Letter to IACO on Carbon Emissions

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.

2 thoughts on “Letter to IACO on Carbon Emissions”

  1. Joshua

    Yes, I also used to tick the $1 a tonne box in my airline bookings until I too figured that this was doing more harm than good. Greenwash extraordinaire.


  2. Joshua,
    Terrific blog. I too have been worried that I am not paying enough for airline travel. Like lots of Australians I try to fly Qantas when I can so I can just pay a little bit more for the ticket. My other big worry has been my meat eating habit. With the methane problem and all, I have been anxious that my meals are not costing enough. I’ve tried to do my bit by having the pound put down my dog because of its meat eating habit. The cat will probably have to be next. I’d really miss the budgerigar, but she is a seed eater and I just hope she will be okay. You know, I’ve tried to get across the big issues by looking at spreadsheets for the RICE and DICE models. They are so crammed full of wild guesses and assumptions that they overwhelm mere mortals. But wild guesses and hopeful assumptions are what lots of economists do, right? We all have to do more for the environment. It is great to see someone of your intellectual prowess out there on the frontlines raising the big issues.


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