A win-win solution to abate aviation CO2 emissions

We evaluate incentives for airlines to abate emissions under the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA). We find that the scheme will not result in an efficient level of abatement and propose an additional measure that will incentivize in-sector emission abatement opportunities that cost less than the social cost of carbon (SCC). The proposed measure sets benchmark emission intensities (CO2 emissions per revenue ton kilometer) by route group and facilitates flexibility in meeting the benchmarks by allowing airlines to sell permits if they operate more efficiently than the benchmarks, and buy permits if they do not meet the benchmarks. The CO2 benchmark system could operate concurrently with existing measures to mitigate aviation CO2 emissions, will reduce the number of offsets needed to achieve carbon-neutral growth, and provide another (optional) lever to address fairness issues in climate regulations. Moreover, by providing a blueprint for other industries to price marginal emissions at the SCC, a CO2 benchmark system could preserve the ‘carbon budget’ for use by high-cost abatement industries such as the aviation industry.