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Economic Analysis MBO’s

Economic Analysis MBO’s. C/B review of Market Based Options for Reduction of CO 2 from Aviation. Presented by Hans Pulles. Measures. Emission related levies (taxes and charges) Fuel/en-route tax Fuel/en-route charge with re-channeling proceeds Revenue neutral en-route charge

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Economic Analysis MBO’s

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  1. Economic Analysis MBO’s C/B review ofMarket Based Optionsfor Reduction of CO2from Aviation Presented by Hans Pulles

  2. Measures • Emission related levies (taxes and charges) • Fuel/en-route tax • Fuel/en-route charge with re-channeling proceeds • Revenue neutral en-route charge • Emissions trading • Closed, open • Auctioning, grandfathering • Voluntary measures

  3. Targets • Target 1 - reduce 2010 emissions to 95% of 1990 levels • Target 2 - 50% reduction in projected emissions growth between 1990 and 2010 • Target 3 - 25% reduction in projected emissions growth between 1990 and 2010

  4. RTK’s and Global Fuel Burn(relative to 1998) 25% } } } 50% growth 5% }

  5. Mechanisms and Approach

  6. General effect of a MBO • It raises (fuel) costs to the airlines • General assumption: Costs are passed on to consumer • Airlines will raise fares and freight rates • Increased prices will have effect on demand • Average global fare elasticity -0.7 with regional differentiation -0.5 to -0.9

  7. General effect of a MBO(continued) • Based on economic criteria airlines will shift to more modern aircraft (better fuel efficiency) • Autonomous fuel improvement 1%/pa for newly purchased aircraft • Other possible effects: • accelerated technology development • (manufacturers response or supply side effect)

  8. General effect of a MBO(continued) • Other possibilities: • use funds from charges for early retirement older aircraft ----> re-channeling proceeds of charges • purchase emission rights from non aviation sources ----> Emission Trading

  9. Analysis Results obtained with theAERO-modelling system

  10. General conclusions • Demand effect is dominant over technology improvement • Exception in re-channeling cases • With open emission trading the main reduction is achieved by trading

  11. Conclusions • Results roughly the same for: • Fuel taxation • En-route CO2-modulated tax • Closed trading system • Voluntary agreements that reach the targets

  12. Reduction in traffic demand(expressed in % of total 2010 RTK’s) 50% 25% 5% Kyoto

  13. Reduction in traffic demand(expressed in % of total 2010 RTK’s) 50% 25% 5% Kyoto

  14. Reduction in traffic demand(expressed in % of total 2010 RTK’s) 50% 25% 5% Kyoto

  15. Conclusions Detailed Analysis • Kyoto targets: • High costs/demand implications • Open trading only viable option, money leaves the aviation sector • For less stringent targets a fuel/en-route charge where the proceeds are re-channeled become viable, but complicated to implement

  16. Conclusions Detailed Analysis(continued) • For even more relaxed targets a revenue neutral en-route charge are effective as well. • Regionally applied measures have less environmental benefits, a chance of distortions in the competition between airlines and increased permit prices

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