Carbon dioxide emissions from aircraft are projected to triple between now and mid-century, even if substantial technology and operational improvements are implemented to make flying more energy efficient. Absent policy constraints, this explosive growth rate will use up a significant proportion of the Earth’s CO2 emissions budget if global warming is to be capped at 2°C. To help address the problem, the International Air Transport Association in 2009 set goals to achieve carbon-neutral growth after 2020, and to reduce aviation emissions in 2050 by 50 percent relative to the 2005 level. Toward that end, the industry agreed in 2016 to a market-based measure called the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA). Under the measure’s provisions, airlines are required during the 2021-2035 period to fund reductions in CO2 emissions in other sectors to compensate for aviation CO2 emissions exceeding the 2020 level through the purchase of carbon offsets.
While well-intentioned, the CORSIA is an inefficient measure for incenting the aviation industry to abate emissions in a timely manner, That’s because (1) under CORSIA’s offset obligation rules, airlines will derive limited cost savings from implementing abatement options that cost less than price of an offset; and (2) the offset price is likely to be significantly lower than the social cost of carbon (SCC), the dollar value of the total damages to society from emitting one ton of CO2 into the atmosphere, which further reduces incentives to abate emissions. This study advances its own solution: a carbon pricing system for international aviation that incents airlines to implement all CO2 abatement options that cost less per ton of CO2 emissions abated than the SCC. This would result in a “socially efficient” level of emissions abatement at which net social benefits—gains from avoided climate damages minus total abatement costs—are maximized, thus delivering a “win-win” for the aviation industry and the planet.