Carbon Emissions Trading On Airline Industry

Published Date: 02 Nov 2017

Novel business strategy and the gigantic growth in the market makes the air industry into extraordinary boom in the world’s economy, which clearly shows us that today airline industry is one of the fastest growing industrial sector in the world. This is all because of the increased numbers of passengers and aircraft and the growth in aviation markets. The more in number of aircraft makes the carbon emission rate highly increasing day by day. If this is the situation is there any possibility of sustainability for future generation. Definitely there will be a change in the climate how to make this challenge. "Making room for the aviation industry can avoid huge climatic change by fixing a limit(carbon emission trading system) if not so air travel will become one of the main sources of anthropogenic climate change by 2050".

Estimated growth for the upcoming years

prediction of AIRPORTS COUNCIL INTERNATIONAL AND IATA

Boeing’s July, 2006 forecast for 2006-2025 is for an annualized global passenger traffic growth rate of 4.9% and cargo growth rate of 6.1% against worldwide average economic growth of 3.1%. Boeing forecasts Estimate that just over 27,000 new aircraft will be made over the subsequent twenty years [1] for a total value of USD 2.6 trillion.

Airbus’ forecast, released at the end of 2006, stated that 22,700 new aircraft will be needed to meet demand through 2025.ACI’s 2007 forecast stated that the number of air travelers will double by 2025 to more than 9 billion per year; over the same period, air freight will triple. Passengers travelling through its airports will grow at an average annual rate of 4%.

IATA [2] forecasts international passenger traffic growth in the period 2006-2010 of 6.9% in the Middle East, 5.7% in Asia Pacific region and 5.1% in Africa region. For the same period, in the same regions, IATA’s 2007 forecasts for international cargo growth are, respectively, 5.8%, 6% and 5%.Aviation growth will be most significant in the Asia Pacific region. Indeed, for ACI, Asian air travel will increase 9% annually.

Climate impacts of aviation

A number of reports assessing the impacts of aviation on the global atmosphere are considered below to know the contribution made by air industry to make some climatic change.

IPCC, Aviation and the Global Atmosphere

In its 1999 report, the IPCC concluded that in 1992 emissions of carbon dioxide by aircraft shows 2% of total anthropogenic [3] carbon dioxide emissions about 13% of carbon dioxide emissions from all transportation sources. However, during flight, in addition to carbon dioxide, aircraft engines also emit nitric oxide and nitrogen dioxide [4] , as well as oxides of sulphur, water vapor [5] , hydrocarbons and particles. Uniquely, most of these emissions occur far above the earth’s surface. This report shows us there is a nexus that ties climate and aviation industry. So it’s time to fix a solution to drop such things in future.

The report of United States General Accounting Office

The report of GAO [6] states that aviation "is one of the fastest growing sectors of the world economy" and, thus, "the impact of aircraft emissions on the earth’s atmosphere and climate is a concern for transportation planners and policymakers." It concludes that aviation emissions "includes a potentially important and growing proportion of human made greenhouse gases and other emissions that are thought to make a payment to global warming."

For the GAO, aircraft emissions are potentially significant because: aircrafts like jets are the key source of human emissions released directly into the upper atmosphere; carbon dioxide and other gases and particles emitted by aircraft could have 2 to 4 times the effect of CO2 alone on the atmosphere; The IPCC reported that "the incremental aviation emissions traits to a increasing demand for air travel would not be completely equalize by reductions in emissions through technological improvements alone.

The ecological Effects

In section 2.2(a), Airbus, Boeing, IATA and ACI forecasts with regard to growth in aviation markets, numbers of passengers and numbers of aircraft made were outlined. In section 2.2(b), a number of reports assessing aviation’s contribution to climate change were considered. This section, ahead of an analysis of possible strategies for airlines on greenhouse gas emissions and climate change briefly examines dilemmas in addressing the climate impacts of aviation at a time of significant aviation growth, both actual and forecast. For this purpose, the UK and the EU are used as examples.

The Cairns and Newson report [7] considered earlier at section 2.2(b) summarizes a number of UK reports and makes findings with regard to aviation CO2 emissions and how they relate to UK emissions targets. From those reports it is clear that aviation emissions doubled between 1990 and 2000 and that, without the application of what Cairns and Newson term "economic instruments," aviation emissions

Strategies adopted by airline industry in dealing with the greenhouse gas emissions

"Aviation faces some difficult challenges. Whilst there is potential for increased improvements in efficiency to continue, more radical options for emissions cuts are very limited. The international nature of aviation also makes the choice of carbon pricing instrument complex and internationally coordinated taxes are difficult to implement and the choice of tax, trading or other instruments is likely to be driven as much by political viability as by the economics" [8] 

Possible airline strategies for dealing with the greenhouse gas emissions problem are:"Continue with business as normal which means doing the business as like before makes that possible; improve air transport technology and develop alternative jet fuels; Develop more efficient operational practices and call for more efficient air transport management systems and processes; support a cap-and-trade ETS: airlines would be allocated allowances according to a baseline, and would be able to either sell their unused portion or would have to buy credits to ensure that their emissions are covered. Such schemes might either be closed or open. In a closed scheme, purchases have to be made from the same industry; in an open scheme, purchases can be made on an open market as a preliminary step to support of mandatory emissions offsets, introduce an airline default or make passenger emissions offset scheme; and introduce taxes and charges" [9] .

Support an emission trading scheme

"Although improvements in aircraft and engine technology and in the efficiency of the air traffic system will bring environmental benefits, these will not fully offset the effects of the increased emissions resulting from the projected growth in aviation. Policy options to reduce emissions further include more stringent aircraft engine emissions regulations, removal of subsidies and incentives that have negative environmental consequences, market-based options such as environmental levies (charges and taxes) and emissions trading" [10] 

general idea about emissions trading schemes

For an international agreement to combat climate change to be sustainable in the long term it must: deliver greenhouse gas reductions successfully and efficiently; be compatible with different countries’ varying political landscapes; and be economically sound in order to survive the vicissitudes of the global economic market. Any policy response to climate change must therefore take these factors into account. An emission trading is one such response which has been adopted by a number of countries around the world in the fight to reduce emissions. Other policy responses, such as taxes, are generally seen as less flexible with higher compliance costs than emissions trading. The primary advantages of emissions trading over other policy options are "dependability and the potential to minimize the costs of achieving a given level of greenhouse gas abatement." [11] 

Generally, emission trading schemes involve the use of emission permits or credits, issued by governments, which can be traded amongst participants and acquitted to cover emissions. An emission trading utilizes broad-based market mechanisms, through supply and demand, to create a price for emissions. By placing a price signal on emissions, emitters are incentivized to take action to reduce their emissions either by purchasing emissions units from other participants under the scheme or investing in abatement activities such as carbon sequestration or low emissions technologies. Trading schemes also allow for the development of financial instruments to manage risk, thereby creating more certainty in the market.

Cap-and-trade emissions trading schemes are commonly used as they assure environmental outcomes by setting a total cap on the absolute quantity of emissions over a defined period. Participants in a cap-and-trade scheme must obtain sufficient tradable units to compensate for their emissions. Under this type of scheme the regulatory authority allocates a certain number of tradable units to each participant based on their capacity output or some other quantitative measure. Participants with difficulty in remaining below their allocated emission limit then have a choice between taking measures to reduce their emissions [12] and buying extra allowances, whichever is most cost-effective for the participant. Participants can therefore make independent economic decisions regarding lowest-cost abatement opportunities which are suitable to their business needs. It is very likely that the core of any future international agreement to combat climate change will exist in the form of a global emissions trading scheme.

FLOW CHART FOR EMISSION TRADING SCHEME MECHANISM

This flow chart helps us to identify the easy understanding of carbon emission system.

Emissions Trading Scheme in european union

The Kyoto Protocol [13] to the United Nations Framework Convention on Climate Change [14] (UNFCCC) addresses global climate change by placing quantifiable obligations upon sovereign States to decrease their levels of greenhouse gas emissions. The Kyoto Protocol also forms the basis of the world’s first and biggest multi country, multi sector Greenhouse Gas emissions trading program in EU ETS [15] . It should be noted, however, that the EU ETS operates independently of Kyoto’s entry into force. Kyoto was negotiated between governments imposing emissions targets on countries; the EU ETS is a scheme aimed at targeted installations, based on the EU Directive and national legislation. Kyoto provides a basic legal and operational framework for participating countries to integrate compatible domestic emission trading schemes with each other to create a larger market.

The main feature of the EU ETS the development of a broad-based market for the trading of carbon emissions and the use of market forces to create a price for carbon based on supply and demand. Implementation of the EU ETS constitutes effective policy, based on economic rationality and sound business, in order to achieve the EU’s commitment to reduce emissions under multilateral agreements such as Kyoto. The EU ETS covers six key industrial sectors and imposes caps on emissions of carbon dioxide from installations. These include energy activities, manufacture and dealing out of ferrous, mineral industry production and other activities. While aviation activities are not presently captured by the EU ETS, the EC proposes to comprise aviation in the EU ETS in two phases from 2011 and 2012. At the heart of the EU ETS is the common trading currency" of emission allowances (EUAs). One EUA equals the right to emit "one tone of carbon dioxide equivalent during the specified period." Under the scheme a fixed amount of EUAs are allocated by the National Allocation Plans (NAPs). These allowance allocations provide the legal right to emit. The total of all allowances allocated under the NAPs represent the total cap on emissions and is therefore a cap-and-trade scheme. Scarcity, being the "cap "or "limit" on the total number of allowances, creates the limited supply needed for a market to emerge.

Under Kyoto, Joint Implementation (JI) enables EU ETS installations to invest in emission reduction projects (for the benefit of the environment) and credit this saving towards their own emission targets (JI projects yield credits known as "emission reduction units" or ERUs). Clean Development mechanisms (CDMs) operate in the same way as JI; here, projects without an emission under the Protocol are covered (CDM credits are called "certified emission reductions" or CERs). The EU design is the primary one in the world that recognizes these credits as equivalent to EU ETS emission allowances [16] and initiates them to be traded under the design.

The EU ETS was specifically designed to be compatible with emissions trading as envisaged under Article 17 of Kyoto. This compatibility allows participating entities in domestic emissions trading programmes under the Directive to use credits generated by the other compatible emission mechanisms to offset reduction obligations under the EU ETS.

Compatibility with Kyoto mechanisms and the generation of linkages between domestic and international trading schemes not only increases the range of options available for participants in schemes to meet emission targets but also improves the liquidity and depth of the market thereby reducing compliance costs in the rapidly emerging global market for emissions trading.

There are a number of regulatory mechanisms which are available to governments to deal with the climate impacts of international aviation like taxes, charges and emissions trading. Further there are also huge difficulties for imposing charges and taxes, in fixing that with the aviation emissions trading. Such thing has been given impetus by the European Commission’s (EC) proposed legislation to include aviation in the EU ETS.

CONCLUSION AND SUGGESTION

Marion C Blakey, the FAA Administrator, has acknowledged "there’s a perception that somehow aviation doesn’t care about the environment. Really it’s a fair question of thinking but it’s not possible now to rewind time into Paleolithic era. Now we got technologies. Moving hand in hand with technological atmosphere can make the thing into abnormal. All we can do is to make a solution to reduce the things into normal. But actually speaking who has the initiative to stop everything, to this point there is no reply; all we have is only law and statute. It is the only way to control things into normal.

The only way we are going to prevent having an amount of CO2 that is far beyond the dangerous level is by putting a price on emissions [17] .

SUGGESTIONS

Improve the transport technology and develop alternative fuels. Develop more efficient operational practices. Call for more efficient air traffic management system and processes. Support emission trading schemes