Insights - Environmental
Policies designed to offset the effects of climate change are an important issue for airlines and tourism destinations. Any price placed on the cost of carbon emissions may have an affect on air fares and on the overall cost of travel.
The extent of the impact however requires assumptions as to increases in oil prices or the carbon price, the share of airline costs accounted for by these items, the amount of the cost increase passed on to consumers through higher fares (which is less in a competitive or price-sensitive market) and the impact of the consequent price increase on passenger demand.
To add to the complexity, the question will be to what extent do the various approaches overlap and exist side-by-side, as opposed to being part of a coordinated global system.
- The UK’s APD, for example, is levied on the carriage of passengers flying from UK airports, overlapping the European ETS which includes all flights starting and/or landing in Europe.
- On the other hand, Australia’s Carbon Pollution Reduction Scheme and NZ’s Emission Trading Scheme both exclude international aviation.
EU: Emission Trading Scheme (ETS)
The EU Council adopted the directive on 24 November 2008 that includes aviation activities in the EU greenhouse gas emission allowance trading system. All flights starting and/or landing in Europe (including intercontinental flights) are to be included in the ETS from 1 January 2012, with some limited exemptions.
According to the European Commission's 2006 impact assessment airlines would be expected to be able to pass on, to a large extent or even in full, the cost of participating in the scheme to their customers, since every airline on each covered route would be treated equally.
UK: Air Passenger Duty
In 2007 the UK doubled its Air Passenger Duty (APD) in a controversial attempt to reduce carbon emissions by discouraging travel.
From November 2009 the APD will be structured around four distance bands instead of two. Passengers flying in economy class beyond the EEA countries will see APD rise from the current £40 to £85 by 2010/11.