Bachelor Thesis from the year 2012 in the subject Business economics - Miscellaneous, grade: 1.3, European Business School - International University Schloß Reichartshausen Oestrich-Winkel (Aviation Management), language: English, abstract: The introduction of an emission trading system within the European Union from 2012 on represents a major financial barrier for all airlines, especially those operating their hubs inside the EU. While the plan is to request all airlines flying in the EU to buy emission certificates, most non-European carriers could still benefit from the international disputes going on at the moment. European-based airlines in turn fear a disadvantage against their non-european competitors, as the need for emission certificates will burden their already high cost structures even further. The paper should first explain the concept of emission trading schemes as well as the current plan of introducing emission trading in the European Union. The second part will then elaborate on the airline’s perspective on emission trading and the included risks/ disadvantages originating from an introduction of such a system. A third part will then analyze the correlation between announcements concerning the emission trading system and the performance of airline stock prices. The analysis shall be based on the stock performance of major European airlines, as they will be the ones facing major discrimination if the system gets introduced. Finally, the usefulness of an emission trading system is going to be discussed and alternatives to solve the climate change issue will be presented.

A significant volume of literature already exists concerning the inclusion of aviation in the EU-ETS. Most of the research laid its focus on specific industry levels such as the individual airline, the aviation industry in general or macroeconomic aspects. In this context, these studies tried to anticipate market reactions triggered by the EU-ETS by analyzing specific issues such as the financial impact on airlines, changes in competitive behavior or implications for the overall industry development. As a consequence, the existing studies took only a limited market view and made assumptions about expected developments in specific fields of the aviation industry. However, at the time of writing this thesis, conclusions about the scope of impact could hardly be drawn from existing impact assessments because of the wide range of issues that exceeded the scope of most impact studies. Hence, a broader research approach is needed which takes different analytical perspectives to describe the scope of impact of the EU-ETS and depict potential effects for the aviation industry.

In this thesis, I assess the impact of the current EU Emissions Trading Scheme and a hypothetical renewable jet fuel mandate on US airlines. I find that both the EU Scheme up until 2020 and a renewable jet fuel mandate of 1 bn gallons per year from 2018 to 2022 would have a small impact on US airlines and emissions, and operations would continue to grow by -3% p.a. I find that if carriers pass on all additional costs to consumers in the EU Scheme, including the opportunity costs associated with free allowances, windfall gains may be substantial at about $2.6bn because under current allocation rules, airlines would only have to purchase about a third of the required allowances. However, an increase in the proportion of allowances auctioned would reduce windfall gains and profits for US airlines would decline. If airlines pass on only allowance expenses airlines do not receive windfall gains. Out-of-sector abatement is estimated at about a third of airline emissions for the North Atlantic routes, compared to the estimated 1.6% in-sector emissions reductions due largely to reductions in demand under the EU Scheme. Under proposed EU legislation, airlines can use renewable jet fuel instead of purchasing emissions allowances. I find that the current allowance price would make it cheaper for airlines to purchase renewable jet fuel only under conditions where the renewable fuel price premium is 10 cents per gallon or less. I find that a renewable jet fuel mandate of 1bn gallons per year for US commercial aviation (about 4% of the total fuel use) with renewable jet fuel price premium of $1.50 would increase airline fuel costs by ~2% and reduce greenhouse gas emissions by between 2% and 4%. Emissions would continue to grow and reach approximate 2018 levels by 2022. I use the social cost of carbon, with a baseline value of $100/tCO2e, to calculate the societal cost-effective price premium of renewable jet. I find that fuels can have a price premium of between 40c and $1.30 per gallon, depending on life cycle greenhouse gas reduction. Renewable jet fuels examined in this thesis, including the only commercially available fuel, currently have price premiums of more than $2 per gallon and a calculated greenhouse gas abatement cost of more than $250/tCO2e. This thesis shows that the emerging renewable jet fuel industry needs to reduce costs to achieve greenhouse gas abatement costs, and therefore societal benefits, comparable to the social cost of carbon or EU allowance costs. It also shows that for the fuels examined with currently estimated prices, the EU Scheme, and the now defunct Waxman-Markey Bill would be lower cost options of greenhouse gas abatement for airlines than a renewable fuel mandate, and in any case would not preclude the use of renewable fuels should they be produced with lower price premiums.

This book analyses the political, economic and managerial challenges for policy makers and the air transport industry as they face climate change. Based on an overview of the scientific background and technological options for emissions reduction, Aviation and Climate Change provides an in-depth assessment of environmental regulation and management. It provides an up-to-the-minute analysis of the effects of aviation on climate change, and an economic analysis of policies to reduce or eliminate greenhouse gas emissions. The main emphasis of the book is on the economic mechanisms used to lessen emissions – carbon taxes, emissions trading schemes and offset schemes. It pays particular attention to the ways these policies work, and to the interaction between them – for instance, the interaction between taxes and emissions trading schemes. One feature of the book is that it analyses the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) which has been developed by ICAO for international aviation, and which is due to commence operation shortly. The advantages and disadvantages of this controversial scheme are discussed. This book will be of interest to researchers in diverse areas (economics, political science, engineering, natural sciences), to air transport policy makers, and to managers in the aviation industry.

The book analyzes the behavior and performance of the market for emissions permits, called allowances in the Acid Rain Program, and quantifies emission reductions, compliance costs, and cost savings associated with the trading program."--BOOK JACKET.

The GHG Protocol Corporate Accounting and Reporting Standard helps companies and other organizations to identify, calculate, and report GHG emissions. It is designed to set the standard for accurate, complete, consistent, relevant and transparent accounting and reporting of GHG emissions.