Prospective costs for the aviation sector of the emissions trading scheme

Abstract

This chapter analyses the cost impact to the aviation sector of the European Union Emissions Trading Scheme (EU ETS) being extended to include the sector. To motivate our cost impact simulation work, we initially study ultra-high frequency data utilising the December 2012 European Union Allowance (EUA) futures contract. We find evidence indicative of EU ETS market efficiency. Hence, we inform our simulation specification using information set related to fundamental price determinants. We find a minimal cost impact of an EU ETS extension to the industry sector of almost 9 billion Euros for the period 2012-2020. Such a material cost accrues from a nominal price of 10 Euro per tonne of CO 2 emissions. This chapter contributes to emerging research on the cost impact of the EU ETS to the aviation sector.