I put my name this week to a letter organised by the WWF on airline emissions. Basically, while, in general, I am in favour of markets that allow meaningful offsets of emissions I am concerned that, in this instance, they do not appropriately offset the emissions generated (as evidenced by the very low costs associated with emissions offsets on airline sites). The emission offsets themselves have to be priced into the market in an appropriate way or there is the possibility of abuse. Apparently, I am in good company being worried that the cost of carbon will not be reflected quickly enough with current proposals.

As the ICAO Council and its technical committees develop the global market-based measure over the next few years, the biggest question they must face is at what level to price that risk. That is, how large an incentive is needed for economic agents to cut back on the production of emissions by an appropriate amount? The answer is that for all these agents—whether consumers, businesses, entrepreneurs, or investors—the level of the incentive should equal the expected present value of the discounted damages that may be created by the production of emissions. In other words, the right price for every amount of carbon emitted into the atmosphere should reflect the expected cost of these emissions to society as a whole, taking into account the risks that they create.

Economists refer to this value as the social cost of carbon. Several reputable studies have attempted to calculate the social cost of carbon. The Stern Review estimated it to be about US$85 per metric ton of carbon dioxide emitted into the atmosphere. The recently revised official US government value is $37 per metric ton.

Unfortunately, all available evidence suggests that many countries within ICAO and the aviation industry support a type of market-based measure, which would allow airlines to buy emissions offsets in order to meet an already weak 2020 carbon neutrality target. If ICAO adopts this approach, it would not bend the aviation industry’s total emissions downward and thus would fall short of being a meaningful policy. Such a market-based measure that fails to create appropriate incentives could set a bad precedent and would waste a significant opportunity to move the global climate response forward.

Basically, there hasn’t been enough innovation in airlines to give us confidence as opposed to ensuring people substitute away from airline travel (especially for meetings) in the short and medium term.