Up in the air
The proposal of the European Parliament to expand the scope of EU ETS to all flights leaving the EEA intensifies the impacts of the Aviation Fit for 55 policies. While flights within the EEA are not affected by this proposal, there is an additional increase in ticket prices and a further shift of passengers to competing non-EEA hub airports in close proximity. The proposed EU ETS update lowers aviation CO2 emissions but intensifies competitive distortion and carbon leakage.
In July 2021, the European Parliament proposed the Fit for 55 package, which aims to reduce greenhouse gas emissions in the EU by 55 percent by 2030. Several proposals aim to support the European aviation industry to become more sustainable and reduce emissions. One component of this package is the EU Emissions Trading System (EU ETS). The European Parliament proposed expanding the EU ETS scope to all flights leaving the European Economic Area (EEA). The EU ETS scope expansion leads to additional costs for flights leaving the EEA. In this research report, SEO Amsterdam Economics (SEO) forecasts the changes in prices, demand, carbon emission and leakage for flights leaving the EEA due to the EU ETS scope expansion.
The market model NetCost is being used in order to estimate changes in prices, demand, CO2 emissions and carbon leakage.
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