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The Environmental Impacts of Increased International Air Transport

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The paper discusses the environmental impacts of changes in international aviation activity - past trends and future perspectives. Minor modifications have been made to the paper in the aftermath of the Global Forum.
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Global Forum on Transport and Environment in a Globalising World
10-12 November 2008, Guadalajara, Mexico
















The Environmental Impacts of

Increased International Air
Transport






Past trends and future perspectives
Eric Pels of VU University, Amsterdam, the Netherlands




FOREWORD
This paper was prepared by Dr. Eric Pels of VU University, Amsterdam, the Netherlands, as a
contribution to the OECD/ITF Global Forum on Transport and Environment in a Globalising World that
will be held 10-12 November 2008 in Guadalajara, Mexico.
The paper discusses the environmental impacts of changes in international aviation activity – past
trends and future perspectives. Minor modifications have been made to the paper in the aftermath of the
Global Forum.
The views expressed are those of the author, and do not necessarily reflect the views of the OECD or
its member countries.











Copyright OECD, 2008.

Applications for permission to reproduce or translate all or part of this material should be
addressed to: Head of Publications Service, OECD, 2 rue André-Pascal, 75775 Paris Cedex
16, France


2



TABLE OF CONTENTS
FOREWORD ................................................................................................................................................... 2
THE ENVIRONMENTAL IMPACTS OF INCREASED INTERNATIONAL AIR TRANSPORT – PAST
TRENDS AND FUTURE PERSPECTIVES .................................................................................................. 5
1. Introduction .......................................................................................................................................... 5
2. Effects of deregulation of aviation markets in the U.S. and E.U .......................................................... 5
2.1
Aviation and the economy ........................................................................................................... 5
2.2
Airline network development ...................................................................................................... 6
3. Technological developments ................................................................................................................ 8
4. Environmental effects of aviation ....................................................................................................... 12
4.1
Growth and the environment ..................................................................................................... 12
4.2
Hub-and-spoke networks ........................................................................................................... 17
4.3
The effect of aviation on house prices ....................................................................................... 18
5. Conclusion .......................................................................................................................................... 19
REFERENCES .............................................................................................................................................. 21



3




4



THE ENVIRONMENTAL IMPACTS OF INCREASED INTERNATIONAL AIR TRANSPORT –
PAST TRENDS AND FUTURE PERSPECTIVES

1.
Introduction

1.
The environmental impact of air travel gets a lot of attention in the media as well as in the policy
debates. Air travel contributes to climate change, and causes environmental and economic damage by its
CO2, NOx, noise and other emissions. In economic terms, air travel causes external effects, which somehow
need to be accounted for in the price of air travel. A number of countries (e.g. the U.K., France and the
Netherlands) have therefore implemented a departure tax. But whether such a tax covers the environmental
cost of air travel, not included in the ticket price, is a difficult question. This leads to heated debates about,
for instance, the ticket taxes. Opponents of such taxes argue that a ticket tax is harmful for the economy,
while the effect on the CO2 emissions is questionable if passengers can easily switch to an airport in a
nearby country which does not levy such a tax.
2.
In this paper we review the literature on the environmental impact of aviation, discuss trends in
emission patterns, and see how the external cost of aviation is determined in various studies. Fuel
consumption and CO2-emissions grew 2 to 4% in the period from 1990-2004, and are expected to grow
further (Schlager et al., 2007). Next to the economic growth, we discuss technological and network
developments as determinants of aviation emissions. The purpose of the paper is to determine how
developments in the aviation sector in the last few decades have impacted on the environment, and what
this means for transport and environmental policy Global aircraft emissions influence the climate in
various ways. The Intergovernmental Panel on Climatic Change (IPCC) completed a report on the effects
of aviation on the global climate, and is a much cited reference in this field (Penner et al., 1999). Lee
(2004) reports that new insights indicate that the effects may be larger than reported by IPCC in 1999. This
is a technological issue that we do not touch upon in this paper.
3.
The paper is organized as follows. Section 2 summarizes developments in the aviation sector
since the Second World War. Section 3 discusses the literature on the environmental impact of aviation.
Section 4 concludes.
2.
Effects of deregulation of aviation markets in the U.S. and E.U
4.
This section discusses some historical developments in the aviation sector. These insights are
necessary to understand some of the environmental effects discussed in section 3, and to discuss the policy
implications.
2.1
Aviation and the economy
5.
Passenger numbers have steadily increased over the last decades. Table 1 below summarizes the
growth rates of the gross domestic product and air traffic measured in revenue passenger kilometres (RPK)
(Boeing Aircraft Company, 2007). In the past 20 years, the growth rate in revenue passenger kilometres

5


exceeded GDP growth. This pattern is expected to continue in the next 20 years. In Asia, growth in RPK is
relatively high compared to Europe and the U.S. because of the more rapid economic development. Many
researchers report a strong correlation between the growth rates of the gross domestic product and air
traffic measured in revenue passenger kilometres (see e.g. Doganis, 2001), so that the high expected
economic growth translates to high expected growth in demand for aviation services.
Table 1
GDP and Revenue Passenger Kilometres growth rates

North America
Europe
China
Southwest Asia

1987-
2007-
1987-
2007-
1987-
2007-
1987-
2007-
2006
2026
2006
2026
2006
2026
2006
2026
GDP growth rate
3.2%
2.8%
2%
2.1%
9.9%
6.6%
5.6%
5.7%
RPK growth rate
4.1%
4.0%
5.7%
4.2%
11.0%
8.0%
6.2%
6.9%
GDP-to-RPK multiplier
1.3
1.4
2.9
2.0
1.1
1.2
1.1
1.2
Source: Boeing Aircraft Company (2007).
6.
IATA reports that aviation contributed an estimated US$ 3.557 billion to the global economy in
2007; which was roughly 7.5% of world GDP.1 Air transport has a direct impact on GDP through the
airlines and all suppliers. But also air transport also impacts on the economy in the regions surrounding
airports. For instance, Button and Taylor (2000) find empirical evidence that areas surrounding U.S.
airports (hubs) that have attracted international air services (to the EU), retained or internally generated
relatively more employment than those without such services. Although additional gains tend to decline as
airports continue to grow, most national governments and operators of hubs find it important to acquire or
maintain a hub-status for their most important airport, as they consider this an important asset to the
economy. Economic growth stimulates aviation demand, but as we have seen above, airline network
developments also impact on aviation demand, and thus emission patterns. We therefore discuss this
further below.
2.2
Airline network development
7.
In the last two decades, the deregulation of aviation markets in the U.S. and E.U. led two
interesting developments in international aviation networks. As a result of concentration in international
aviation markets, large passenger flows fly indirectly, and therefore relatively long distances. In this
section we discuss the background of this trend, while in Section 3 we discuss the environmental impact.
8.
At the Chicago convention of 1944 the future of the international aviation markets was discussed.
It was decided that capacity and frequency were to be negotiated in bilateral agreements, and that and fares
were to be regulated by the International Air Transport Association (IATA). Airlines were limited in their
ability to compete.
9.
In essence, there was no market mechanism that would lead to economically efficient prices and
frequencies. As a result, costs were high and prices did not reflect demand. Customer preferences,
frequencies and routes operated had become a political issue rather than an outcome of market forces.
Already in 1960, the Economist wrote: “The basic trouble remains that the world has too many airlines,
most of them inefficient, undercapitalized and unprofitable”.
10.
Also within the United States markets were closed. The Civil Aeronautics Authority, later
renamed as the Civil Aeronautics Board (CAB), determined routes and regulated fares in the U.S. to
protect the carriers from “destructive” competition and protect consumers, while allowing airlines to obtain
a reasonable return on ticket sales. During the 1960s and 1970s it became more and more clear that
government regulations were too restrictive for the airline industry. In 1978 the Airline Deregulation Act

1
www.iata.org/pressroom/facts_figures/fact_sheets/economic_social_benefits.htm.

6



was passed. All restrictions on (domestic) routes, fares and schedules were to be removed. Increased airline
operating efficiency and competition were expected to benefit both airlines and passengers.
11.
Following deregulation of the U.S. aviation market, there was a large scale entry of new carriers,
followed by the rapid departure of almost all of them. Immediately after the deregulation, there were about
40 major carriers, while some 15 years later there were six or seven. It thus appears that competition did
not increase following the deregulation, albeit that fares decreased in real terms since the deregulation. The
decline in fares from 1976 to 1985 represented a savings of $11 billion U.S. to passengers in 1986 (Kahn,
1988). The disciplining effect of competition was, however, geographically unevenly distributed. Airlines
were free to operate their most efficient networks, and most airlines decided to operate the hub-and-spoke
network, which allows for the exploitation of density economies, and reduces fixed cost per link. The
number of competitors may have actually decreased on routes starting or terminating at a hub. On routes
between hubs and on long haul, connecting flights, there may, however, be fierce competition. These
developments meant that passengers in long-haul markets within the U.S., and in international
(intercontinental) markets often had to make detours; i.e. use indirect flights with relatively long flight
distances and two take-offs.
12.
The hub-and-spoke systems allow for the creation of so-called fortress hubs. Zhang (1996) shows
that airlines using hub-spoke networks may not have an incentive to invade each other‟s network, because
this may lower profits in the „original‟ network. Zhang uses the network depicted in Figure 1 to make this
point, where airline 1 uses H as a hub, serves AH and BH directly, and AB indirectly, while airline 2 uses
K as a hub, serves AK and BK directly, and serves AB indirectly. This network is not realistic since the
market between hubs is missing, but similar results are obtained when this market is included.
Figure 1 Network configuration

13.
When airline 1 invades markets AK and BK, the price decreases because of increased
competition. Airline 2 responds by increasing its output in the AB market; : lowers average costs on the
AK and BK links because of density economies. Airline 1 looses output in AB-market (airline 2 captures
part of the AB-market of airline 1), so that average costs on the AH and BH links increase. As a result,
flights ion the AH and BH markets get more expensive, and the number of passengers in these markets
decreases. Because output is decreased in the original network (HAB), the additional profits of the new AK
and BK markets have to be balanced against losses in the original network. When density economies are
strong (effects mentioned above are strong) and willingness-to-pay is high, attacking the network of airline
2 decreases profits for airline 1. Therefore, entry in competitor‟s network may lead to lower overall profits.
Instead, more often than not, airlines choose to enter alliance agreements rather than to enter a competitive
game. This means that in the 1980s and 1990s there was a geographical concentration of airline networks
around limited number of hub airports. Goetz and Sutton (1997) found that from 514 locations with one or
more regular connections in 1978, 167 locations lost these connections in the period until 1995. Only 26
new locations got regular connections, and connections to 77 locations were subsidized by the government.

7


Again, this implies that many passengers on long-haul or international flights necessarily fly on indirect
flights, resulting in relatively long flights.
14.
The deregulation of the E.U. aviation market was far more gradual compared to the U.S. case.
But the outcomes are similar. Many European airlines were state companies with radial networks. The
potential for transfer existed, but airlines did not fully exploit the possibilities offered by transfer traffic
(Dennis, 1998). A shift from the radial network to the hub-spoke network by a better timing of flights to
allow for more convenient transfers allows for the exploitation of density effects. Airlines with hub-spoke
networks did not invade each other‟s networks, and also in the E.U. there was concentration: some airlines
went bankrupt (Swissair, Sabena), while other airlines entered alliance agreements (the Air France-KLM
merger being the most far reaching). In the most profitable international markets (between Europe and the
U.S.), concentration becomes apparent through the formation of various alliances. Airlines enter such
agreements to exploit density effects and reduce competition. For international passengers, alliances can be
beneficial. Before alliances were created, European airlines had restricted access to U.S. destinations.
Following an alliance agreement with a U.S. partner, European airlines could offer far more destinations to
its passengers within the U.S. Again, such international passengers more often than not fly indirectly. For
instance, about 65% of KLM‟s passengers are international passengers transferring at KLM‟s hub
(Amsterdam airport, Schiphol).2 Thus, alliance agreements led to growth in international markets,
measured in passengers and in passenger-kilometres due to longer distances.
15.
A recent development is the agreement between the U.S. and the E.U. to form the Open Aviation
Area, which grants airlines from the U.S. access to E.U. markets, and vice versa. While it remains to be
seen whether there will be large scale entry by new competitors, it is evident that competition will increase
in certain markets where demand is very high (e.g. London-New York). American airlines are already
spending large sums of money to obtain landing slots at London Heathrow, where capacity is very scarce.
Other, less congested airports may be available, but such airports do not offer the status or extensive
number of connections and airlines offered by Heathrow. Furthermore, yields on flights from Heathrow are
on average higher than from alternative airports, because of the status of the airport, and the connections
with the City of London.
16.
To summarize, the deregulation of aviation markets led to the adoption of hub-spoke networks by
full service carriers. Such networks, and the formation of alliances that followed this development, caused
concentration in aviation markets. This concentration implies that networks of major airlines are centred on
the major airports, which face a large amount of traffic. Many international passengers fly indirectly via
these hubs, so that travel times and distances are relatively long. In the Section 4, we discuss the
environmental effects.
3.
Technological developments
17.
Two major innovations in air transport were the introduction of jet engines, which considerably
shortened travel times, and the introduction of wide-bodied aircraft, which gave airlines the opportunity to
reduce the cost per seat. Both developments reduced the generalised cost of travel, so that they had a
positive impact on demand.
18.
Jet engines allowed for much faster travel, although fuel consumption increased. When we only
consider the jet engines, the energy efficiency improved in recent decades (piston engines were more fuel
efficient compared to the early jet engines). IATA reports that fuel burn and CO2 emissions were reduced
by 70% per passenger-kilometre compared to 1970s (www.iata.org). The sector‟s goal for a 10%
improvement in fuel efficiency (and relative CO2 emissions) between 2000 and 2010 will most likely be

2
Source: www.klm.com.

8



met, while IATA forecasts a 25% reduction in fuel consumption per RTK between 2005 and 2020. Figure
2 shows that air transport may be as fuel efficient per kilometre as road traffic, as suggested by IATA. Two
remarks are in order, though. Firstly, aircraft emit CO2 and NOx at cruising altitude, which is close to the
tropopause (the transition between the troposphere and stratosphere). Depending on the cruising altitude,
emitted NOx can contribute to the production of the greenhouse gas ozone (troposphere) or the destruction
of ozone levels, which leads to increased UV radiation exposure (stratosphere) (Royal Commission on
Environmental Pollution, 2007).. IPCC reported that ozone increased at cruising altitudes for sub-sonic
aircraft, while predicted changes in UV-radiation are minimal (Royal Commission on Environmental
Pollution, 2007).
Figure 2 CO2 intensity of passenger transport

Source: Penner et al. (1999).
19.
Secondly, air travel in most cases covers far longer distances than road travel. Although one can
argue that because of these longer distances, the environmental impact of aviation is bigger, we need to
look at total passenger-kilometres. IATA reports that all modes of transport together account for 23% of
global CO2 emissions (www.iata.org). Road traffic accounts for the vast majority, 74%, of the transport
sector‟s CO2 emissions because of the sheer magnitude of road use worldwide. Air transport accounts for
12% transport sector‟s CO2 emissions; or about 3 to 4% of global carbon emissions (Penner et al., 1999).
Even though the availability of international air travel at low prices (i.e. low-cost travel and indirect
flights) can cause an increase in CO2 emissions, the ever-increasing demand for short-haul car trips (e.g.
for commuting) apparently causes an even higher increase in CO2 emissions. Finally, as we have seen
above, the concentration in the aviation markets caused an increase in flight distance and the need for two
landing and take-off cycles, which have different fuel burn rates (Pejovic et al., 2008), for many
passengers. Fuel burn during the take-off and landing cycle is much higher than during climb, cruise and
descent cycle, so that network configurations with indirect travel have a relatively large environmental
impact. Globalization can lead to an increase in demand for international air travel, which causes
environmental damage. Globalization and the changes in international regulations also allow for the
formation of alliances, so that the concentration in the aviation sector as discussed above continues, and
can lead to further damage because of the need for indirect travel.
20.
The environmental effects of growth in aviation may be mitigated by technological
developments, such as more efficient engines. In the literature, an increase in fuel efficiency of 70%

9


between 1960 and 2000 is often mentioned. Peeters et al. (2005) argue that the often cited 70%
improvement in fuel efficiency as reported by the IPCC (Penner et al., 1999) is somewhat optimistic
because it uses a De Havilland Comet 4 as the reference aircraft, while this aircraft was only used for a
brief period and gained little market share. If the successful Boeing 707 is used as the reference rather than
the De Havilland Comet 4, fuel efficiency improved by 55% rather than 70% over the same period.
Although the analysis of Peeters et al. (2005) confirms that jet aircraft fuel efficiency increased over time,
the authors also conclude that the research target for 2020 as mentioned by ATAG (2005), and based on an
annual reduction of fuel consumption per ASK on 3%, is probably too optimistic. Peeters et al. (2001)
point out that technological developments in the last decades were mostly made for small and medium
sized aircraft. Under the simple assumption that these aircraft are used in short to medium haul markets, it
then appears that in long-haul (international) markets there were relatively few gains. But newer aircraft
(the latest B777 and A380) now allow for gains to be made in international markets.
Figure 3 Fuel use per available tonne-kilometre

Source: adapted from Peeters et al., (2005).
21.
When we consider the fuel burn per available tonne-kilometre of a number of popular aircraft
(Figure 3), then it appears that smaller aircraft (in terms of passengers carried) have higher energy use,
although the number of observations is too small to find a reliable statistical relation.
22.
The adoption of hub-and-spoke networks meant that an increasing number of passengers was
concentrated on a relatively small number of links. Because larger aircraft are cheaper to operate per seat
(see Figure 4), airlines could reduce their cost. Moreover, if there are economies of scale in environmental
terms (see e.g. Schipper, 2004), meaning that an aircraft with 300 seats emits less noise or CO2 per seat
than two aircraft with 150 seats, as is suggested by Figure 3, larger aircraft also provide environmental
benefits.

10

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