Aviation has an emissions problem. As an industry, both in the scope of its operations and the nature of its emissions, aviation has a significant effect on the environment. Despite this, aviation emissions remain largely unregulated and are increasing even as many other industry sectors decrease theirs.

If global aviation was a country its emissions would be ranked about 7th, between Germany and South Korea, on carbon dioxide (CO2) alone. At the same time, air travel itself continues to grow 4 - 5% per year.

International action

In October 2013, the Assembly of the United Nations aviation body, the International Civil Aviation Organisation (ICAO), reached a consensus agreement to proceed towards a global market-based mechanism when the Assembly meets next in 2016, to be implemented in 2020. It mirrors the approach taken by the United Nations Framework Convention on Climate Change and its Kyoto Protocol generally on climate change matters.

Design of any market-based mechanism

Five years out from the proposed start date, a plethora of design issues need to be addressed, including how it would be implemented, and whether liable entities would be airline corporations, or nations, or a curious combination of both.

In late 2013, ICAO released a report assessing the viability of various market-based mechanisms to address the aviation emissions problem. It contemplates three options - global mandatory offsetting; global mandatory offsetting with revenue and global emissions trading. One option is not there, but arguably should be: a tax.

A tax on aviation

In terms of policy instruments or systems to mitigate climate change – to increase the price of carbon, to limit emissions and to encourage the development of alternative energies – the more simple a system is, the more likely it is to work.

The question is whether to rely on quantity-based or price-based instruments. A quantity-based instrument is an emissions trading scheme, with the most common example a cap-and-trade system – such as those schemes which the Australian government has implemented or tried to implement. A less well known, and seldom taken up version of an emissions trading scheme, is a baseline-and-credit scheme.

A carbon tax imposes a fee for every ton of carbon produced. Put another way, a carbon tax imposes a fee on fossil fuels – coal, oil, natural gas – in proportion to the carbon they contain. Fuels which are more carbon-intensive (coal, for example) become more expensive under a carbon tax; solar becomes more competitive. A carbon tax would raise the price of fossil fuels.

Supporters of a carbon tax on aviation, both in isolation and as part of an emissions trading scheme, point out that taxes capture revenue more easily than quantitative instruments, and are less costly. Tax infrastructure is in place; pre-existing collection mechanisms exist. Taxation has lower administrative and compliance costs than does carbon trading.

Taxation is more direct and more transparent than emissions trading and provides price certainty and stability (as opposed to permit price volatility) by implementing a fixed price for carbon emissions across the airline industry.

The option of a tax on aviation would also be consistent with ICAO’s guiding principles for the design and implementation of market-based mechanisms for international aviation (including transparency, administrative simplicity and cost-effective implementation).

Any tax on aviation could take the form of a ticket tax or a departure tax or both. Specific fuel taxes are prohibited under the 1944 Chicago Convention on International Civil Aviation and most bilateral air services agreements.

Who will pay?

Regardless of whether ICAO members ultimately determine that a trading scheme or a tax is the preferred instrument to address the aviation emissions problem, the costs of both will be passed on to passengers. In ICAO’s 2013 report, it is estimated that in 20 years time, the cost of a market-based scheme would be about US$10 per seat for a flight of 12,000 kilometres and US$1.50 per seat on a flight of 900 to 1,900 kms.

The ICAO consensus agreement also reflected demands from developing countries to put more of the onus on industrialised countries overall to reduce aviation emissions. So depending on the nationality of the airline and the relevant route, some passengers will pay more, and some will pay less.

Under any market-based mechanism, then, some passengers will be more “equal” than others.

The authors do not work for, consult to, own shares in or receive funding from any company or organisation that would benefit from this article. They also have no relevant affiliations.