Market-based Measures for Aviation

1. Market-based Measures for Aviation ICAO Secretariat

2. This presentation is about: • Climate Change and aviation emissions • Why to employ Market-based Measures? • The MBM Options Explored by ICAO • Assessment of the MBM Options • Additional MBM work by ICAO • What should come next?

3. Climate Change and Aviation Emissions • Total aviation accounts for 2% of global CO2 emissions, 2/3 of which is from international aviation • In 2010 the international aviation emissions were in the range of 448 Mt • in 2020, these emissions are predicted to be between 682 Mt and 755Mt

4. Ways to address aviation emissions • Emissions reductions can be achieved using a range of measures: • Aircraft technology improvements • ATM and infrastructure improvements (operations) • Alternative fuels • Market-based Measures • All of these measures can contribute to the achievement to the global aspirational goals, as illustrated in the graph below

5. CO2 Emissions Trends

6. Why Market-based Measures? • Global aspirational goal of carbon neutral growth from 2020 cannot be achieved without MBMs • MBMs are cost-effective way to reduce emissions; with MBMs aviation can pay for emissions reductions in other sectors where it cost less • MBMs reflect market conditions: when the economy grows and emissions increase prices rise, when the economy slows and emissions fall, prices also fall

7. Market-based Measures • MBM options explored at ICAO: • Global Mandatory Offsetting • Global Mandatory Offsetting with Revenue • Global Emissions Trading Scheme

8. Global Mandatory Offsetting – how would it work for international aviation? • A baseline is established for the sector • All emissions above the baseline must be offset by purchasing and cancelling offset credits • The obligation to offset emissions above the baseline is divided between all participants in the scheme (based on an equitable methodology) • Participants report emissions on a regular basis to ensure the baseline is respected and all participants meet theirobligations

9. Offsetting with Revenue • Offsetting emissions above a baseline is required, as in Global Mandatory Offsetting • A fee on each tonne of emissions is paid by participants to create revenue, in addition to the price of emissions units • The MBM principle (n) established in the ICAO Assembly Resolution A37-19 states that where revenue is created, it should be applied in the first instance to mitigating the environmental impact of aircraft engine emissions • Revenue could be used for the support and implementation of State Action Plans

10. Global Emissions Trading • A cap is placed on emissions, and allowances are created for each tonne of CO2under the cap • Allowances can be distributed to participants free of charge or they can be auctioned • Participants are allocated a portion of the allowances based on their share of total international aviation emissions • Emissions are monitored and reported each year • At the end of the year participants surrender allowances equal to their total emissions of that year • Allowances can be bought, sold or traded • Participants can also purchase credits from other carbon markets (in an open market)

11. Assessment of Global MBM Options • ICAO Secretariat with support from MBM experts performed quantitative and qualitative assessment of three Global MBM Options: • Quantitative assessment on economic impacts shows that the cost of introducing an MBM would be relatively small • Qualitative assessment identified and explored a number of design features for MBMs including the administrative complexity of the options

12. Quantitative Assessment of Global MBMs • Traffic Impact: Under an MBM scenario, while reducing international aviation traffic would grow 107% from the years 2020 to 2036. Without implementing an MBM to reduce emissions, traffic would grow 110% between 2020 and 2036. • Profit Impact: Profits for the international aviation sector in 2036 would be $33.3 billion under the scenario with an MBM. This would be $0.4 billion lower than the profit level without the MBM. • Cost Impact: The cost of an MBM in 2036 would be approximately $10 per seat for a flight of 10,000 to 12,000 kilometers, and $1.50 per seat on a flight of 900 to 1,900 kilometers.

13. Qualitative Assessment of Global MBMs Global mandatory offsetting scheme: could be less complex since existing emissions units can be used and tracked through a simple registry. Global mandatory offsetting scheme complemented by a revenue generation mechanism: could be more complex due to the need to determine how revenues will be collected and used. Global emissions trading scheme: could increase complexity and have higher upfront costs due to the need to administer specific aviation allowances. (However, it should offer more flexibility for participants due to the creation of emissions units, which can be traded in the marketplace.)

14. Global MBM Assessment • The qualitative and quantitative analysis of the three options for a global MBM scheme demonstrated that all three were technically feasible and had the capacity to contribute to achieving ICAO’s environmental goals (Council Decision 197/6)

15. Additional ICAO work on MBMs Following the 37th General Assembly in 2010, ICAO also: • Reviewed the impact of using a De Minimisthreshold on MBMs; • Reviewed the CO2 emissions coverage under different geographic scopes for MBMs; • Collected information on the available volume of carbon offsets for potential use in aviation; • Studied Kyoto Protocol’s CDM application to international aviation. The results of this work are available on the website: http://www.icao.int/Meetings/a38/Pages/documentation-reference-documents.aspx

16. What should come next? • International aviation emissions should be tackled at the global level to avoid a patchwork of measures and market distortions • A single global offset scheme, instead of a patchwork of measures, is supported by the aviation industry • Further work on MBMs can build upon the progress of ICAO in exploring the feasibility of a global MBM scheme for international aviation

17. Additional information For more information on our activities, please visit ICAO’ website: http://www.icao.int/env