The impact of the European Union Emissions Trading Scheme on US aviation

We estimate the economic impacts on US airlines that may arise from the inclusion of aviation in the European Union Emissions Trading Scheme from 2012 to 2020. We find that the Scheme would only have a small impact on US airlines and emissions, and that aviation operations would continue to grow. If carriers pass on all additional costs, including the opportunity costs associated with free allowances, to consumers, profits for US carriers will increase. Windfall gains from free allowances may be substantial because, under current allocation rules, airlines would only have to purchase about a third of the required allowances. However, an increase in the proportion of allowances auctioned would reduce windfall gains and profits for US airlines may decline. (C) 2011 Elsevier Ltd. All rights reserved.