A method for emission allowances allocation in air transportation systems from a system-of-systems perspective

Abstract

Market-based mechanisms, especially emission trading schemes, are proposed as a means to control system-wide aviation emissions. Although auctioning has gained some recent popularity, free allocation of emission allowances is still favored by many to incentivize airlines’ participation in the outset of an emission trading program. However, current methods for free allocation – grandfathering method and benchmarking method – have their limitations, such as placing heavy workload on regulators and a lack of transparency and flexibility. To overcome some of the limitations, this paper proposes a multi-stakeholder dynamic optimization method from a system-of-systems perspective. The method delegates part of the regulators’ responsibility to airlines, and grants airlines flexibility to plan, negotiate, and request for emission allowances. The inclusion of the regulators’ allowance allocation decision-making and airlines’ fleet allocation decision-making ensures a holistic understanding of the problem. Specifically, the method combines transfer contract coordination mechanism and approximate dynamic programming to coordinate the allowance consumption between the participants. We apply the method to a ten-route air transportation network where two representative airlines compete for the allowances. The results demonstrate that the total network-wise profit from each airline’s independent decisions can approach the globally efficient solution in an ideal centralized case without violating the emission constraint.