare impacts Benefits Valuation EDS AEDT APMT EXTERNAL DATA