The Impact of Climate Change Policy on Competition in the Air Transport Industry

This paper examines how climate change policy can impact on competition, prices and profitability in the air transport industry. It begins with an outline of the climate change policies that have been suggested, and it gives particular attention to the inclusion of air transport in an emissions trading scheme (ETS).This is likely to prove an important policy direction, with the EU, Australia and New Zealand all planning to include air transport in their ETSs. The scope for airlines to reduce their emissions intensity in the short and long run is examined – it is concluded that the scope in the short run is quite limited. After this, the application of the emissions trading schemes of the EU, Australia and New Zealand to air transport is discussed, and the possible impacts on airfares are assessed. Allowance is made for the cost of permits for both direct and indirect emissions.