Aviation and the costs of the European Emission Trading Scheme: The case of Italy

The attention of policy makers on aviation environmental impacts has increased meaningfully over the last years. In order to limit the CO2 emissions in the transport sector, the EU has decided to include the aviation industry in the European Union Emission Trading Scheme (EU-ETS), from 1st January 2012 with the Directive 101/2008/EC.The aim of this paper is to provide an estimation of the direct costs linked to EU-ETS that the aviation sector is standing, reporting the case of Italy. In details, this work proposes a calculation of the EU-ETS direct costs that Italian airline companies under the scheme, afforded over the period 2012-2014. Then, it presents a forecast of the EU-ETS direct costs for the years 2015-2016, referring to three scenarios related to different hypotheses on emission permit price (low, medium, high bounded scenarios), and on pass-through of these costs onto final passengers. Finally, the paper measures the effects of these costs in terms of change in airfares, revenues, and social costs. The calculations are obtained by following an economic model designed by the authors, which can also be extended to investigate other sectors covered by the EU-ETS.