"Airlines Hit by E.U's Co2 Emissions Plan"

The draft proposal which will require all flights arriving or departing from EU airports to buy permits to cover their carbon dioxide emissions, will be presented just before Christmas, and is crucial to the community’s fight against global warning and climate change. The E.U. has incorporated pollution permits, in order to curb carbon gas emission, and slow down global warming, forcing international airlines to pay for the negative externalities they are causing during production. This means that the trans-national airlines have to pay for the vertical distance between SMC and PMC, so that they are paying the expenditure the society would normally have to sacrifice for, which can be seen in Figure 1.1, before the European Unions incorporation of pollution permits:

Fig 1.1: Before the Introduction of Pollution permits                             Figure 1.2: After the Introduction                                                                                   of Pollution permits

Figure 1.1 shows the situation clearly before the pollution permits were introduced by the European Union draft proposal. The problem undoubtedly being that the market was experiencing failure, as the global airline firms did not have to pay the cost they were causing the society by their carbon gas emissions. In Figure 1.2, the Private Marginal Cost (PMC) has shifted into the same position as the Social Marginal Cost (SMC)  was in Figure 1.1, as now the Airliners have to pay for the negative externalities they are causing, consequently leaving the society left without having to pay for the pollution the aircraft caused, and the negative externality being pollution, abolished. Also, the Private Marginal Cost has become sharper, as the company must now compensations in case it exceeds a certain amount of carbon gas emissions. This is an incentive for the company to either produce less or produce more eco-friendly. As a result, Figure 1.3 will arise, as the respective Airline Firm is now producing eco-friendly, and will not exceed the limits on its carbon gas emissions, furthermore will even be able to sell some of its excess pollution permits, to other firms who need surplus to cover their pollution.

Fig 1.3: During the Introduction of Pollution permits:

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        The problem is that it does not happen like this, and that in fact the limits on the emissions are far too large for there to be any effect, and David Henderson from the Association of European Airlines (AEA), "We could see another trade war," cited stiff opposition from the US several years ago against European plans aimed at reducing jet engine noise. A possible solution to the continuing problem would be further stringent regulations by the E.U., and possibly a solid example are, the airline emission controls would come under already existing European emissions trading scheme (ETS), which was launched in “2005 as the cornerstone of EU efforts to cut greenhouse gas emissions under the 1997 Kyoto Protocol.”

        An evaluation of the economic theory shows that the idea behind the pollution permits is very good, and that there are some advantages of using it in real-life. However, it does not work as smoothly as was initially planned. For one, international airline firms are able to evade paying for the pollution permits, by moving production to developing economies outside the E.U., who don’t have any regulations on the carbon gas emissions. The effects of this are that they pollute excessively in the new production environment, which has exactly the opposite effect to the desired one. This of course, shows that many alterations need to be undertaken for the European Commission draft proposal’s requirement of all flights arriving at or departing from EU airports to buy permits for their carbon dioxide emissions to work effectively. The E.U. will have to alter their plan slightly, which should be made more rigorous and binding to produce the desired plan, which is the slowing down of global warming, but also to combat the endless possibilities of negative externalities.