Market-based options may provide opportunities to limit emissions from aviation at a lower cost and in a more flexible manner than traditional regulatory measures. This is in addition to the use of technical solutions and operational measures.

ICAO has been studying a range of economic measures including emissions trading, taxes and voluntary  commitments to complete greenhouse gas reductions. These market-based options  could have far-reaching effects on the aviation industry, primarily through potentially significant reductions in the demand for air travel.

Taxes and charges    

According to ICAO's definition, charges defray the costs of providing facilities and services for civil aviation whereas taxes raise general public revenues and are, therefore, applied for non-aviation purposes.

Some believe that the use of fuel taxes and/or emission charges would send a price signal that can change production and consumption patterns. But the environmental effectiveness of these instruments is highly uncertain, while the additional financial burden could easily disfranchise certain segments of society from affordable travel opportunities. Consequences could be especially critical for developing countries whose fragile economies and tourism activities often depend heavily on air transport.

In addition, the legal questions related to the application of fuel taxes and emissions charges are serious enough to constitute an important obstacle to their implementation.

Finally, the payment of additional fees would affect airlines' financial ability to renew their fleets and to take full advantage of the most modern aircraft and engine technology.

Emissions trading

Emissions trading is an instrument that enables companies exceeding their emission targets to buy allowances from other companies emitting less than their own targets. Already used as a voluntary measure in some regions and as a mandatory instrument for large ground activities in the European Union, emissions trading has been retained by ICAO as a more cost-effective measure than taxation.

ICAO guidance is under development for States wishing to apply emissions trading to aviation. The European Commission is expected to issue a directive around the end of 2006 to include aviation into the EU emissions trading scheme from 2010-2012.

The air transport industry has urged the European Commission to define the geographical scope of the aviation scheme with the view to minimising competitive distortion and to treating air transport in the same way as other sectors -- by limiting the scheme to CO2 emissions and in grandfathering/benchmarking initial emission allowances.

Voluntary  commitments

Measures that reduce or control emissions are considered "voluntary" when they are taken in the absence of regulatory obligations or when they exceed existing obligations. Strongly encouraged by policy makers, such measures are part of the partnership approach that ATAG has recognised as an important pillar of its global strategy.

Voluntary agreements have been concluded by governments and airlines in Japan and Canada, using the IATA fuel efficiency goal of 10% improvement between 2000 and 2010 as a guiding principle for further reducing aviation global emissions.