How to regulate aviation's full climate impact as intended by the EU council from 2020 onwards

Abstract

The EU Council intends to regulate air transport's full climate impact (i. e., CO2 and NOx, H2O, SOx, aerosols, contrails and contrail cirrus). A likely approach is the inclusion of all climate relevant species from aviation in the European Emissions Trading Scheme. We provide a proposal for this practice and analyze the economic impacts. Modelling results indicate that the cost effects of the EU-ETS addressing CO2 and non-CO2 emissions will be much larger than under the current scheme. This is because under the new approach, all climate relevant species are regulated and not just CO2. The cost effects also depend on the length and altitude of the flight. Both have consequences for the competitive environment of the airlines under the scheme. Especially the full service network carriers will have to bear a competitive disadvantage compared to airlines offering just short- and medium-haul services. Remarkably, some cost effects are in opposition to the corresponding results for an ETS for the regulation of CO2 alone.