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This chapter considers the application of climate mitigation policies to the aviation sector with reference to the inclusion of aviation in the EU Emissions Trading System (EU ETS). Assessments of the possible economic impacts of including aviation in the EU ETS are reviewed and an impact analysis using the macroeconometric E3ME model is conducted.

The aviation sector is a significant and rapidly increasing source of GHG emissions. Because international policy measures have not been agreed, the EU has incorporated aviation in the EU ETS. It is therefore important to consider the possible economic effects of the ETS on the aviation industry and the wider economy.

The paper describes the approach used by the EU to include aviation in the EU ETS. Assessments of economic impacts have been made, but have often been limited in their approach. The paper complements the existing literature by including an economic analysis using the E3ME macroeconometric model of the EU that covers 41 industrial sectors including aviation.

Microeconomic and macroeconomic assessments show the economic impacts of including the aviation sector in the EU ETS are small. The negative impacts, if any, on EU GDP and the air transport sector’s economic output are less than 0.1% and 1% respectively. Distortions in competition, both between countries and industrial sectors, are therefore likely to be small.

In the long term (beyond 2020), including aviation in the EU can be seen as a positive move. If and when aviation is fully included in the EU ETS, and when the cost impacts of GHG emissions through permit prices are made evident, it is anticipated that airlines will start monitoring and reducing their GHG emissions by investing in new, less carbon intensive technologies.

Carbon leakage – where multinational enterprises (MNEs) transfer carbon-intensive production activities to countries with laxer emissions constraints for cost purposes – is one of the main mechanisms through which international business (IB) contributes to climate change. This chapter discusses a new policy initiative called the Carbon Border Adjustment Mechanism (CBAM) that the European Union (EU) introduced in May 2023 to fight carbon leakage. The authors analyze the logic of CBAM and discuss how it will likely influence IB both in industries that are directly targeted by CBAM and related industries that will face spillover effects.

European air transport policy, emerged through the confluence of case law and legislation, in four broad areas: liberalization, safety and security, greening, and the external policy. Following the implementation of the single market for air transport, policy shifted to liberalizing and regulating associated services and in recent years to greening, the external aviation policy, and safety and security. Inclusion of air transport in the Environmental Trading Scheme of the European Union exemplifies the European Commission’s proactive stand on bringing the industry in line with emission reduction trajectories of other industries. However, the bid to include flights to third countries in the trading scheme pushed the EU into a controversial position, causing the Commission to halt implementation and to give ICAO time to seek a global multilateral agreement. The chapter also discusses how the nationality clauses in air services agreements breached the Treaty of Rome, and a court ruling to that effect enabled the EC to extend EU liberalization policies beyond the European Union, resulting in the Common Aviation Area with EU fringe countries and the Open Aviation Area with the USA. Another important area of progress was aviation safety, where the EU region is unsurpassed in the world, yet the Commission has pushed the boundary even further, by establishing the European Safety Agency to oversee the European Aviation Safety Management System. Another important area of regulatory development was aviation security, a major focus after the woeful events in 2001, but increasingly under industry scrutiny on costs and effectiveness. The chapter concludes by arguing that in the coming decade, the EU will strive to strengthen its position as a global countervailing power, symbolized in air transport by a leadership position in environmental policy and international market liberalization, exemplified in the EU’s external aviation policy.

This chapter provides an overview of the current political regulations on aviation’s climate relevant emissions in Europe, Australia, and New Zealand and of the planned regulations in other parts of the world. In a next step, the cost impacts of most of these regulations on air freight will be quantified. This way, the economic impacts of environmental regulations on air freight can be estimated.

The main results indicate that cost impacts on air freight services induced by political measures for the reduction of aviation’s climate relevant emissions turn out to be small. This is true for both local emission charges on nitrous oxide (NO _X ) and hydrocarbon (HC) emissions which are in force at a number of European airports and the European emissions trading scheme for the limitation of CO₂ emissions.

Aviation is not only one of the key contributors to the economy and social structure of the world but it is also an industry whose environmental impacts are being closely monitored. Aircraft efficiency and technological advancements have significantly reduced aviation noise and emissions in recent decades. Nevertheless, as the need for passenger and freight transportation grows, the aviation sector is becoming a primary source of environmental issues and a significant driver of global warming. This chapter focusses on environmentally sustainable aviation with a net-zero emission target. It also highlights sustainable aviation policies and collaborative initiatives in the aviation industry to meet the 2050 net-zero emission goal. While the industry's efforts have increased opportunities recently, the industry has also had to face several challenges to achieve the net-zero aviation target.

Electric cars represent the most energy efficient technical option available for passenger cars, compared to conventional combustion engine cars and vehicles based on fuel cells. However, this requires an efficient charging infrastructure and low carbon electricity production as well. Combustion engine cars which were converted to electric cars decreased lifecycle CO₂-equivalent emissions per passenger-km travelled down to one third of before, when powered by green electricity. However, through an analysis of 78 scientific reports published since 2010 for life cycle impacts from 18 aggregated impact categories, this chapter finds that the results are mixed. Taken together, however, the reduced environmental impacts of electric cars appear advantageous over combustion engine cars, with further room for improvement as impacts generated during the production phase are addressed. When it comes to battery components, Cobalt (Co) stands out as critical. Assessing the impact of electric cars on the local air quality, they are not ‘zero emission vehicles’. They emit fine dust due to tyre and brake abrasion and to dust resuspension from the street. These remaining emissions could be easily removed by adding an active filtration system to the undercarriage of electric vehicles. If electric cars are operated with electricity from fossil power plants nearby, the emissions of these plants need to be modelled with respect to possibly worsening the local air quality.

The increasing trend towards sustainable development has seen a shift from ‘end of pipe solutions’ to the ongoing threat of pollution. Policy makers have come to accept the need for some form of inbuilt environmental standards to be included in any overall planning strategy. These shifts come in the wake of the Brundtland Report and the Rio World Summit. They have also shaped environmental policy. A central feature of this new thinking is the theory of ‘Ecological Modernisation’ (EM). Underpinning this debate are the theorists Janicke, Weale and Hajer, who have each contributed to the conceptualisation of EM as a feature of modern society. It can be argued that EM theory reflects a critical new positioning of the environmental debate, moving away from the periphery of social, cultural and political channels and becoming an important aspect of policy planning in these areas.

In February 2010, the US Securities and Exchange Commission (SEC) issued an interpretive release clarifying the information that registrants should disclose about climate change in their annual filings. Based on the industries the European Union targeted for its cap-and-trade carbon trading mechanism, this study investigates climate change disclosures for Fortune 500 firms operating in these same sectors. Using an equal-weighting scheme for content analysis of Form 10-Ks from 136 firms, we completed a comparative analysis on the extensiveness of climate change disclosures for the pre- and post-periods surrounding the SEC pronouncement. We observed a statistically significant increase in the disclosure of information related to climate change in 2010 compared to 2008, but no similar effect when comparing 2010–2009 reporting. There was a significant disclosure increase in 2009 compared to 2008. We conclude – based on a hypothesized anticipation of the SEC actually mandating climate change information in filings – that firms augmented their disclosures during 2009 in advance of the official guidance being published. This is a rather significant outcome given the historical lack of environmental disclosure subsequent to previous SEC mandates.

This chapter assesses the economic impact of geared turbofan (GTF) engines on the London Heathrow Airport (LHR)–Frankfurt Airport (FRA) route using cost–benefit analysis (CBA). An aircraft appraisal model is created to answer the two key questions of whether the A320neos aircraft with GTF engines could replace the conventional A320 aircraft through an operating lease (acquisition) or whether it would be better for society if the LHR–FRA sector is operated with a leased 737-800 aircraft. The scope of the CBA analysis is from 2015 until 2027.

The outcomes of the aircraft appraisal model indicate that switching to A320neos on lease (Option 2) might be beneficial. The fuel consumption of the A320neo aircraft is lower than that of the current A320-200 aircraft (2,234 kg vs 2,988 kg per sector). As a result, this option could offer a large benefit (NPV of USD 31 million) through lower fuel consumption and thus lower fuel costs. At the same time, a fuel reduction means a lower emissions impact (about USD 2 million benefit). It can be concluded that keeping the current A320-200 (NPV of USD 8.9 million) is less profitable than replacing it with a leased A320neo (NPV of USD 31 million) for Airline A, but better than a B737-800 (NPV USD 4.3 million). The option to lease the A320neos appears to be preferred in most cases, considering the impact of noise and NO_x cost, due to the large benefit of NPV USD 25 million compared to the A320 and an approximately 29 million difference compared with the B737-800.