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Climate change and the contribution of transport: Basic facts and the role of aviation
Transportation Research Part D 15 (2010) 5–13
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Transportation Research Part D journal homepage: www.elsevier.com/locate/trd
Climate change and the contribution of transport: Basic facts and the role of aviation Werner Rothengatter University of Karlsruhe, Institute for Economic Policy Research, Kollegium am Schloß, Bau IV, 76128 Karlsruhe 1, Germany
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Keywords: Climate change Mitigation policies Contribution of transport Emission trading systems Complementary taxation Regulation measures Post-Kyoto challenges
a b s t r a c t There is a world-wide consensus that climate change policy has to be intensified to achieve reduction goals set for 2020 and 2050. But it is heavily debated which contribution should be expected from the transport sector. It is often argued that in the transportation sector CO2 marginal mitigation costs are higher such that – together with high growth of transport activities – the reduction targets for this sector should be relaxed. Green transport policy is contrasting this view and underlines that considerable reductions of climate gases in the transport sector are possible without risking economic prosperity. The aviation industry is in the focus of this discussion and first attempts are being made in the European Union to integrate aviation in an emission trading system. It will be shown that the impact of this policy will be very low in the medium term and that additional measures are necessary to create enough incentives for the aviation industry to exploit their reduction potential. Ó 2009 Published by Elsevier Ltd.
1. The global challenge The Intergovernmental Panel of Climate Change (IPCC, 2007) has presented its fourth report on the development of climate change in February 2007. The basic messages are: - There is little doubt that global warming since the industrial revolution is man-made. Other theories, which relate global warming on earth to long-term oscillations of temperature or on sun-spot activity, have little explanatory power. - The IPCC scenarios state that the concentration of greenhouse gases might increase under business-as-usual conditions from 450 to 750 ppm. The associated increase of world temperature might range between 3 and 5 °C. - To limit the growth of world temperatures (which seems inevitable) to 2 °C it will be necessary to start with substantial reduction policies now (a message of the Valencia meeting of the IPCC in September 2007). The Stern Review (2006) has taken up the scenarios of the IPCC on the impacts of global warming. Fig. 1 summarizes the principle threats. According to IPCC and the Stern Review a stabilization policy appears to be most challenging; using the words of Lord Nicholas Stern it is the biggest challenge for mankind since the industrial revolution. Fig. 2 indicates the dimension of necessary reduction of greenhouse gas emissions, which sums up to 50% in the year 2100 compared with 1990. The Stern Review estimates the cost of reducing CO2-emissions to a target level of 550 ppm to amount to 1% of GDP in the year 2050. The damage costs, which would have to be expected in the future in the business-as-usual case, would sum up to a magnitude of 5% of GDP or more. In the meantime the IPCC has stated that a level of 550 ppm might not be sustainable. A reduction to the level of 500 or even 450 ppm appears to be necessary to stabilize global warming to not more than 2 °C. E-mail address: [email protected] 1361-9209/$ - see front matter Ó 2009 Published by Elsevier Ltd. doi:10.1016/j.trd.2009.07.005
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Fig. 1. Impacts of climate change according to the Stern Review (2006).
Fig. 2. Necessary reduction of CO2 for climate protection. Source: Edenhofer (2007).
Nicholas Stern has adjusted his estimations accordingly and has mentioned in his recent speeches that a higher intensity of mitigation measures leading to an increase of the cost of mitigation to about 2% of GDP might be necessary. Nevertheless the basic message is left unchanged which says that big reduction steps now pay off in the future with high economic benefits in terms of avoided damage costs. A main critique of the Stern scenario has been brought forward by Nordhaus (2007) who in particular attacked the very low rate of social rate discount, which was applied by the Stern team to make all future impacts comparable. Stern’s social rate of discount is in an order of magnitude of 0.1%, which is obviously far from the market interest rate today. This results in a problem of ethics. The higher the discount rate is, the higher is the ‘‘rate of rapacity” of the present generation with respect to future generations. If future generations should not be compromised with respect to their chances to live in a sustainable environment it is a matter of empathy to keep the discount rate low. Nevertheless this example shows that economists have some problems with treating very long-term effects on nature and that the traditional trade-off problem of economists has to be tackled in the future even more intensively: whether it is preferable to lower emissions now to avoid the future damages (mitigation) or to prepare the future generations to live with the consequences of global warming (adaptation). 2. Dynamics of mobility, transport and logistics Mobility and transportation are growing world-wide with high growth rates. Drivers are:
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– – – – –
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Growth of income. Growth of motorization. Cultural change and tourism. Reduction of transport cost and time. Industrial trends (world-wide distribution of workflows).
In some industrialized countries in Europe domestic passenger transport is stagnating, but this does not hold for the highly populated parts of the world at the threshold of industrialization, in particular for Latin America, China or India. While passenger transport development is influenced predominantly by income, freight transport activity is more linked to trade, which was growing almost at double rates compared with GDP. The world-wide growth rates are expected to be extremely high for aviation (4–5%) and container shipping (5–7%) in the next decade. For the EU (more precisely: the European Statistical Reference Areas, ESRA) the Eurocontrol Agency has estimated a growth of Instrument Flight Rules (IFR) traffic of 3.7% per year on the average until 2025, which means a doubling in two decades. The development of the railways has been modest in the past and will crucially depend on the willingness of the state to internalize the external costs and to provide fair market conditions for the environmentally more friendly transport modes. The development of High Speed Rail (HSR) connections between the major agglomerations can contribute to divert a part of domestic and short distance international air transport to the railways, which would dampen the growth of passenger air transport slightly. In Japan and West-Europe HSR is already well developed, while China has just started with implementing its ambitious plan to construct more than 8000 km of HSR.
3. External costs of transport External effects are unplanned interactions among economic agents, which are processed outside the market (not priced) and are detrimental to the dynamic economic efficiency because of generating wrong incentives. According to INFRAS/IWW (2004) external costs of transport consist of the following components: – – – – – – –
Uncovered costs of accidents. Costs of noise. Cost of air pollution. Cost of climate change. Change of nature and landscape. Detrimental urban effects. Up-stream and down-stream effects (production and disposal).
Furthermore, congestion externalities are mentioned in the literature, but these costs are external for the single user while internal for the transport system (road, rail or air) and therefore a case for improving efficiency within a particular transport sector. This means that congestion externalities signal the need of capacity extension and better management of the infrastructure.
Fig. 3. Average external costs of transport. Source: INFRAS/IWW (2004).
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All in all, external costs of transport are estimated about 7% of GDP in Europe for the year 2000 (INFRAS/IWW, 2004). This indicates that transport consumes a high amount of resources, which are not priced, as for instance human health, damages to biodiversities or impacts of climate change. The road sector is responsible for more than 90% of external costs of transport, while air transport counted for 6%. Railways contributed 2%, which is much less than their transport share. The average external costs of railways are 2.3 cts/pkm versus 7.8 cts/pkm for cars and 5.3 cts/pkm for aviation. In goods transport the respective values are 1.7/8.5/26.4 cts/pkm for rail/road/air transport (INFRAS/IWW, 2004). Corridor studies show that rail traffic is the mode, which minimizes social costs of traveling on medium distances (which are short distances from the viewpoint of aviation). Internalization of external costs would increase the competitiveness of railways on short distances compared to the car and on medium distances compared to aviation. The position of aviation with respect to external costs is heavily dependent on the evaluation of CO2 and other GHG. Fig. 3 shows that a low CO2 value (here: 20 Euro per ton of CO2) will lead to a very positive position of aviation on average. Using a value of 140 Euro per ton of CO2, alternatively, will completely change this picture. Looking at the segment of short distance flights, only, will also place aviation into a negative position. On long-distance flights there is no competition with other transport modes. On these distances air transport shows comparatively low specific rates of fuel consumption or CO2production, e.g. down to 3 l/100 seatkm (which would correspond to about 75 miles/gallon if a car were seated by one person). Comparisons with other transport modes are only meaningful on distances where competition may be expected, i.e. up to 750 km. Therefore the environmental problems of aviation on long distances cannot be solved by modal shift rather than by higher fuel efficiency of aircraft, better occupancy rates or reduced demand.
4. Transport and climate change Transport counted for 24% of the world-wide production of CO2 in 2003. For the OECD countries this share was even 29% (see ECMT, 2007). Again, road transport was the major source with 18%/23% for World/OECD, while aviation was responsible for 2%/3% of CO2-emissions. In the developed world the share of road traffic, aviation and waterway transport is even higher. In particular aviation has increased the CO2-emissions dramatically in the past 15 years. Taking the period between 1991 and 2003 these emissions have grown by 87% in the European Union. Furthermore, it has to be considered, that CO2-emissions make only 50% of climate gases produced by the aviation sector. Other components are water vapor, contrails or NOx. From this follows: the transport sector is a major source of the climate problem and will increase its relative contribution dramatically in the forthcoming decades. While OECD countries presently count for about 70% of transport induced GHG this percentage will drop in the next decades and the dynamically developing countries and the countries, which are presently at the threshold to industrialization (China, India, Latin America, South Africa), will take the lead. This indicates a basic dilemma of climate change policy: the industrialized countries are responsible for the problem of climate change, which the world presently facing. They have neglected climate effects since the industrial revolution and are responsible for the present threats, which reflect in the statement of IPCC at the Valencia meeting in November 2007, that reduction measures have to be started in the short run to limit the increase of world temperature to 2 °C. But in the longterm future the developing and the threshold countries will be the main accelerators for the problem (see Fig. 4). Therefore it is crucially important to integrate them into any form of climate policies from the beginning. There might be a natural inter-
Fig. 4. CO2-emissions of selected countries and world-wide. Source: IWR (2007).
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est of these countries to join common policies towards climate change because it can be shown by climate impact analysis that they will be hit substantially by the consequences of climate change. While other sectors like the production or the energy supply industries are starting to bring down CO2-emissions in the developed world, the transport sector still shows a substantial increase. Road traffic is the major climate problem of the transport sector, followed by air and maritime transport. Fig. 4 underlines that the economic dynamics is the main driver of energy consumption and CO2 production. The rapid growth in China is accompanied by a similar up-rise of GHG emissions and China has achieved the total emission level of the US by the end of 2007. Nevertheless the CO2-emissions per capita are quite different with 19 tons per year and per capita in the US and almost 5 tons in China. The relative position of the countries of the Former Soviet Union seems to have improved, which is mainly a result of the structural economic change after the breakdown of the socialist regimes. Also the decrease of CO2 emission in Germany is mainly due to the breakdown of old industrial structures of the socialist GDR regime and the industrial modernization after 1989. 5. Mitigation strategies There are general and transportation specific instruments to mitigate climate change. Carbon taxation for instance is a general instrument, which could be applied in a consistent way to all emitting sectors. However, there are already many country and sector based (partial) solutions such as fuel taxes or vehicle taxes differentiated by fuel consumption such that the existing taxation systems would have to be changed in many countries before introduction of a carbon tax. A second general alternative is the emission-trading scheme, which in its most general extension would be an open cap and trade system, for which the caps would be periodically adjusted according to the agreed reduction trajectory for CO2. Such a scheme has been introduced in the European Union for the power production and other industrial sectors in the year 2005, however with a delayed and restricted auctioning of emission allowances, such that the prices per ton of CO2 are still rather low. A world-wide system could start with an allocation of emission rights to the countries on a per capita base, which would take into account that different development levels of the countries. This might be an acceptable base for the developing countries, which would receive more emission rights than needed and could sell the excess stock of certificates. The countries could allocate the emission rights domestically by auctioning. Further variants of trading schemes are closed systems, within countries, sectors or even bottlenecks capacities within sectors. For example studies have been prepared for introducing a trading scheme for alp transit by road in Switzerland. All trading schemes can start from up-stream (production and distribution of fossil fuel), mid-stream (vehicle purchase) or down-stream (use of vehicles by consumers and transport industries). From the viewpoint of implementation an upstream system seems to be preferable because the number of trading agents could be limited in this case. The Kyoto Protocol leaves the possibility to achieve reductions of emissions by investments in developing countries through the Clean Development Mechanism (CDM) and the Joint Implementation. This policy can be extended by using the Global Environmental Facility (GEF) instrument, which has been established by UNDP, UNEP and World Bank. In general the CDM and GEF instruments have not been used extensively in the transport sector (see WCTRS and ITPS, 2003). Sector specific instruments apply only for the transport sector, as for instance – – – –
fuel taxation (special carbon tax), vehicle taxation based on CO2 production, user charges for infrastructure use with differentiation or mark-ups for CO2, and regulation and standards.
The disadvantages of such sector specific instruments are that (1) they cannot be controlled with respect to a global target1 and (2) it is not possible to find out an optimal design with respect to CO2 reduction (e.g.: equilibrate the marginal costs of damage and mitigation). The main advantage of these instruments is on the other side that they are widely available, easy to implement and to be applied already in the short run without waiting for international agreements. Some of these instruments are extensively applied, for instance fuel taxes in some European countries exceed by far the costs of fuel production (UK, Germany, Netherlands). But this only holds for particular transport sectors while other sectors are free of such tax burdens as it is the case in particular for international aviation and maritime shipping. 6. Example 1: limit values for cars In the EU there has been a heavy debate on the reduction of specific emission values of cars. The car manufacturers had promised by voluntary agreement to reduce CO2-emissions to 140 g/km until the year 2008. It turned out that this target could not be achieved by far, because the emission values 2007 exceeded 160 g/km. The DG Environment of the EU Commission decided, against this background, to set a reduction target of 120 g/km until the year 2012, as an average value for all newly licensed cars. The intervention of the German government lead to a change insofar as it was decided to allow for add1
The EU, for instance, has decided on a reduction target of 20% until 2020, which might be increased to 30% if major non-EU countries follow.
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Fig. 5. EU penalty scheme for CO2 emission of cars. 130 g limit: 120 g to be achieved through reduction of fuel consumption, 10 achieved through adding bio-fuel. Source: EU Commission, Zierock (2007).
ing bio-fuels in an order of magnitude, which leads to a reduction of 10 gCO2/km. Therefore the target for fuel consumption accordingly was set at 130 g/km. The question how to achieve this target led to the analysis of different strategies: – Enforce every car producer to achieve the target value with the car mix of its fleet. – Introduce a closed cap and trade system and trade emission certificates among car producers (mid-stream ‘‘standard and credit” system). – Define a reference curve for producers of cars of different size (defined in space or weight) and introduce a penalty (or bonus–malus) system – the favored solution by the Commission, see Fig. 5. The EU Commission suggests to introduce soft regulations on fuel consumption of the car fleet of manufacturers in 2012, which are followed by rigid rules in the year 2015, limiting CO2-emissions to 120 g/carkm in 2015 and restricting this limit to 95 g/carkm in 2020. The penalties foreseen can reach a magnitude of 95 Euros per gram of CO2 emission exceeding the reference curve. The reference curve allows the producers of bigger cars (e.g. vans) to deviate from the target, but less than proportional. Very fuel-efficient cars in the fleet can compensate for higher fuel consumption of others. The long transition phase of introduction allows the producers of high-powered ‘‘premium” cars to adjust their fleet. This is a result of successful lobbying of the German automobile industry which tried to avoid disadvantages compared with the French and Italian manufacturers, which on the average produce smaller and more fuel-efficient cars. Under status quo conditions the producers of big BMW, Mercedes or Porsche cars would have to pay between 3500 and 15,000 Euros per car, which might influence purchase decisions substantially, even in the market segments of premium cars (see Fig. 6).
Fig. 6. Development of CO2-emissions of aviation in EU 25. Source: EU Commission (2006).
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7. Example 2: integration of air traffic in the European Emission Trading System 7.1. Draft Directive of the European Commission Aviation counts for about 3% of CO2-emissions world-wide. As CO2 makes only about 50% of the total of greenhouse gases of aviation, one can double the above percentage and result in a relevant contribution. That means a priori: the argument that aviation is such a small player in the transport markets such that their emissions don’t matter does not hold. Furthermore, aviation is growing at a much higher speed compared with other transport sectors such that the emissions go up drastically. Figure shows that CO2-emissions of aviation went up between 1991 and 2003 by 87% although the event of 9/11 in 2001 has caused a stagnation for more than 3 years. It can be expected that the economic crisis will cause a slowdown of aviation growth for 3–4 years and after that the growth rates will go up again. Against this background discussion has started how to introduce incentives into the aviation sector to reduce greenhouse gases. The main difficulty is that taxation and charging of the aviation sector is internationally regulated by ICAO under the regime of the Chicago convention. Although the Chicago convention in principle presupposes mutual agreements among the member countries the EU has reserved the right to enact and apply market-based measures to all aircraft operators of all states which start/land on an EU airport. Basic condition is that the measures are free of discrimination. The European Emission Trading System (ETS) has been introduced in 2005 and includes energy producers and parts of the industrial producers as well as transport companies (e.g.: railways with own energy production plants). Emission rights have been allocated by grandfathering at the beginning, while in the second phase of ETS (2008–2012) 10% of the rights will be auctioned off. Full auctioning is planned to start in 2013. This is the reason why the price of the ton of CO2 is still very modest. But prices are expected to rise which is indicated by the rise of prices of the CO2 allowances (EUA), which are traded at about 16 Euros at the end of 2008 and 22 Euros for 2009 futures (1 EUA = 1 ton CO2). The European Commission has published a proposal in 2006 for integrating the aviation sector into ETS, starting in the year 2011. The reduction target has been set in a way that the emissions of the year 2005 should be left constant until the year 2020. This means that there will be no attempt to achieve the overall reduction target ( 20% to 30% compared to 1990) also in the aviation sector, because of the rapid growth of this sector. But the trend of the past according to which aviation grew with a rate of about 4% p.a. while the improvement of fuel efficiency was about 1%, only, would be changed significantly (see Table 1). The draft Directive was accompanied by scenario computations. The most relevant scenario was base on the following assumptions: – – – – –
all arriving and departing flights included, only CO2 included, no other greenhouse gas emissions of aviations, auctioning off 20% of the allowances, target to stabilize emissions at 2005 levels, and prices of a ton of CO2 set alternatively at 6, 15, 30 Euro.
As the prices of CO2-certificates are very low, presently, one would presume that the incentive effects for the aviation industry would be very modest. Therefore the Commission has constructed scenarios to study the effects of higher prices. It comes out that the price per ton of CO2 should be set at 30 Euro or higher to achieve a reaction of the industry. The latter will consist in the first instance in better occupancy rates, more fuel-efficient airplanes or more economic roundtrips. For
Table 1 Results of ETS/aviation scenario (% change compared with BAU scenario) Source: EU Commission (2006). Geographical coverage
Intra EU flights EU – all departing flights EU – all arriving and departing
Reduction by 2015
Reduction by 2020
%
Mt CO2
%
Mt CO2
36 36 36
31 77 122
45 46 46
44 115 183
Table 2 Mark-ups per ticket resulting from carbon trading in aviation. Per ticket costs
Arriving and departing flights in Euro
Short haul Medium haul Long haul
1.8–9.2 3.6–18.0 15.8–79.2
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instance, a flight of an Airbus 321–100 from Frankfurt to London would cause a CO2-production of 10.4 tons which would induce a CO2 cost of 312 Euro. Seated with 125 passengers this would result in a surcharge per passenger of 2.50 Euro. It follows from this that the effect on demand will be marginal, because only on very long distances the surcharge would become relevant for a passenger (see Table 2). The effect on cargo will be slightly higher. For the future these mark-ups might increase if the share of auctioned allowances goes up.
7.2. Directive 2008/101/EC The European Commission regards this Directive, published in November 2008, as a ‘‘top runner” model for aviation, hoping that other states follow. Meanwhile 15 other European states have joint this initiative. The ideas of the draft Directive, sketched above, are now specified more precisely and adjusted to the political feasibilities. The most important regulations are: All flights are included which arrive/depart at EU aerodromes, beginning with January 1, 2012. In the year 2012 the number of allowances equal 97% of historical CO2-emissions. From January 1, 2013 the number of allowances will be reduced to 95% of historical emissions. Further reductions will be decided for each subsequent period. The Commission will decide on the historical emissions of aviation by August 2, 2009. From January 1, 2013, 15% of allowances will be auctioned. This percentage may be increased as part of the general review of this Directive. The operators can use Certified Emission Reductions (CER; climate credits according to the Clean Development Mechanism of the Kyoto Protocol) and Emission Reduction Units (ERU; climate credits according to the Joint Implementation option of the Kyoto Protocol) to compensate for allowances, up to a volume of 15% of the total allowances. In each period a special reserve of 3% of total allowances is given for operators, entering into business and operators in the start-up phase, showing growth rates of 18% and more. This is limited to one mill. allowances. At least 15 months before the start of each period the Commission shall calculate and adopt a decision setting out: - The total number of auctioned. - The special reserve. - The number of allowances allocated free of charge. - The benchmarks to be used to allocate allowances free of charge to aircraft operators (in principle dependent on the fuel consumption of the aircrafts of the fleet). Third country measures to reduce the climate change impact of aviation can lead to compensation agreements (to avoid double charging).
7.3. Alternative instruments Although integrating aviation into ETS means a big step forward it will be by far not be sufficient to compensate for the different treatment of the transport modes in present taxation policy, even in a longer term. This causes market distortions on the competitive distances. A high-speed train from Frankfurt to London consumes about 70% less energy compared with an airplane per passenger. The CO2-surcharge for rail transport per passenger would be less than 1.00 Euro according to the actual values of the emission-trading scheme, dependent on the production mix of electrical power for the railways. But the railways – contrasting aviation on international routes – have to pay VAT, energy taxes and have to buy CO2-certificates for electrical energy production, in Germany. This makes about 11 Euro per ticket on the German part of the route from Frankfurt to London (considering a mix of first and second class passengers). At the end this results in the paradoxical situation that even after the internalization of climate costs the environmentally friendly railway mode would pay about four times higher taxes/emission charges although it produces less than one third of the climate costs, compared with aviation. It should be noticed that this rough calculation has not taken into account other climate gases of aviation, which would at least result in a doubling of CO2 equivalent emissions of aviation. Furthermore, the railways will have to buy auctioned allowances, beginning with 2013, for their consumption of electrical power. Aviation will only have to buy 15% of allowances from auctioning. This results in an internalization paradox: the railway mode, which is much more climate efficient than aviation, will have to pay the full climate bill while aviation only pays a moderate share. This makes a yearly cost disadvantage of several hundreds mill. of Euros for a big rail company like Deutsche Bahn AG and losses of modal share have to be expected. One can conclude that CO2 trading has to be embedded in a system of concerted instruments (investment, taxation, charging, regulation) to set the market incentives right for choosing the environmentally most efficient mode for the transport purpose. Another solution would be to reduce taxation (VAT, energy taxes) for the railways as it is practiced on many EU countries to avoid undesired counterproductive effects of emission trading. The European Aviation Industry had initially rejected the plans of the Commission. Strategy was to rely on the blocking of other countries, in particular the US, on the base of the Chicago convention. Meanwhile the position has changed because several reasons:
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– Aviation industry, EU Commission and member countries are pushing an initiative to improve ATS (air control system) substantially. Implementing the SESAR system in the context of the Single European Sky program would reduce CO2 by about 13%. Of course this would be accompanied by benefits for the air carriers through more stable and reliable flight schedules. – Participating in initiatives to reduce CO2 is positive for the image of the industry. The aviation industry might be interested in avoiding the trouble, which the automobile manufacturers have run into. – The pressure on ICAO increases after the change in US president’s office in January 2009. – The development of CO2 trading in Europe does not point to very high prices for CO2. Therefore the industry might eventually tolerate this emission trading as a least cost alternative compared with alternative instruments. 8. Conclusions The COP 14 UN Climate Conference2 was held in Poznan, December 1–12, 2008, to prepare the agenda for the negotiations on a successor agreement for the Kyoto Protocol. It is foreseen to negotiate on the basics of this agreement at the COP 15 UN Climate Change Conference in Copenhagen, to be held in November/December 2009. COP 14 has started and ended with critical comments of the environmentalists. A most critical balance was given with respect to the Kyoto achievements. The EU has achieved only 2.2% reduction instead of 8% compared with 1990, and the US (who have not signed the Kyoto Protocol) has even shown an increase of 14%. Political pressure will grow on more effective reduction policies and there is some hope that the US will be integrated in the global initiative. This would be the precondition to get the developing countries on board. One of the major achievements of COP 14 is the establishment of an Adaption Fund for the developing countries. However, no agreement was possible with respect to financing this fund by contributions of the industrialized countries. Insofar the conference was heavily influenced by the present economic and financial crisis, which makes it difficult for the parties to agree on long-term financial obligations. Some positive signals came from countries at the threshold of industrialization. China plans to reduce energy consumption per Yuan of GDP by 20% until 2010, compared with 2005. The Republic of South Africa has announced to stop the increase of greenhouse gases within 10 years. And the Brazil government promised to reduce CO2-emissions until the year 2017 by about five bill. tons by a stop of cutting or burning the rain forests. It seems that advanced developing countries are ready to willing to join in CO2 reduction policy because they realize that they will benefit from this policy in the long run, as well by better environmental quality/less environmental risk for their citizens as by becoming competitive on the markets for innovative CO2 saving products and services. While the road maps for the reduction policy and the intensity of instruments are still uncertain it is highly certain that more ambitious reduction targets will be decided at the following climate conferences. This will have consequences for the transport sector. This sector cannot be excluded from reduction policy with the arguments that mitigation measures might be more expensive – compared with other sectors – or that the growth rates are so high – as observed in the aviation sector in the past (see European Environmental Agency, 2008). There are good reasons to postulate that in the industrialized countries the transport sector can achieve similar percentages of reduction like the energy and industrial production sectors. In the developing world the rapid increase of CO2-emissions of the transport sector can be stopped within a limited range of time – take the example of South Africa. The aviation sector has been excluded until now from taxation and other carbon policies. One can expect that the forthcoming international post Kyoto agreements will mention instruments to include the international transport sectors into the reduction policies. There is some probability that carbon trading might be regarded as an appropriate internationally monitored instrument. The EU Commission has taken the role of top runner and put a Directive in place to include aviation in the emission-trading scheme (ETS). Some arguments support the expectation that the aviation industry will behave in a cooperative way and accept this policy. This is because it is rather unlikely that the mark-ups on the ticket prices will reach a high level in the medium term, which would negatively affect demand. On the other side, alternative state instruments would threaten the industry much more, and it is likely that such measures are considered if the carbon trading instrument will fail. Last but not least the aviation industry is interested in showing that they are improving substantially on their environmental performance to cultivate their image and prevent policy makers from taking more biting actions. References ECMT, 2007. Cutting Transport CO2-Emissions. What Progress? Paris. Edenhofer, D., 2007. Costs and strategies or climate stabilization. In: Presentation to the Symposium on Climate Change and Transport Strategy. Tokyo. European Commission, 2006. Draft Directive for Integrating Aviation into the Emission Trading Scheme. Brussels. European Environmental Agency, 2008. Climate for a Transport Change. Copenhagen. INFRAS/IWW, 2004. Facts on the Competition in the European Transport Market. Research Project for the UIC. Zürich and Karlsruhe. Intergovernmental Panel of Climate Change, 2007. Fourth Assessment Report on Climate Change 2007. Geneva. IWR, 2007. Internationales Wirtschaftsforum Alternative Energien. CO2-Ausstoß weltweit. IWR On-line. Münster. Nordhaus, W., 2007. The Stern Review on the Economics of Climate Change. Yale University, New Haven (CT 06511-8268). Stern Review, 2006. The Economics of Climate Change. Report to the Treasury. London. WCTRS and ITPC, 2003. Urban Transport and the Environment. Amsterdam. Zierock, K.H., 2007. Presentation on concepts for CO2 reduction policy. In: Rothengatter, W. (Ed.), Transport and Climate Change. Html version. Karlsruhe.
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COP: Conference of the Parties.
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Transportation Research Part D journal homepage: www.elsevier.com/locate/trd
Climate change and the contribution of transport: Basic facts and the role of aviation Werner Rothengatter University of Karlsruhe, Institute for Economic Policy Research, Kollegium am Schloß, Bau IV, 76128 Karlsruhe 1, Germany
a r t i c l e
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Keywords: Climate change Mitigation policies Contribution of transport Emission trading systems Complementary taxation Regulation measures Post-Kyoto challenges
a b s t r a c t There is a world-wide consensus that climate change policy has to be intensified to achieve reduction goals set for 2020 and 2050. But it is heavily debated which contribution should be expected from the transport sector. It is often argued that in the transportation sector CO2 marginal mitigation costs are higher such that – together with high growth of transport activities – the reduction targets for this sector should be relaxed. Green transport policy is contrasting this view and underlines that considerable reductions of climate gases in the transport sector are possible without risking economic prosperity. The aviation industry is in the focus of this discussion and first attempts are being made in the European Union to integrate aviation in an emission trading system. It will be shown that the impact of this policy will be very low in the medium term and that additional measures are necessary to create enough incentives for the aviation industry to exploit their reduction potential. Ó 2009 Published by Elsevier Ltd.
1. The global challenge The Intergovernmental Panel of Climate Change (IPCC, 2007) has presented its fourth report on the development of climate change in February 2007. The basic messages are: - There is little doubt that global warming since the industrial revolution is man-made. Other theories, which relate global warming on earth to long-term oscillations of temperature or on sun-spot activity, have little explanatory power. - The IPCC scenarios state that the concentration of greenhouse gases might increase under business-as-usual conditions from 450 to 750 ppm. The associated increase of world temperature might range between 3 and 5 °C. - To limit the growth of world temperatures (which seems inevitable) to 2 °C it will be necessary to start with substantial reduction policies now (a message of the Valencia meeting of the IPCC in September 2007). The Stern Review (2006) has taken up the scenarios of the IPCC on the impacts of global warming. Fig. 1 summarizes the principle threats. According to IPCC and the Stern Review a stabilization policy appears to be most challenging; using the words of Lord Nicholas Stern it is the biggest challenge for mankind since the industrial revolution. Fig. 2 indicates the dimension of necessary reduction of greenhouse gas emissions, which sums up to 50% in the year 2100 compared with 1990. The Stern Review estimates the cost of reducing CO2-emissions to a target level of 550 ppm to amount to 1% of GDP in the year 2050. The damage costs, which would have to be expected in the future in the business-as-usual case, would sum up to a magnitude of 5% of GDP or more. In the meantime the IPCC has stated that a level of 550 ppm might not be sustainable. A reduction to the level of 500 or even 450 ppm appears to be necessary to stabilize global warming to not more than 2 °C. E-mail address: [email protected] 1361-9209/$ - see front matter Ó 2009 Published by Elsevier Ltd. doi:10.1016/j.trd.2009.07.005
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Fig. 1. Impacts of climate change according to the Stern Review (2006).
Fig. 2. Necessary reduction of CO2 for climate protection. Source: Edenhofer (2007).
Nicholas Stern has adjusted his estimations accordingly and has mentioned in his recent speeches that a higher intensity of mitigation measures leading to an increase of the cost of mitigation to about 2% of GDP might be necessary. Nevertheless the basic message is left unchanged which says that big reduction steps now pay off in the future with high economic benefits in terms of avoided damage costs. A main critique of the Stern scenario has been brought forward by Nordhaus (2007) who in particular attacked the very low rate of social rate discount, which was applied by the Stern team to make all future impacts comparable. Stern’s social rate of discount is in an order of magnitude of 0.1%, which is obviously far from the market interest rate today. This results in a problem of ethics. The higher the discount rate is, the higher is the ‘‘rate of rapacity” of the present generation with respect to future generations. If future generations should not be compromised with respect to their chances to live in a sustainable environment it is a matter of empathy to keep the discount rate low. Nevertheless this example shows that economists have some problems with treating very long-term effects on nature and that the traditional trade-off problem of economists has to be tackled in the future even more intensively: whether it is preferable to lower emissions now to avoid the future damages (mitigation) or to prepare the future generations to live with the consequences of global warming (adaptation). 2. Dynamics of mobility, transport and logistics Mobility and transportation are growing world-wide with high growth rates. Drivers are:
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– – – – –
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Growth of income. Growth of motorization. Cultural change and tourism. Reduction of transport cost and time. Industrial trends (world-wide distribution of workflows).
In some industrialized countries in Europe domestic passenger transport is stagnating, but this does not hold for the highly populated parts of the world at the threshold of industrialization, in particular for Latin America, China or India. While passenger transport development is influenced predominantly by income, freight transport activity is more linked to trade, which was growing almost at double rates compared with GDP. The world-wide growth rates are expected to be extremely high for aviation (4–5%) and container shipping (5–7%) in the next decade. For the EU (more precisely: the European Statistical Reference Areas, ESRA) the Eurocontrol Agency has estimated a growth of Instrument Flight Rules (IFR) traffic of 3.7% per year on the average until 2025, which means a doubling in two decades. The development of the railways has been modest in the past and will crucially depend on the willingness of the state to internalize the external costs and to provide fair market conditions for the environmentally more friendly transport modes. The development of High Speed Rail (HSR) connections between the major agglomerations can contribute to divert a part of domestic and short distance international air transport to the railways, which would dampen the growth of passenger air transport slightly. In Japan and West-Europe HSR is already well developed, while China has just started with implementing its ambitious plan to construct more than 8000 km of HSR.
3. External costs of transport External effects are unplanned interactions among economic agents, which are processed outside the market (not priced) and are detrimental to the dynamic economic efficiency because of generating wrong incentives. According to INFRAS/IWW (2004) external costs of transport consist of the following components: – – – – – – –
Uncovered costs of accidents. Costs of noise. Cost of air pollution. Cost of climate change. Change of nature and landscape. Detrimental urban effects. Up-stream and down-stream effects (production and disposal).
Furthermore, congestion externalities are mentioned in the literature, but these costs are external for the single user while internal for the transport system (road, rail or air) and therefore a case for improving efficiency within a particular transport sector. This means that congestion externalities signal the need of capacity extension and better management of the infrastructure.
Fig. 3. Average external costs of transport. Source: INFRAS/IWW (2004).
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All in all, external costs of transport are estimated about 7% of GDP in Europe for the year 2000 (INFRAS/IWW, 2004). This indicates that transport consumes a high amount of resources, which are not priced, as for instance human health, damages to biodiversities or impacts of climate change. The road sector is responsible for more than 90% of external costs of transport, while air transport counted for 6%. Railways contributed 2%, which is much less than their transport share. The average external costs of railways are 2.3 cts/pkm versus 7.8 cts/pkm for cars and 5.3 cts/pkm for aviation. In goods transport the respective values are 1.7/8.5/26.4 cts/pkm for rail/road/air transport (INFRAS/IWW, 2004). Corridor studies show that rail traffic is the mode, which minimizes social costs of traveling on medium distances (which are short distances from the viewpoint of aviation). Internalization of external costs would increase the competitiveness of railways on short distances compared to the car and on medium distances compared to aviation. The position of aviation with respect to external costs is heavily dependent on the evaluation of CO2 and other GHG. Fig. 3 shows that a low CO2 value (here: 20 Euro per ton of CO2) will lead to a very positive position of aviation on average. Using a value of 140 Euro per ton of CO2, alternatively, will completely change this picture. Looking at the segment of short distance flights, only, will also place aviation into a negative position. On long-distance flights there is no competition with other transport modes. On these distances air transport shows comparatively low specific rates of fuel consumption or CO2production, e.g. down to 3 l/100 seatkm (which would correspond to about 75 miles/gallon if a car were seated by one person). Comparisons with other transport modes are only meaningful on distances where competition may be expected, i.e. up to 750 km. Therefore the environmental problems of aviation on long distances cannot be solved by modal shift rather than by higher fuel efficiency of aircraft, better occupancy rates or reduced demand.
4. Transport and climate change Transport counted for 24% of the world-wide production of CO2 in 2003. For the OECD countries this share was even 29% (see ECMT, 2007). Again, road transport was the major source with 18%/23% for World/OECD, while aviation was responsible for 2%/3% of CO2-emissions. In the developed world the share of road traffic, aviation and waterway transport is even higher. In particular aviation has increased the CO2-emissions dramatically in the past 15 years. Taking the period between 1991 and 2003 these emissions have grown by 87% in the European Union. Furthermore, it has to be considered, that CO2-emissions make only 50% of climate gases produced by the aviation sector. Other components are water vapor, contrails or NOx. From this follows: the transport sector is a major source of the climate problem and will increase its relative contribution dramatically in the forthcoming decades. While OECD countries presently count for about 70% of transport induced GHG this percentage will drop in the next decades and the dynamically developing countries and the countries, which are presently at the threshold to industrialization (China, India, Latin America, South Africa), will take the lead. This indicates a basic dilemma of climate change policy: the industrialized countries are responsible for the problem of climate change, which the world presently facing. They have neglected climate effects since the industrial revolution and are responsible for the present threats, which reflect in the statement of IPCC at the Valencia meeting in November 2007, that reduction measures have to be started in the short run to limit the increase of world temperature to 2 °C. But in the longterm future the developing and the threshold countries will be the main accelerators for the problem (see Fig. 4). Therefore it is crucially important to integrate them into any form of climate policies from the beginning. There might be a natural inter-
Fig. 4. CO2-emissions of selected countries and world-wide. Source: IWR (2007).
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est of these countries to join common policies towards climate change because it can be shown by climate impact analysis that they will be hit substantially by the consequences of climate change. While other sectors like the production or the energy supply industries are starting to bring down CO2-emissions in the developed world, the transport sector still shows a substantial increase. Road traffic is the major climate problem of the transport sector, followed by air and maritime transport. Fig. 4 underlines that the economic dynamics is the main driver of energy consumption and CO2 production. The rapid growth in China is accompanied by a similar up-rise of GHG emissions and China has achieved the total emission level of the US by the end of 2007. Nevertheless the CO2-emissions per capita are quite different with 19 tons per year and per capita in the US and almost 5 tons in China. The relative position of the countries of the Former Soviet Union seems to have improved, which is mainly a result of the structural economic change after the breakdown of the socialist regimes. Also the decrease of CO2 emission in Germany is mainly due to the breakdown of old industrial structures of the socialist GDR regime and the industrial modernization after 1989. 5. Mitigation strategies There are general and transportation specific instruments to mitigate climate change. Carbon taxation for instance is a general instrument, which could be applied in a consistent way to all emitting sectors. However, there are already many country and sector based (partial) solutions such as fuel taxes or vehicle taxes differentiated by fuel consumption such that the existing taxation systems would have to be changed in many countries before introduction of a carbon tax. A second general alternative is the emission-trading scheme, which in its most general extension would be an open cap and trade system, for which the caps would be periodically adjusted according to the agreed reduction trajectory for CO2. Such a scheme has been introduced in the European Union for the power production and other industrial sectors in the year 2005, however with a delayed and restricted auctioning of emission allowances, such that the prices per ton of CO2 are still rather low. A world-wide system could start with an allocation of emission rights to the countries on a per capita base, which would take into account that different development levels of the countries. This might be an acceptable base for the developing countries, which would receive more emission rights than needed and could sell the excess stock of certificates. The countries could allocate the emission rights domestically by auctioning. Further variants of trading schemes are closed systems, within countries, sectors or even bottlenecks capacities within sectors. For example studies have been prepared for introducing a trading scheme for alp transit by road in Switzerland. All trading schemes can start from up-stream (production and distribution of fossil fuel), mid-stream (vehicle purchase) or down-stream (use of vehicles by consumers and transport industries). From the viewpoint of implementation an upstream system seems to be preferable because the number of trading agents could be limited in this case. The Kyoto Protocol leaves the possibility to achieve reductions of emissions by investments in developing countries through the Clean Development Mechanism (CDM) and the Joint Implementation. This policy can be extended by using the Global Environmental Facility (GEF) instrument, which has been established by UNDP, UNEP and World Bank. In general the CDM and GEF instruments have not been used extensively in the transport sector (see WCTRS and ITPS, 2003). Sector specific instruments apply only for the transport sector, as for instance – – – –
fuel taxation (special carbon tax), vehicle taxation based on CO2 production, user charges for infrastructure use with differentiation or mark-ups for CO2, and regulation and standards.
The disadvantages of such sector specific instruments are that (1) they cannot be controlled with respect to a global target1 and (2) it is not possible to find out an optimal design with respect to CO2 reduction (e.g.: equilibrate the marginal costs of damage and mitigation). The main advantage of these instruments is on the other side that they are widely available, easy to implement and to be applied already in the short run without waiting for international agreements. Some of these instruments are extensively applied, for instance fuel taxes in some European countries exceed by far the costs of fuel production (UK, Germany, Netherlands). But this only holds for particular transport sectors while other sectors are free of such tax burdens as it is the case in particular for international aviation and maritime shipping. 6. Example 1: limit values for cars In the EU there has been a heavy debate on the reduction of specific emission values of cars. The car manufacturers had promised by voluntary agreement to reduce CO2-emissions to 140 g/km until the year 2008. It turned out that this target could not be achieved by far, because the emission values 2007 exceeded 160 g/km. The DG Environment of the EU Commission decided, against this background, to set a reduction target of 120 g/km until the year 2012, as an average value for all newly licensed cars. The intervention of the German government lead to a change insofar as it was decided to allow for add1
The EU, for instance, has decided on a reduction target of 20% until 2020, which might be increased to 30% if major non-EU countries follow.
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Fig. 5. EU penalty scheme for CO2 emission of cars. 130 g limit: 120 g to be achieved through reduction of fuel consumption, 10 achieved through adding bio-fuel. Source: EU Commission, Zierock (2007).
ing bio-fuels in an order of magnitude, which leads to a reduction of 10 gCO2/km. Therefore the target for fuel consumption accordingly was set at 130 g/km. The question how to achieve this target led to the analysis of different strategies: – Enforce every car producer to achieve the target value with the car mix of its fleet. – Introduce a closed cap and trade system and trade emission certificates among car producers (mid-stream ‘‘standard and credit” system). – Define a reference curve for producers of cars of different size (defined in space or weight) and introduce a penalty (or bonus–malus) system – the favored solution by the Commission, see Fig. 5. The EU Commission suggests to introduce soft regulations on fuel consumption of the car fleet of manufacturers in 2012, which are followed by rigid rules in the year 2015, limiting CO2-emissions to 120 g/carkm in 2015 and restricting this limit to 95 g/carkm in 2020. The penalties foreseen can reach a magnitude of 95 Euros per gram of CO2 emission exceeding the reference curve. The reference curve allows the producers of bigger cars (e.g. vans) to deviate from the target, but less than proportional. Very fuel-efficient cars in the fleet can compensate for higher fuel consumption of others. The long transition phase of introduction allows the producers of high-powered ‘‘premium” cars to adjust their fleet. This is a result of successful lobbying of the German automobile industry which tried to avoid disadvantages compared with the French and Italian manufacturers, which on the average produce smaller and more fuel-efficient cars. Under status quo conditions the producers of big BMW, Mercedes or Porsche cars would have to pay between 3500 and 15,000 Euros per car, which might influence purchase decisions substantially, even in the market segments of premium cars (see Fig. 6).
Fig. 6. Development of CO2-emissions of aviation in EU 25. Source: EU Commission (2006).
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7. Example 2: integration of air traffic in the European Emission Trading System 7.1. Draft Directive of the European Commission Aviation counts for about 3% of CO2-emissions world-wide. As CO2 makes only about 50% of the total of greenhouse gases of aviation, one can double the above percentage and result in a relevant contribution. That means a priori: the argument that aviation is such a small player in the transport markets such that their emissions don’t matter does not hold. Furthermore, aviation is growing at a much higher speed compared with other transport sectors such that the emissions go up drastically. Figure shows that CO2-emissions of aviation went up between 1991 and 2003 by 87% although the event of 9/11 in 2001 has caused a stagnation for more than 3 years. It can be expected that the economic crisis will cause a slowdown of aviation growth for 3–4 years and after that the growth rates will go up again. Against this background discussion has started how to introduce incentives into the aviation sector to reduce greenhouse gases. The main difficulty is that taxation and charging of the aviation sector is internationally regulated by ICAO under the regime of the Chicago convention. Although the Chicago convention in principle presupposes mutual agreements among the member countries the EU has reserved the right to enact and apply market-based measures to all aircraft operators of all states which start/land on an EU airport. Basic condition is that the measures are free of discrimination. The European Emission Trading System (ETS) has been introduced in 2005 and includes energy producers and parts of the industrial producers as well as transport companies (e.g.: railways with own energy production plants). Emission rights have been allocated by grandfathering at the beginning, while in the second phase of ETS (2008–2012) 10% of the rights will be auctioned off. Full auctioning is planned to start in 2013. This is the reason why the price of the ton of CO2 is still very modest. But prices are expected to rise which is indicated by the rise of prices of the CO2 allowances (EUA), which are traded at about 16 Euros at the end of 2008 and 22 Euros for 2009 futures (1 EUA = 1 ton CO2). The European Commission has published a proposal in 2006 for integrating the aviation sector into ETS, starting in the year 2011. The reduction target has been set in a way that the emissions of the year 2005 should be left constant until the year 2020. This means that there will be no attempt to achieve the overall reduction target ( 20% to 30% compared to 1990) also in the aviation sector, because of the rapid growth of this sector. But the trend of the past according to which aviation grew with a rate of about 4% p.a. while the improvement of fuel efficiency was about 1%, only, would be changed significantly (see Table 1). The draft Directive was accompanied by scenario computations. The most relevant scenario was base on the following assumptions: – – – – –
all arriving and departing flights included, only CO2 included, no other greenhouse gas emissions of aviations, auctioning off 20% of the allowances, target to stabilize emissions at 2005 levels, and prices of a ton of CO2 set alternatively at 6, 15, 30 Euro.
As the prices of CO2-certificates are very low, presently, one would presume that the incentive effects for the aviation industry would be very modest. Therefore the Commission has constructed scenarios to study the effects of higher prices. It comes out that the price per ton of CO2 should be set at 30 Euro or higher to achieve a reaction of the industry. The latter will consist in the first instance in better occupancy rates, more fuel-efficient airplanes or more economic roundtrips. For
Table 1 Results of ETS/aviation scenario (% change compared with BAU scenario) Source: EU Commission (2006). Geographical coverage
Intra EU flights EU – all departing flights EU – all arriving and departing
Reduction by 2015
Reduction by 2020
%
Mt CO2
%
Mt CO2
36 36 36
31 77 122
45 46 46
44 115 183
Table 2 Mark-ups per ticket resulting from carbon trading in aviation. Per ticket costs
Arriving and departing flights in Euro
Short haul Medium haul Long haul
1.8–9.2 3.6–18.0 15.8–79.2
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instance, a flight of an Airbus 321–100 from Frankfurt to London would cause a CO2-production of 10.4 tons which would induce a CO2 cost of 312 Euro. Seated with 125 passengers this would result in a surcharge per passenger of 2.50 Euro. It follows from this that the effect on demand will be marginal, because only on very long distances the surcharge would become relevant for a passenger (see Table 2). The effect on cargo will be slightly higher. For the future these mark-ups might increase if the share of auctioned allowances goes up.
7.2. Directive 2008/101/EC The European Commission regards this Directive, published in November 2008, as a ‘‘top runner” model for aviation, hoping that other states follow. Meanwhile 15 other European states have joint this initiative. The ideas of the draft Directive, sketched above, are now specified more precisely and adjusted to the political feasibilities. The most important regulations are: All flights are included which arrive/depart at EU aerodromes, beginning with January 1, 2012. In the year 2012 the number of allowances equal 97% of historical CO2-emissions. From January 1, 2013 the number of allowances will be reduced to 95% of historical emissions. Further reductions will be decided for each subsequent period. The Commission will decide on the historical emissions of aviation by August 2, 2009. From January 1, 2013, 15% of allowances will be auctioned. This percentage may be increased as part of the general review of this Directive. The operators can use Certified Emission Reductions (CER; climate credits according to the Clean Development Mechanism of the Kyoto Protocol) and Emission Reduction Units (ERU; climate credits according to the Joint Implementation option of the Kyoto Protocol) to compensate for allowances, up to a volume of 15% of the total allowances. In each period a special reserve of 3% of total allowances is given for operators, entering into business and operators in the start-up phase, showing growth rates of 18% and more. This is limited to one mill. allowances. At least 15 months before the start of each period the Commission shall calculate and adopt a decision setting out: - The total number of auctioned. - The special reserve. - The number of allowances allocated free of charge. - The benchmarks to be used to allocate allowances free of charge to aircraft operators (in principle dependent on the fuel consumption of the aircrafts of the fleet). Third country measures to reduce the climate change impact of aviation can lead to compensation agreements (to avoid double charging).
7.3. Alternative instruments Although integrating aviation into ETS means a big step forward it will be by far not be sufficient to compensate for the different treatment of the transport modes in present taxation policy, even in a longer term. This causes market distortions on the competitive distances. A high-speed train from Frankfurt to London consumes about 70% less energy compared with an airplane per passenger. The CO2-surcharge for rail transport per passenger would be less than 1.00 Euro according to the actual values of the emission-trading scheme, dependent on the production mix of electrical power for the railways. But the railways – contrasting aviation on international routes – have to pay VAT, energy taxes and have to buy CO2-certificates for electrical energy production, in Germany. This makes about 11 Euro per ticket on the German part of the route from Frankfurt to London (considering a mix of first and second class passengers). At the end this results in the paradoxical situation that even after the internalization of climate costs the environmentally friendly railway mode would pay about four times higher taxes/emission charges although it produces less than one third of the climate costs, compared with aviation. It should be noticed that this rough calculation has not taken into account other climate gases of aviation, which would at least result in a doubling of CO2 equivalent emissions of aviation. Furthermore, the railways will have to buy auctioned allowances, beginning with 2013, for their consumption of electrical power. Aviation will only have to buy 15% of allowances from auctioning. This results in an internalization paradox: the railway mode, which is much more climate efficient than aviation, will have to pay the full climate bill while aviation only pays a moderate share. This makes a yearly cost disadvantage of several hundreds mill. of Euros for a big rail company like Deutsche Bahn AG and losses of modal share have to be expected. One can conclude that CO2 trading has to be embedded in a system of concerted instruments (investment, taxation, charging, regulation) to set the market incentives right for choosing the environmentally most efficient mode for the transport purpose. Another solution would be to reduce taxation (VAT, energy taxes) for the railways as it is practiced on many EU countries to avoid undesired counterproductive effects of emission trading. The European Aviation Industry had initially rejected the plans of the Commission. Strategy was to rely on the blocking of other countries, in particular the US, on the base of the Chicago convention. Meanwhile the position has changed because several reasons:
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– Aviation industry, EU Commission and member countries are pushing an initiative to improve ATS (air control system) substantially. Implementing the SESAR system in the context of the Single European Sky program would reduce CO2 by about 13%. Of course this would be accompanied by benefits for the air carriers through more stable and reliable flight schedules. – Participating in initiatives to reduce CO2 is positive for the image of the industry. The aviation industry might be interested in avoiding the trouble, which the automobile manufacturers have run into. – The pressure on ICAO increases after the change in US president’s office in January 2009. – The development of CO2 trading in Europe does not point to very high prices for CO2. Therefore the industry might eventually tolerate this emission trading as a least cost alternative compared with alternative instruments. 8. Conclusions The COP 14 UN Climate Conference2 was held in Poznan, December 1–12, 2008, to prepare the agenda for the negotiations on a successor agreement for the Kyoto Protocol. It is foreseen to negotiate on the basics of this agreement at the COP 15 UN Climate Change Conference in Copenhagen, to be held in November/December 2009. COP 14 has started and ended with critical comments of the environmentalists. A most critical balance was given with respect to the Kyoto achievements. The EU has achieved only 2.2% reduction instead of 8% compared with 1990, and the US (who have not signed the Kyoto Protocol) has even shown an increase of 14%. Political pressure will grow on more effective reduction policies and there is some hope that the US will be integrated in the global initiative. This would be the precondition to get the developing countries on board. One of the major achievements of COP 14 is the establishment of an Adaption Fund for the developing countries. However, no agreement was possible with respect to financing this fund by contributions of the industrialized countries. Insofar the conference was heavily influenced by the present economic and financial crisis, which makes it difficult for the parties to agree on long-term financial obligations. Some positive signals came from countries at the threshold of industrialization. China plans to reduce energy consumption per Yuan of GDP by 20% until 2010, compared with 2005. The Republic of South Africa has announced to stop the increase of greenhouse gases within 10 years. And the Brazil government promised to reduce CO2-emissions until the year 2017 by about five bill. tons by a stop of cutting or burning the rain forests. It seems that advanced developing countries are ready to willing to join in CO2 reduction policy because they realize that they will benefit from this policy in the long run, as well by better environmental quality/less environmental risk for their citizens as by becoming competitive on the markets for innovative CO2 saving products and services. While the road maps for the reduction policy and the intensity of instruments are still uncertain it is highly certain that more ambitious reduction targets will be decided at the following climate conferences. This will have consequences for the transport sector. This sector cannot be excluded from reduction policy with the arguments that mitigation measures might be more expensive – compared with other sectors – or that the growth rates are so high – as observed in the aviation sector in the past (see European Environmental Agency, 2008). There are good reasons to postulate that in the industrialized countries the transport sector can achieve similar percentages of reduction like the energy and industrial production sectors. In the developing world the rapid increase of CO2-emissions of the transport sector can be stopped within a limited range of time – take the example of South Africa. The aviation sector has been excluded until now from taxation and other carbon policies. One can expect that the forthcoming international post Kyoto agreements will mention instruments to include the international transport sectors into the reduction policies. There is some probability that carbon trading might be regarded as an appropriate internationally monitored instrument. The EU Commission has taken the role of top runner and put a Directive in place to include aviation in the emission-trading scheme (ETS). Some arguments support the expectation that the aviation industry will behave in a cooperative way and accept this policy. This is because it is rather unlikely that the mark-ups on the ticket prices will reach a high level in the medium term, which would negatively affect demand. On the other side, alternative state instruments would threaten the industry much more, and it is likely that such measures are considered if the carbon trading instrument will fail. Last but not least the aviation industry is interested in showing that they are improving substantially on their environmental performance to cultivate their image and prevent policy makers from taking more biting actions. References ECMT, 2007. Cutting Transport CO2-Emissions. What Progress? Paris. Edenhofer, D., 2007. Costs and strategies or climate stabilization. In: Presentation to the Symposium on Climate Change and Transport Strategy. Tokyo. European Commission, 2006. Draft Directive for Integrating Aviation into the Emission Trading Scheme. Brussels. European Environmental Agency, 2008. Climate for a Transport Change. Copenhagen. INFRAS/IWW, 2004. Facts on the Competition in the European Transport Market. Research Project for the UIC. Zürich and Karlsruhe. Intergovernmental Panel of Climate Change, 2007. Fourth Assessment Report on Climate Change 2007. Geneva. IWR, 2007. Internationales Wirtschaftsforum Alternative Energien. CO2-Ausstoß weltweit. IWR On-line. Münster. Nordhaus, W., 2007. The Stern Review on the Economics of Climate Change. Yale University, New Haven (CT 06511-8268). Stern Review, 2006. The Economics of Climate Change. Report to the Treasury. London. WCTRS and ITPC, 2003. Urban Transport and the Environment. Amsterdam. Zierock, K.H., 2007. Presentation on concepts for CO2 reduction policy. In: Rothengatter, W. (Ed.), Transport and Climate Change. Html version. Karlsruhe.
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COP: Conference of the Parties.