The economic impact of the upcoming EU emissions trading system on airlines and EU Member States—an empirical estimation

Abstract

PurposeIn February 2009, the European Union’s (EU) Directive for the inclusion of aviation into the EU Emissions Trading Scheme (EU-ETS) for CO2-emissions came into force. From 2012 onwards, the EU-ETS will cover virtually all flights departing or arriving in the EU. As aircraft operators (i.e. airlines) will be required to hold emission allowances for all flights that are subject to the EU-ETS, the economical impacts of the system are currently being discussed. This paper aims at estimating and analysing the economical impact of the EU-ETS on the aviation sector in total, on selected groups of airlines and on the administering states.Materials and methodsThis paper describes a simulation model for the economical impact of the EU-ETS. According to current plans, the initial allocation of emission allowances to airlines will be based on a benchmark which is calculated by dividing the 2004–2006 CO2-emissions by the transport performance of the year 2010. The simulation model calculates CO2 emissions and transport performance of European aviation for the timeframe 2004–2012. The approach is based on flight schedules for passenger and cargo air traffic coupled to an aircraft performance module. By use of this model, the benchmark and hence the initial allocation of emission allowances to airlines can be estimated. Using assumptions on the development of the CO2 allowance price, the economical impacts of the EU-ETS can be discussed.Results and discussionThe economic effects of the upcoming EU-ETS on the aviation sector in total, on selected groups of airlines and on the administering states are analysed and discussed. It is shown that additional to the freely allocated allowances, nearly all aircraft operators need to purchase allowances for about one third of their emissions in 2012. The total cost for the aviation sector is expected to be in the range between 1.9 and 3.0 billion € in 2012. Certain airline groups and administering EU States will be affected very differently by the new EU legislation. It is shown that particularly European network carriers will be affected by a competitive disadvantage compared to non-EU airlines.