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Strategic reaction of airlines to the ETS

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  • Estelle Malavolti

    () (LEEA - ENAC - Laboratoire d'Economie et d'Econométrie de l'Aérien - ENAC - Ecole Nationale de l'Aviation Civile, TSE - Toulouse School of Economics - UT1 - Université Toulouse 1 Capitole - CNRS - Centre National de la Recherche Scientifique - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales)

  • Julien Jenvrin

    (LEEA - ENAC - Laboratoire d'Economie et d'Econométrie de l'Aérien - ENAC - Ecole Nationale de l'Aviation Civile)

Abstract

The air transport sector is about to enter the European Trading Scheme progressively in 2011. The regulation of the CO2 emissions means for airlines more costs and a modification of the organization of their market. Our paper proposes a precise model of nonetheless the regulation but also of airlines CO2 emissions. Our conclusions are twofold. Firstly, although profits are negatively impacted by the introduction of the ETS, a monopoly airline carries more passengers at a lower price. Two opposite effects are at play: the marginal cost increases as polluting becomes costly, which results in an increase of the price. However, there is a second effect that makes the price decreasing: the way the free allowances are given creates a bias towards more activity. We show that more activity is reached at the equilibrium. De facto, more CO2 is emitted. Nevertheless, we show as well that it is profitable for the airline to buy a new aircraft because the marginal cost decreased. Again more activity is reached at equilibrium but at the cost of less CO2 emissions.

Suggested Citation

  • Estelle Malavolti & Julien Jenvrin, 2010. "Strategic reaction of airlines to the ETS," Post-Print hal-01022229, HAL.
  • Handle: RePEc:hal:journl:hal-01022229
    Note: View the original document on HAL open archive server: https://hal-enac.archives-ouvertes.fr/hal-01022229
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    References listed on IDEAS

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    1. Anger, Annela & Köhler, Jonathan, 2010. "Including aviation emissions in the EU ETS: Much ado about nothing? A review," Transport Policy, Elsevier, vol. 17(1), pages 38-46, January.
    2. Stefan Baumgärtner & Frank Jöst, 2000. "Joint Production, Externalities, and the Regulation of Production Networks," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 16(2), pages 229-251, June.
    3. Miyoshi, C. & Mason, K.J., 2009. "The carbon emissions of selected airlines and aircraft types in three geographic markets," Journal of Air Transport Management, Elsevier, vol. 15(3), pages 138-147.
    4. Myles,Gareth D., 1995. "Public Economics," Cambridge Books, Cambridge University Press, number 9780521497695, May.
    5. Paul R. Portney, 2000. "Environmental Problems and Policy: 2000-2050," Journal of Economic Perspectives, American Economic Association, vol. 14(1), pages 199-206, Winter.
    6. Jean-Jacques Laffont, 1988. "Fundamentals of Public Economics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262121271, January.
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