Impacts of the proposed EU-emission trading scheme on aviation : the good, the bad and the ugly

From 2012 on, all emissions from flights departing from or arriving at airports within the European Union will be covered under an Emissions Trading Scheme (ETS). Based on a simulation model and building on the now fixed system design, this research analyzes the economic and ecologic impacts of the ETS for the Lufthansa Group. The results show that while ecological effects are rather modest in the in the first years after the system introduction, the ETS will evoke much higher emis-sion reductions in the mid- and long-term. Notwithstanding, these ecological benefits come at the expense of increased financial burdens. The paper argues that the system will evoke a variety of strategic and operational implications at airlines in fields such as such as environmental monitoring, financial risk management, and marketing. Furthermore, the results indicate that the ETS is likely to cause competitive distortions and favor the redirection of traffic flows, leading to higher emissions and partly foiling the goals of the system