In the job of making air travel sustainable, it’s true that ICAO’s role may be restricted to trying to negotiate, among states, an agreement that would allow for the purchase and trading of some kind of emissions credits called market-based measures (MBM). That makes an interesting point of entry into the discussion for two reasons: we need to know why MBM are so important and we need to think about what MBMs don’t accomplish and what is being done about that.
It might be useful to think about some numbers: There is an ICAO resolution that sets out the aspirational goal of reducing unit carbon emissions from international air transport by 2% per annum out to 2050. Data over the last several years indicate that traffic growth is on the order of a nominal 5%. That trend is expected to continue an Airbus forecast is typical. If we net growth in traffic against aspirational goals in reducing emissions through efficiencies, we get a nominal forecast growth in air travel emissions of about 3% per annum, implying an increase in total annual rate of aviation emissions by a factor of about 2.8.
As mentioned in the previous post in this series, the aviation industry has two major goals: No increase in the absolute annual emissions after 2020, and a 50% reduction by 2050. If the un-remediated emissions trajectory sees a 2.8 fold increase and the airlines want a 50% decrease, something has to happen to reduce the amount of carbon emitted in burning a given amount of fuel to 1/5.6 or 18% of what it is now; rates of aviation emissions have to be brought down by 82%.
Now I would like to invite you to speculate: Total annual aviation carbon emissions are 705 million tonnes. The current market price for carbon permits is about USD 8.40/tonne. Real GDP is growing at a few percentage points per year. But let’s say that the issuance of new permits by jurisdictions that are coming on board for carbon pricing keeps pressure off carbon pricing for ten years. And let’s assume that even though the trend to reduce emissions is growing steadily. Now let’s assume that when we do start to see a rise in real carbon credit value (from 2025 in this case) it grows at only half the rate of GDP—say 2%. That puts the inflation adjusted 2050 spot price for carbon at about USD14/tonne. That would mean that the annual cost of buying carbon credits retail would be an inflation-adjusted USD10B, approximately. And that accounts just for the amount of flying and emitting that is going on now. Global industry profit during the past few years—some of the best years ever experienced by airlines—are running from USD18B to USD25B. That means that if the industry is matching near record margins again in 2050, any very modest carbon charge could be wiping out 40-55% of profit. In more average conditions of profit or loss and with more reasonable assumptions about growth in carbon price, carbon charges could make commercial flight overwhelmingly financially infeasible. If the increase in carbon price increase matches growth in GDP (and an even greater increase seems likely), carbon charges would be wiping profit clear off balance sheets even if the industry matches record financial performance every year in every other respect; there would not be any imaginable scenario where the industry could make any money at all.
In a post 2020 world where the commitment is for the industry to keep absolute emissions at least flat and then struggle to reduce them, the things that will allow any real reduction in unit carbon emission will still have gained only a relatively small hold: absolute real emissions will continue to rise in that period before they arc back down to 2020 levels and then continue to fall. Under that curve, there is the need to be able to buy carbon credits. But the hard truth is unassailable: real aviation emissions must fall. The actual greenhouse gas coming out of the tailpipes of airplanes must be accounted for in physical terms in the physical world on a life-cycle basis—accounting for them solely financially does not answer a single reasonable question that we could ask on this subject.