ABSTRACT
This chapter describes the application of an emissions trading scheme (ETS) to aviation, principally looking at the case of the European Union (EU) scheme. The overall objective of an ETS is to use the price mechanism to reduce greenhouse gas emissions, in the light of Kyoto and subsequent targets. The need for a global aviation mechanism to reduce emissions was recognised in the Kyoto Protocol but excluded from its targets. The chapter examines how an ETS has been applied to aviation, with particular reference to the EU scheme. The costs incurred by airlines as a result of the EU ETS can either be absorbed in reduced profits, passed on to the consumer in higher fares and rates or a combination of the two. The assumption on the cost of acquiring additional EU Aviation allowances or EUAs though auctioning or in the market has tended to be based on past market trends determined by the existing ground-based emitters.
