sustainable aviation report 2011

8/7/2019 Sustainable Aviation Report 2011

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Report prepared with the support of Booz & Company


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The Policies and Collaborative Partnership for Sustainable Aviationreport was produced in February 2011 by the World Economic

Forum as a cross-industry report.

World Economic Forum, Geneva, Copyright 2011

The signicant contribution of Booz & Company is gratefully

acknowledged.

ditors

Thea Chiesa, Associate Director, Head Aviation, Travel & Tourism,

World Economic Forum

Ruth Densborn, Associate, Booz & Company

Project dvisor

Jrgen Ringbeck, Senior Vice-President, Booz & Company

The World Economic Forum would like to thank the following

organizations that contributed to this report:

Project teering board

Airbus

Air Transport Action Group (ATAG)

Bombardier Aerospace

Delta Air Lines

EmbraerEtihad Airways

Gulf Air

International Air Transport Association (IATA)

Lockheed Martin

Lufthansa/Swiss

Rolls-Royce

The World Bank

Participating form Partners

Air Transport Action Group (ATAG)

All Nippon Airways

Asian Development Bank (ADB)BP

Cathay Pacic Airways

Climate Change Capital

DHL

FedEx Express

IndEU Capital

Inter-American Development Bank (IDB)

International Air Transport Association (IATA)

Jet Airways (India)

Novozymes

Shell

Standard Bank

United Parcel Service (UPS)

ter ontritors and onsted rganizationsAirports Economic Regulatory Authority (AERA), India

Aquaow

Baker & McKenzie

Beyond Tourism

Bird Group (GGC)

British Airways

Camco International

Civil Air Navigation Services Organisation (CANSO)

Carbon Markets & Investors Association (CMIA)

DePaul University, International Aviation Law Institute

European Commission

Ignite Energy Resources (IER), New Zealand

International Civil Aviation Organization (ICAO)

JP Morgan Climate Care

Massachusetts Institute of Technology, Department of Aeronautics

and Astronautics

Nandan Biomatrix Limited

Solazyme

TCIXPS

The Climate Group

United Airlines

World Tourism Organization (UNWTO)

Disclaimer: Any errors in this report are the responsibility of the

authors. The views and conclusions expressed are not necessarily

those of the contributors and consulted organizations, or of the

World Economic Forum or its Partner companies.

We would also like to refer to the parallel World Economic Forum/

Booz & Company project on Repowering Transport, which

looked at energy use in the broader transportation sector includ-

ing land transport, maritime shipping and aviation. All gures

related to energy use, CO2

emissions and mitigation options for

aviation are consistent between the two projects.


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Executive Summary

Mobility and transportation interlink the global economy.Aviation is an important enabler for the trade of goods,tourism, services and the socioeconomic developmentof nations. Signicant growth of aviation is expected inthe next decades, especially in developing countriesin Asia (particularly India and China) and the MiddleEast. Aviation CO

2emissions currently account for

approximately 2% of total CO2

emissions and areexpected to grow signicantly with trafc growth.

With raising awareness of aviations CO2

impacton climate change, the global aviation industry

demonstrated leadership in 2009 by devising a strategyfor achieving aggressive CO2

emission reductionsthrough technological, operational and infrastructureimprovements, subject to government investmentin the aspects under government control and aregulatory environment conducive to aviation industryinvestment. Provided the necessary public-privatesharing is enabled, the industry committed to collectiveCO

2emission goals including an annual average

1.5% fuel efciency improvement through 2020, netcarbon neutral growth from 2020, and 50% net CO

2

emission reductions by 2050 compared to 2005 values. i

Meanwhile, ICAO, in its process of developing emission

goals for international aviation in its 37th Assemblyin October 2010, agreed on collective internationalaviation goals of an annual average 2% fuel efciencyimprovement through 2020 and aspirational goals ofan annual average 2% fuel efciency improvement from2021 to 2050, as well as considering carbon neutralgrowth from 2020.ii

Meeting these ambitious goals despite the anticipatedhigh aviation demand growth poses a signicantchallenge. The industrys 2050 goals, in particular,leaves an 85% CO

2emission reduction gap compared

to the business-as-usual approach, even thoughwhat is dened as business as usual in this caseassumes continual industry investment in more fuel-efcient aircraft to replace older aircraft and expand theworldwide aircraft eet to meet demand.

To allow the aviation industry to accommodate growingtrafc demand and at the same time reach its ambitiousCO

2goals through 2050, signicant additional effort is

required in a number of elds that have the potentialto further reduce aviations carbon footprint. The mostpromising carbon abatement levers in aviation areinfrastructure improvements, additional R&D especially

for radical new aircraft technologies and in particularaviation biofuels. Global market-based measures,such as emissions trading and offsetting, may beuseful to complement the foregoing. To overcome theimplementation challenges, a set of opportunities existin the areas of policy, partnerships and nancing as wellas information and education. Signicant leadershipopportunities need to be taken by the industry to reachthe CO

2goals.

Positive incentives (e.g. scal) are seen as having themost potential to increase investment in reducing

carbon in the aviation industry. Incentives should betargeted at the best investor in emission reduction inthe value chain. Green levies and taxes currently inimplementation or discussion in a number of countriesare not seen as viable options to achieve the industrysCO

2reduction goals. Levies and market mechanisms

take money out of the industry without signicantemission reduction effect, if the money raised is notreinvested in CO

2emission reduction projects, and the

industry has fewer funds available to invest in emissionreduction measures. For any measures geared towardsmarginally decreasing air travel (e.g. through increasingprice), the potential negative macroeconomic effects

on gross domestic product (GDP) and economicdevelopment must be considered.

The most promising leadership opportunities identiedfor the industry to pursue are:

viation inrastrctre: Information and educationof policy-makers on the criticality and urgency ofimplementing aviation infrastructure improvementson the air trafc management (ATM) and airport level

dditiona aircrat &: Work with policy-makersto develop nancial and legal incentives to increase

investment into incremental R&D for radical newaircraft technologies

viation ioes: Work with policy-makers todevelop nancial incentives, legal incentives andstandards, and to drive vertical partnerships withstakeholders along the entire biofuel value chain

Market-ased measres (MbM): Actively engageand support governments working with ICAO in thedevelopment of a global sectoral MBM approachfor aviation through partnerships with experts fromthe carbon nance community, and ensure that anymeasures that are developed focus on incentivizingthe parties best placed to make the CO

2

abatementinvestment


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The industry must further engage in currently ongoingpolicy discussions regarding the regulation of aviationCO

2at the international and national levels, particularly

with respect to proposals to include aviation innational or regional emissions trading schemes, thedevelopment of a sectoral MBM approach throughICAO and proposals that the aviation industry contributeto the United Nations Framework Convention onClimate Change (UNFCCC) Green Climate Fundto support developing countries in climate changemitigation and adaptation.

The Forum hopes this report will support a widermultistakeholder dialogue among industry, governmentstakeholders and non-governmental communities tobuild a practical enabling environment that is conduciveto catalysing a step change in private and public sectoraction to decrease aviation CO

2emissions, develop

and deploy revolutionary new technologies, and providesustainable investment choices at scale and speed.


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Table of Contents

Table of Figures

1 Introduction 7

2 Project Approach 8

3 Socioeconomic Importance and Competitiveness of Aviation 9

4 Aviation Demand Growth Discloses Gap to Industry CO2

Targets 10

5 Carbon Reduction Potential of Key CO2 Abatement Levers 12

6 Estimated Cost of Implementation of CO2

Abatement Levers 14

7 Opportunities to Accelerate Aviations Move to Lower Emissions 15

7.1 Policy Options 15

7.2 Partnership Options 20

7.3 Financing Options 21

7.4 Information and Education Options 22

8 Road Map for Sustainable Aviation Growth 23

8.1 Aviation Infrastructure 23

8.2 Additional R&D for New Aircraft Technologies 24

8.3 Aviation Biofuels 25

8.4 Market-based Measures (Emissions Trading, Offsetting) 29

9 Conclusion 31

10 Appendix 32

Assumptions of Scenario Analysis

Project Partner Survey Results 34

Deep Dive Sustainable Aviation in India 35


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Figure 1: Evaluation Framework 8

Figure 2: Air Trafc and CO2

Emission Forecast versus Industry CO2

Targets (2010-2050) 10

Figure 3: CO2

Abatement Potential of Levers 12

Figure 4: Cumulative CO2

Abatement Potential until 2050 13

Figure 5: Examples of Recent Successful Financial Incentives in Other Industries 16

Figure 6: Examples of Successful Standards in Other Industries 17

Figure 7: Examples of Recent European Ticket Levies 18

Figure 8: Examples of Current and Planned ETS Schemes 19

Figure 9: Financing Options by Stage of Development 21

Figure 10: Examples of Climate Change Engagement of MDBs 22

Figure 11: Aircraft Technology Policies by Stage of Development 25

Figure 12: Biofuel Policies by Stage of Development 27

Figure 13: Biofuel Financing by Stage of Development 28

Figure 14: Examples of PE Investors Engaging in Biofuels 28

Figure 15: Studies Referenced in FESG CAEP8 Report for 2050 RPK Forecast 32

Figure 16: Overview of Radical New Aircraft Technologies 33

Figure 17: Project Survey Results 34

Table of Figures


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1. Introduction

The World Economic Forum is an independent,international organization integrating business,political, intellectual and other leaders of society intoa community committed to improving the state of theworld. The Forums Industry Partners have addressedclimate change topics since 2005. The Climate ChangeInitiative in 2010 engaged stakeholders in building apractical framework of action based on the outcomes ofthe United Nations Climate Change Conference 2009 inCopenhagen (COP15).

Emissions from international aviation were excluded

from the national United Nations Framework Conventionon Climate Change (UNFCCC) negotiations, and themandate for developing a regulatory framework foremissions from international aviation was assignedto the International Civil Aviation Organization (ICAO),a specialized UN body. In this context, the ForumsAviation, Travel & Tourism Industry Partnershipcommunitys 2010 Policy and Collaborative Partnershipfor Sustainable Aviation initiative facilitated amultistakeholder public-private dialogue.

The objective of the project was to identify supportivepolicy frameworks, innovative partnerships, nancing,

and information and education approaches to helpthe aviation industry reach its voluntary CO

2emission

reduction goals while supporting sustainable growthand minimizing competitive distortion.

The project integrated stakeholders from theaviation industry, international organizations, industryassociations, nancial institutions, development banksand academia, as well as select experts and non-governmental organizations (NGOs).

The overall conclusion of the report is that, in order

to achieve the aviation industrys ambitious emissionreduction goals, industry and governments will needto collaborate to ensure the implementation of thekey CO

2abatement levers aviation infrastructure

improvements, technology research and development,and aviation biofuels is driven forward and supportingpolicies are put in place. Positive incentives (e.g. scalincentives) are seen as having a higher potential toincrease investment in reducing carbon in the aviationindustry than green levies and taxes, which are currentlybeing implemented or discussed in different countries.In regard to the development of market-basedmeasures (MBM), also, the expected negative effectson the industry and the wider global economy have tobe taken into account. Such measures would lead to amoney outow from the aviation industry, which couldlead to less investment in CO

2emission reduction within

the industry and thus could have a seriously negative

long-term effect on the CO2 footprint of the aviationindustry. Besides policies, partnerships and nancing,information and education of stakeholders, especiallygovernments, are critical to drive forward emissionreduction.

The World Economic Forum will continue to facilitatethe necessary multistakeholder dialogue with a focus onbiofuels in 2011.


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This report has been assembled as a result of theForum 2011 Policy and Collaborative Partnership forSustainable Aviation project. It was developed withthe support of Booz & Company and based on a widerange of inputs, including a detailed CO

2baseline

model until 2050 with different technology scenariosbased on previous industry analysis, a literature reviewof published studies, an expert survey, and input frommultistakeholder discussions with involved industrypartners, associations, NGOs and academic experts(for a list of involved and consulted organizations seeSection 1).

After a review of the socioeconomic importance ofthe aviation industry, aviations expected growth inthe next decades was analysed based on differentexisting studies and previous projections. In particular,the carbon model developed and generously sharedby IATA was extended to 2050. The extendedforecasting was based on industry analysis, ICAOFESG (Forecasting and Economic analysis SupportGroup) forecasts, Manchester Metropolitan University(MMU) forecasts, etc. The resulting CO

2baseline was

compared to the long-term CO2

emission goals thatthe aviation industry committed to in June 2009 prior tothe COP15 climate change negotiations. In the contextof the emerging gap between the CO

2baseline and

the collective industry goals, different scenarios weremodelled to analyse the potential of all identied CO

2

emission abatement levers to help the aviation industryreach its targets. The emission abatement leversanalysed were: Operations Improvements, Infrastructure

2. Project Approach

Improvements, Additional Research and Technologyfor Airframes and Engines, Early Aircraft Retirement,Biofuels, CO

2Emission Reduction in Other Sectors

through Emissions Trading and Offsetting, and LimitingAir Trafc Growth.

The project then evaluated which opportunities existin general in regard to policy, partnership, nancing,and information and education that could support theimplementation of the abatement levers.

Finally, the project evaluated the CO2

abatementlevers with the highest carbon reduction potentialand the largest need for multistakeholder involvement namely, Infrastructure Improvements, AdditionalResearch and Technology for Airframes and Engines,Biofuels, and CO

2Emission Reduction in Other Sectors

through Emissions Trading and Offsetting againstthe framework of which different policy measures,partnerships, nancing mechanisms, and informationand education opportunities could best support theimplementation of these abatement levers.

The framework utilized and presented below (seeFigure 1) was applied in all multistakeholder meetings,interviews, and the conducted expert survey (for resultsof expert survey, see Appendix).

A deep dive with a special focus on India is included inthe appendix, based on an in-depth meeting held at theWorld Economic Forums 2010 India Economic Summit

(see India deep dive inAppendix).

figre 1: vaation framework


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3. Socioeconomic Importance and Competitiveness

of Aviation

Mobility and transportation interlink the global economy.Aviation is an important enabler for the trade of goods,tourism, services and the socioeconomic developmentof nations. Besides connecting people, increasingchoices and creating additional business opportunities,aviation is also important for defence, political,peacekeeping and humanitarian concerns.

Approximately 2 billion people and more than 43 milliontons of freight (35% of exported goods by value) iii aretransported by aviation. Many nations, such as remoteisland states (e.g. in the Caribbean) and countries in

Africa depend highly on aviation. For many countrieswith vast surface areas, such as the United States,China and Russia, a signicant percentage of domestictransportation is based on aviation.

The aviation industry signicantly contributes toGDP and employment. In 2007, the aviation industrycontributed US$ 426 billion to global GDP directly,as well as an additional US$ 490 billion indirectly andUS$ 620 billion through induced and catalytic effectsin tourism this does not yet cover other additionalcatalytic effects (e.g. from trade). The direct, indirectand induced contribution represented 2.3% of GDP.

Including catalytic effects from tourism, contribution ofaviation equalled 3.2% of GDP. Aviations contributionto employment equalled 5.6 million jobs directly and 33million jobs in total, including direct, indirect, inducedand catalytic jobs. Value added per employee is fourtimes higher in aviation than in the economy overall. For2026, GDP contribution is expected to rise to US$ 973billion directly and an additional US$ 1.1 trillion indirectly,and 1.5 trillion through induced/catalytic (tourism)effects.iv Moreover, a study conducted by FrontierEconomics showed that the aviation industry generateshigher net benets than other comparable sectors. Net

benets in terms of gross value added to the UnitedKingdoms national GDP relative to CO

2emissions were

estimated at approximately GBP 175 per ton of CO2for aviation, approximately GBP 160 per ton of CO

2for

road transportation, and approximately GBP 60 per tonof CO

2for the energy sector.vOnly limited opportunities

exist to replace aviation with other means of transport,such as high-speed trains or shipping, becausepassenger journeys over 1,500 km, with no practicalalternatives, account for 80% of aviation emissions.vi

The negative macroeconomic effects of reducedaviation activity reach far beyond the travel-relatedsectors. This became visible in spring 2010, when the

shutdown of a large part of the European airspace dueto an ash cloud cost the European economy around 5billion, according to IATA. Due to the obvious negativemacroeconomic effects, the CO

2abatement lever

limiting air trafc growth was excluded from furtherdiscussion in this report.

The highly regulated nature of the aviation sectorsubjects its players to a series of national andinternational restrictions that prevent meaningfulconsolidation and capacity sharing at the internationallevel and have been cited as leading to over-capacity,downward pressure on fares, and consequently

unprotability.vii

Airlines historically have not generated high enoughreturns on assets and invested capital, and their protmargins have been insufcient to cover their cost ofcapital. In recent years, the sector has faced increasedeconomic difculties due to volatility from global crisisevents like 9/11, Severe Acute Respiratory Syndrome(SARS), volcanic ash clouds, and the nancial crisis thatled to limited access to credit.

In light of the above, any aviation sustainabilitydiscussions must be conducted in the context of the

global socioeconomic importance of the industry andthe existing economic realities of the industry.


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The aviation industry has a long historic track recordof fuel efciency gains and thus carbon reduction.While aviation trafc more than doubled over the last20 years on a revenue passenger kilometre basis,CO

2emissions grew only 50% during the same time

period, which represents fuel efciency improvementsof approximately 1.5 to 2% per year, or a reductionin total energy intensity of over 60% since 1970.Fuel efciency improvement is a key motive for theaviation industry due to high and further rising fuelcosts. These achievements should be recognized asthey demonstrate the industrys willingness to take

leadership and action on the matter of fuel efciencyimprovement and emission reduction.

Aviation emissions currently account for approximately2% of total CO

2emissions.viii However, signicant

aviation demand growth is expected for the future, withhighest growth rates in Asia (particularly China andIndia) and the Middle East. Growth is mainly driven byGDP growth, which currently equals 8.7% per year fordeveloping Asia, including China and India, despite thenancial downturn.ix

Increased GDP is enlarging the middle class of thesecountries that has the disposable income to spend

in travel- and tourism-related activities. The AsianDevelopment Bank observed that Asias consumers

4. Aviation Demand Growth Discloses Gap to

Industry CO2

spent an estimated US$ 4.3 trillion in 2008, whichrepresented one-third of OECD (Organisationfor Economic Co-operation and Development)consumption expenditure, but will spend US$ 32 trillionby 2030, which would represent 43% of worldwideconsumption.x

The aviation baseline analysis undertaken in this project(see Figure 2) shows that, while demand for passengerand cargo is projected to grow by 4.5% per year, from540 billion revenue tonne kilometres (RTK) to 3,000billion RTK from 2010 to 2050 (4.5% growth per year),

CO2 emissions will grow at a lower rate of 3% per year(from 630 million tons in 2010 to approximately 2,000million tons in 2050).This CO

2Base Case calculation assumes industry

eet improvements to replace old aircraft and coverdemand growth with newer more fuel- and CO

2-efcient

aircraft, resulting in approximately 1.5% fuel efciencyimprovement of the overall in-service eet per year.Thus, the Base Case assumes signicant investmentby airlines in aircraft with lower CO

2proles, including

the introduction of more than 70,000 new aircraftfrom 2010 to 2050 at an estimated cost of more thanUS$ 6 trillion.xii With growing aviation demand and

public awareness of aviations CO2 impact on climate

figre 2: ir rac and 2

mission forecast verss ndstry 2

argets (2010-2050)


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change, in June 2009, the global aviation industrydemonstrated leadership by devising a strategyfor achieving aggressive CO

2emission reductions

through technological, operational and infrastructureimprovements, subject to government investmentin the aspects under government control and aregulatory environment conducive to aviation industryinvestment. Provided the necessary public-privatesharing is enabled, the industry committed to collectiveCO

2emission goals including an average 1.5% fuel

efciency improvement per year through 2020, netcarbon neutral growth from 2020, and 50% net CO

2

emission reduction by 2050 compared to 2005 values.Meanwhile, ICAO, in its process of developing emissiontargets for international aviation in its 37th Assembly inOctober 2010, agreed on international aviation targetsof an average 2% fuel efciency improvement per yearthrough 2020 and aspirational targets of an annualaverage 2% fuel efciency improvement from 2021 to2050, as well as considering carbon neutral growthfrom 2020.xiv

Meeting these ambitious goals despite the anticipatedhigh aviation demand growth poses a signicantchallenge. The industrys 2050 goal, in particular,

leaves an 85% CO2 emission reduction gap comparedto the Base Case (see above), despite signicant,continuous industry investment in newer, more fuel-efcient aircraft. As such, the gap between estimatedBase Case emissions of approximately 2 billion tonnesand the industry target of 330 million tonnes in 2050would equal almost three times todays total aviationCO

2emissions of approximately 630 million tonnes.

In this context, signicant additional measures andcollaboration of the industry and governments arenecessary to achieve the goals and enable sustainabledevelopment of the aviation industry.


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A number of levers that could enable the aviationindustry to further reduce its CO

2emissions beyond

the anticipated reductions from eet improvements athistorical rates (Base Case, see Section 3) have beenidentied and analysed by the industry. Levers directlyrelated to the aviation industry include operationsimprovements on the air trafc management side(continuous climb, continuous descent approach,direct routes, virtual taxi queues, speed control incruise for terminal congestion) and the industry side(improved fuel management, reduced weight of seats,centre of gravity optimization, optimization of loadfactors), infrastructure improvements [e.g. performance-based navigation, such as Single European Sky ATMResearch (SESAR) or NextGen; improved airspaceredesign, especially in China, Russia, and Europe;airport infrastructure improvement], additionalresearch for aircraft technologies including radical newtechnologies, early aircraft retirement, and aviationbiofuels. In recognizing the time factor needed for theimplementation and rollout of many of the identiedlevers, the industry is conscious of the possibility ofgovernments imposing market-based measures (MBM)that would factor in emission reductions in other sectorsby permitting aviation to trade credits with or offset itsemissions in those other sectors.

In this context, the project conducted a detailedstrategic scenario analysis on the potential of thedifferent CO

2abatement levers (see Figure 3). The

analysis was developed based on the extension ofprevious industry analysis to 2050 (see Figure 4) toallow for direct comparison with the targets. In additionto passenger and cargo trafc, emissions from smallerbusiness aircraft have also been considered.xv

5. Carbon Reduction Potential of Key CO2

Abatement Levers

The analysis highlights that, to achieve its CO2 reductiontargets, the industry and other relevant stakeholders,such as national and regional governments, need toimplement a combination of the levers identied. It alsohighlights those that are the most important to makethe step change for the industry.

perationsxvi improvements, including improved fuelmanagement, continuous descent approach, reductionof cabin weight (e.g. through use of lightweightseats), and centre of gravity optimization, need to beimplemented by airlines. Operations improvementsare partly dependent on infrastructure improvements

(e.g. technical infrastructure required to implementcontinuous descent approach). The Collaborativestakeholder Decision Making (CDM) approachsupported by ATM infrastructure can help optimizecompeting airlines use of constrained resources.CDM efforts are part technology and procedures,and part policy agreements on equitable sharing ofconstrained resources. Virtual taxi queues that keepaircraft from burning fuel waiting on taxiways are a goodexample of CDM. The industry is already acceleratingimplementation of operations improvements throughbest practice sharing (e.g. through IATA Green Teamsand ICAO Circulars).

nrastrctrexvii improvements, including ATMimprovements like NextGen in North America andSESAR in Europe, are critical and urgent. Theimplementation of these measures is important toimprove or at least maintain current operationalefciency levels with forecasted demand growth. Itshould be noted, however, that the implementationof these measures will result in CO

2efciency

improvements in the period of implementation and early

figre 3: 2

atement Potentia o levers


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figre 4: mative 2

atement Potentia nti 2050

years thereafter. These measures will continue to benet

the industry long term; however, they will unlikely lead tofurther long-term CO

2efciency gains, considering the

high expected demand growth.

ncrementa researc or radica new aircrattecnoogies, such as, for example, blended wingbody airframes and open-rotor engines, could furtherincrease fuel efciency beyond the 1.5% fuel efciencyimprovement per year, which industry technologyexperts anticipate to be achievable through gradualimprovements of existing technology. In the expertdiscussions, it was estimated that additional investmentin research for radical new aircraft technologies today

could lead to an additional fuel efciency improvementof aircraft types that will be introduced to the marketfrom 2030 by approximately 10% (in addition to thefuel efciency improvements derived from gradualimprovement of current technologies already anticipatedin the Base Case (see Section 3).

ary aircrat retirement optionsxviii, such as agovernment-supported early aircraft retirementprogramme, could have the potential to accelerateeet CO

2efciency improvement. The graphs (Figure

3 and Figure 4) show the CO2

abatement that couldbe achieved with a continuous retirement of all aircraftof age 20 and above and replacement with the most

efcient available new aircraft models of the respectivesame size. This would lead to approximately 600narrow body and approximately 100 wide body aircrafthaving to be replaced on average per year until 2050.Forced retirements would have signicant nancialconsequences, if the airlines were not compensated(see Section 5).

bioes, especially sustainable second-generation

biofuels with low life-cycle emissions (e.g. from algae,energy crops such as jatropha and salicornia, forestrywaste, and to some extent sugar cane) that do notcompete for land and water with food crops constitutea promising lever for CO

2abatement in aviation. The

easiest way to implement, especially also to leverageexisting distribution infrastructure, has been shownto be through blending with existing jet fuel (so calleddrop-in biofuels). However, to reach the industryslong-term CO

2reduction target, 13.6 million barrels

of sustainable second-generation aviation biofuelsper day would be required in 2050.xix The CO

2

abatement potential of biofuels is particularly difcult

to estimate due to a number of uncertainties, includingtechnological and market uncertainties, investmentrequired for marketing and distribution, and competitionfor biofuels with other modes of transports. On the onehand, biofuels alone could be sufcient to close theemission gap, or, on the other hand, they may prove tooffer only limited CO

2abatement.

Market-ased measres (e.g. emissions trading and/or offsetting) may offer the opportunity for the aviationindustry to cost-effectively reduce its emissions throughemissions trading and project offsetting options similarto the Kyoto Clean Development Mechanism (CDM)or Joint Implementation (JI) mechanisms, as long

as cheaper options for CO2 emission reduction areavailable in other sectors. However, due to the likelymoney outow from the aviation industry, potentialnegative impact on industry investment in new aircrafttechnology and the negative macroeconomic effectsfrom reduced air trafc, also must be considered (seeSection 2).


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The project also estimated the required investmentcosts for the implementation of the different CO

2

abatement levers. Given that projected eetreplacements through 2050 are part of the BaseCase in this analysis, the costs noted below would beadditional to the US$ 6 trillion the airlines are estimatedto spend in newer, more fuel-efcient aircraft through2050.

For operationa improvements, discussed in theprevious section, an additional investment of US$12 billion would be required until 2030, based on a

previous industry analysis.

xx

As it can be assumed thatmost of the operational improvement opportunitiesidentied today will have been implemented andbecome common practice by 2030 (e.g. use oflightweight seats, continuous descent approach) noadditional cost was estimated for implementation forthe time between 2030 and 2050. Airlines have largeincentives to implement the improvements due to theeconomic net benet through the expected fuel savings.Operations improvements are therefore not covered inmore detail in this document, though it should be notedthat such improvements typically require up-front capitalinvestment by the airlines.

nrastrctre improvements in the area of ATM,such as performance-based navigation SESAR,NextGen, and improved airspace redesign in Chinaand Russia (presented in Section 4), require anadditional total investment of approximately US$ 58billion by the year 2030, based on detailed industryanalysis.xxi It should be noted that only a part of thesefunds has already been committed by governmentsfor the implementation of NextGen in the USA andSESAR in Europe. However, additional infrastructureimprovements will be required, especially in regard

to aircraft equipage and airport infrastructure andfor additional ATM upgrades that may be neededafter 2030. Previous industry analysis shows thatinfrastructure improvements can be implemented at anet benet after consideration of fuel savings.

To incentivize a manufacturer to increase & orradica new aircrat tecnoogies that would leadto these technologies becoming more mature andavailable to be built into new aircraft generations from2030, approximately US$ 10 billion could be sufcienttoday, according to industry and academic experts.xxii

If this investment could be made today, this wouldrepresent a cost-efcient way to reduce aviations CO

2

footprint in the future.

6. Estimated Cost of Implementation of CO2

Abatement Levers

Analysis of a possible eary aircrat retirementprogramme (i.e. retirement of all in-service aircraft after20 years of operations instead of the current up to 40years) concluded that such a programme would beextremely costly to implement because of the highresidual values of old aircraft and the high nancingcosts for new aircraft. In fact, the project estimatedthat if such a policy was continuously used in the yearsbetween 2010 and 2050, it would cost approximatelyUS$ 680 billion on a global basis.xxiii Therefore, becauseof the high cost (by far the highest cost per tonne ofCO

2reduction of all reviewed abatement levers) and

limited CO2 abatement potential, early aircraft retirementis not seen as an economical option for signicantlyreducing CO

2emissions. Early aircraft retirement is not

considered further in this document.

With regard to the development of second-generationioes for transportation, the International EnergyAgency (IEA) has estimated that, between now and2050, an estimated US$ 320 billion to US$ 480 billionis needed.xxiv As aviation would require a signicantportion of second-generation biofuels of the totalamount of biofuels produced in the same period, itcan be concluded that a signicant portion of the

total investment has to be attributed specically to thedevelopment of second-generation biofuels for aviation.

Finally, with respect to the investment needs foremission reduction in other sectors, through anemissions trading scheme (ETS), the price of carbonwould dictate how much the utilization of this measurewould cost to the industry.

Many of the discussed abatement levers shouldbe implemented because they are attractive froman economic perspective (negative net cost after

consideration of fuel savings). Currently, however, manyare not being implemented, or are not implemented asrapidly as they should be, because of either inadequateor counterproductive policies; limited partnerships; alack of an enabling environment for partnerships; a lackof information sharing between and education of allstakeholders, including governments and customers;or, nally, a shortage or unavailability of nancing at anational, regional and global level.

This section will give a general overview of policy,partnership, nancing and information and educationoptions that could help accelerate implementation ofthe CO

2abatement levers in aviation.


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7. Opportunities to Accelerate Aviations Move to

Lower Emissions

7.1 Poicy ptions

The purpose of policies should be to support theaviation industry in becoming a sustainable low-carbon sector. Presently, a number of policies thatexist hinder the industry in its ability to implementCO

2emission reduction measures. As such, these

policies should be removed and replaced with policiesthat provide direction and stability to the market andensure that competitive distortion within internationalaviation is avoided. Also, a rationalized regulatoryframework needs to be put in place to support

enablers of technological, operational and infrastructureimprovements and to prevent or minimize measuresthat are counterproductive to this. Overall, a globalapproach seems most appropriate for aviation asinternational aviation operates between differentcountries and regions, and any uncoordinated nationalor regional policy would be likely to lead to competitivedistortion. However, it has to be acknowledged thatthe implementation of global policies is very difcultand slow and needs some type of supranationalorganization to evaluate a proper implementation ofthe policy. Although national and regional policiescould be more quickly agreed upon and implementedand more easily enforced under consideration ofnational sovereignty concerns, a patchwork of nationalor regional policies has to be avoided, as it leads toincreasing complexity, decreasing transparency andlikely competitive distortion between countries andcarbon leakage (e.g. longer ights to avoid yingthrough a region with CO

2levies or emission trading).

Thus, a global policy that encourages countries toadopt consistent and complementary national policiesand programmes would be expected to be mosteffective for this global industry.

To develop global policies, different principles needto be considered to ensure fair treatment of players,countries and regions. Moreover, to gain internationalagreement, different stages of national economicdevelopment have to be taken into account. Forexample, if a principle of causation is used as thebasis for developing the policy, a CO

2emission

reduction cost would be allocated to those playersthat cause the emissions, irrespective of country orlevel of development. However, if the principle of equaltreatment and non-discrimination (which is the basis ofICAO policy structures) is applied, then all states have

to be treated equally on a global basis, with no regionaldifferentiation other than special exceptions that mightbe provided in the case of demonstrated special need.Finally, if the principle of common but differentiatedresponsibilities (CBDR), which is endorsed by UNFCCC,is implemented, then it is the duty of states to equally

share the burden of environmental protection but withdifferentiated responsibility based on the differentmaterial, social and economic development stages ofthe states as well as on their historical contributionsto global environmental impacts. At the same time, itmust be recognized that, under any of these principles,the relative development and economic status of thecountry in which an airline is registered may or may notbe mirrored by the airline. For example, several highlycompetitive, world-class airlines are headquartered andregistered in developing countries.

Concrete policy options that could be leveraged tosupport the aviation industrys move towards lowercarbon emissions fall into the following categories.

fisca incentives such as tax breaks, depreciationincentives, lump sums, grants or subsidies canincentivize the supply (manufacturers) and demand(airlines) sides. They are particularly effective in earlystages of technology development, as they reduce therisk of investment and lower total costs of R&D andtechnology. At the same time, nancial incentives givemore exibility to industry players than standards andregulation.

Tax breaks can be introduced for investment in R&D(e.g. for new airframes, engines, biofuels) or forpurchase of more efcient aircraft or fuels with lowercarbon emissions. They are very attractive to fosterinvestment from players within the aviation industry andvery effective in channelling investment into the desiredareas (e.g. R&D). On the other hand, they do not givelarge incentives to those players that are less protableand thus do not pay taxes. However, global scalpolicies are hard to dene and implement, as nationsand regions operate under different and, on many

occasions, incompatible legislation.

Depreciation incentives could help to accelerate eetturnover. They have mainly the same advantagesand disadvantages as tax incentives. To ensure thatfaster depreciation has a real impact on CO

2emission

reduction, it has to be reviewed in depth how this fasterdepreciation of planes by more protable carriers affectsthe market for used planes.

Lump sums or grants that give a xed amount ofmoney to all players (e.g. cash premium for aircraftR&D or early aircraft retirement), or other mechanismsthat facilitate aircraft purchase nancing and that arenot bound to protability like tax incentives, have theadvantage of beneting all players equally. Furthermore,an advantage is that a total limit can be set for availablefunds so that the programme ends afterwards. The


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effect of such policies highly depends on the criteria(e.g. cash premium for early aircraft retirement is onlygiven if the aircraft is replaced by a model with a certainspecied CO

2efciency increase). The timing for such

programmes should be aligned with the timelines forintroduction of new technology to ensure the highesteffect.

Subsidies can help to overcome the price differencesbetween conventional technology and new technologies(e.g. conventional jet fuel versus more expensiveaviation biofuels). They should be reduced step-wise as

supply of new technologies increases and productionbecomes more economical due to increasing scale andlearning curve effects.

The aviation industry could draw from examples of scalincentives used successfully in other industries (seeFigure 5).

For scal incentives, policy-makers have to ensure theirgood intentions do not lead to potentially undesiredoutcomes. Poorly designed scal incentives, despitethe intention to increase eco-friendliness, could lead tohigh spending with little effect on CO

2reduction; that is,

a cash premium to accelerate eet renewal could havelittle impact if the effects on the secondary market foraircraft are not taken into account or if tax incentives

figre 5: xampes o ecent ccess financia ncentives in ter ndstries

and grants to foster R&D merely substitute existing orplanned industry R&D programmes with government-sponsored programmes or channel research into fewareas (putting all eggs into one basket).

tandards and regation, such as an aircraft CO2

standard, fuel standard or labelling standard, mightencourage aviation players to develop and adopt new,more CO

2-efcient technologies or approaches (e.g.

precedence engine noise in the past). These policies,however, do not have much of an effect if the newtechnology is still in the early R&D phase and not

available in the market for purchase. If introduced oncetechnology is proven, standards and regulation cansignicantly accelerate manufacturing scale up andtechnology rollout. For example, the aviation biofuelspecication that is currently in development canstimulate additional R&D and accelerate its production.

A technology/CO2

standard that, for example, requiresaircraft to meet certain CO

2emission levels such as the

new CO2

standard for new aircraft proposed and underdevelopment by ICAO, creates an enabling environmentfor manufacturers to improve CO

2efciency of new

aircraft generations. However, manufacturers already

have a high incentive to reduce fuel burn and thuscarbon emissions because of the weight and theconstantly appreciating and increasingly uctuating


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price of fuel, which represents about 30% of all costsof their customers operations. Such technologystandards, if introduced for all in-service aircraft,could put carriers with older eets at a disadvantage,which could especially impact the airlines from certaindeveloping countries and those airlines otherwise notin a capital position to re-eet when such standardsgo into effect. Further, care would have to be taken toavoid technology-forcing provisions that might undulycompromise safety.

A fuel standard, such as a blending mandate that

requires a certain percentage of jet fuel to be fromrenewable sources (drop-in), could help spur productionand make the investment in aviation biofuels moreattractive and secure. However, it has to be consideredthat a fuel standard would be impossible to meet aslong as second-generation biofuels are not availableat commercial scale and producers might have higherincentives to use biomass for other purposes.

Labelling standards and accreditation (e.g. ISO numbertype) that give customers transparency on CO

2

efciency (e.g. by aircraft, by airline) would allow formarket-based competition between airlines on a CO

2

efciency basis as well. Airlines could thereby positionthemselves as particularly CO

2efcient and thereby

obtain a competitive advantage as customer awarenessfor ecological and climate change matters increase. Thedifculty with such standards is that CO

2efciency of

ights highly depends not only on the fuel efciency ofthe plane but also on criteria such as length and loadfactors of the ights, which are not determinable for aspecic ight until just before take-off.

The following examples (see Figure 6) describestandards and regulations from other industries thatshow potential for transfer into the aviation sphere.

Green evies (on tickets, aircrat, e, 2) are

intended by policy-makers as a way to disincentivize theindustry from emitting CO

2. However, green levies are

not effective, as they do not have a clear correlation withreduction of CO

2and can distort market competition.

They are specically not effective in situations wherenew, more efcient technologies are not yet availablefor purchase. They take out money from the industry

that could be used to invest in green technology withoutensuring that governments use the money for greeninvestment rather than balancing the treasury.

Ticket levies are charged on a per ticket basis andare relatively easy to administer. The fees are coveredby the airlines or, where possible, are passed on tothe passengers or customers in the case of air cargo.Often, ticket levies are linked to the distance own andless often to aircraft fuel burn. The effect is that ticketlevies can reduce CO

2emissions through increasing

prices, which can limit or marginally reduce demand.They thereby can exclude segments of society with

less spendable income from aviation and impactdestinations that are highly dependent on tourismreceipts. The negative macroeconomic effects ofreduced air trafc, especially to the economies ofdeveloping nations, are presented in Section 2 of thisreport.

figre 6: xampes o ccess tandards in ter ndstries


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Recent examples in Europe (shown in Figure 7)demonstrate the limited effectiveness of ticket leviesin CO

2reduction, which often lead to competitive

distortion.

For example, the United Kingdoms Air Passenger Duty(APD), as rst introduced in 1994 and since replaced,did not put differentiated pressure on airlines (e.g. didnot recognize the CO

2efciency of the plane or eet).

As such, more CO2-efcient airlines were penalized

despite being more efcient. Furthermore, most airlinessimply passed the additional cost on to customers. The

increased price, albeit penalizing travellers with moreexpensive tickets, did not have the desired effect ofdecreasing overall demand. There is a very high priceelasticity in ticket pricing, and a combination of thegeneral desire to travel by many especially a growingmiddle class in developing countries and the overalldesire by nations to continue to attract the lucrativebusiness and leisure tourism market, will likely renderthe increase in ticket pricing inefcient in reducingdemand beyond very marginal effects. At the sametime, one should consider that shifts to other modes oftransport could lead to CO

2leakage in the sense that

emissions increase in the alternate sectors.

An aircraft levy is, for example, an annual levy on anindividual aircraft depending on type, age or fuel burn.The advantage is that this type of levy can be easilyapplied to passenger and cargo planes. The challengeis that the number of ights per year, distances own,or load factors are not considered, thus the levy hasno correlation to usage and actual CO

2emissions. As

such, this levy could put an unjust burden on the airlinesfrom certain developing countries that have older eets.

A fuel levy (i.e. tax on jet fuel comparable to existingtaxation of gasoline) considers the principle of

causation. Such a tax, though, is against existingbilateral agreements and would thus require signicantpolicy amendments on a global level. Without alternativefuels being available, fuel levies would only put anadditional burden on airlines for which fuel already costsmore than 30% of total costs and therefore could onlyhave a marginal effect.

A CO2

levy would have the same implications as thosedescribed previously for fuel levies. Moreover, it wouldhave higher administrative costs as a result of thedifculties in measuring, monitoring and reporting ofCO

2emissions by all carriers.

Based on the preceding argumentation, all types oflevies have to be evaluated, taking into account thenegative macroeconomic effect (see Section 2) andthe structural and nancial difculties they pose on theaviation industry.

figre 7: xampes o ecent ropean icket levies


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missions trading scemes () or osettingrepresent another policy option that may be aneconomically efcient means to reach CO

2targets, as

long as CO2

abatement is possible at a lower cost inother sectors and such schemes are set up correctly.By putting a price on carbon and giving legal incentivesin the form of longer-term policy security, an ETS mayincentivize investment into low-carbon technologies.However, due to the likely money outow from theaviation industry, the potential negative impact on

industry investment in new technologies and negativemacroeconomic effects from reduced air trafc alsomust be considered (see Section 2). The effects of anETS highly depend on the concrete specication [e.g.cap and trade with free allowances, cap and tradewith auctioning of allowances where revenues to theadministrating government are reinvested in aviationefciency, options to trade credits with other sectorsand/or ETS schemes, or ETS with or without projectoffsetting options similar to Kyoto CDM, JI, or UNREDD (Reducing Emissions from Deforestation andForest Degradation) projects that provide a link to adevelopmental agenda].

While international aviation has been excluded fromthe Kyoto Protocol and any national emission targetsso far and the aviation bunker fuels discussion wasdeferred to ICAO in the UNFCCC climate negotiations,

figre 8: xampes o rrent and Panned cemes

international ights from and to the EU will be includedin the EU ETS from 2012, though it has to be noted thata number of carriers have objected to this and initiatedlegal challenges. As a number of countries (see Figure8) have implemented or proposed to implement ETS,it is conceivable that, in the future, pressure to includeaviation in ETS in one way or another will increase. Itwill be critical for the aviation industry to continue towork through ICAO (as recognized by UNFCCC in theoutcomes of COP16 in December 2010) to develop

a global sectoral market-based measure approach toprevent competitive distortion and increased complexitywith proliferation of a patchwork of national schemes.

Developing a global sectoral ETS scheme will bechallenging, as it will have to take into considerationexisting agreements and treaties (e.g. ChicagoConvention, Kyoto Protocol, bilateral agreementsbetween states).xxv To address the legal hurdles,individual nations can commit to individual voluntaryaction plans that acknowledge a global policy oralternatively plurilateral agreements need to benegotiated with the same scope. Further legalconstraints may also exist in regard to using policyframeworks such as ETS or levies to raise funds tonance CO

2abatement mechanisms for the aviation

industry, as national legislation of different countriesdoes not allow for earmarking of such funds.xxvi


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With regard to offset programmes, currently there area limited number of projects (especially Kyoto-relatedprojects, such as CDM and JI) that are not open toaviation. Additional opportunities might lie in enablingprojects in African countries that are currently noteligible for Kyoto CDM projects.

When setting up an MBM approach for aviation,the different stages of development of countriesand especially the resilience of small and remoteisland states that depend highly on tourism has tobe considered. A number of suggestions on how to

structure MBMs have been proposed by differentorganizations. For example, the Aviation Global Deal(AGD) Group, which includes the Climate Group, madea proposal that maintains equal treatment amongairlines by requiring all airlines to participate in a fuel-based emissions trading scheme but differentiatesamong countries by earmarking some of the revenuesgenerated for projects in developing countries. TheAssociation of European Airlines (AEA) made a GlobalApproach Proposal (GAP) segmenting countries intothree blocks according to maturity of their aviationmarkets with different emission reduction targets. Underthe AEA GAP approach, for all trafc between two

blocks, the lowest target will be applied to all airlinesregardless of nationality.xxvii In conclusion, one of themain challenges for the development of a coherentand effective aviation climate change policy frameworkis a non-existent overall global climate change policyframework. This void leads to insecurity on nationallevels.

Overall, to ensure policies are effective in reachingtheir objectives, it is critical that policy-makersevaluate what types of policies (e.g. incentives versusdisincentives for supply versus demand side) are most

effective in the respective situation. Policies that areintroduced have to be in line with the respective stageof technological development. For example, for newtechnology development for airframes and engines andsecond-generation aviation biofuels, policies have to beintroduced that support the early development stages ofthose technologies, otherwise policies will have a verylimited effect or no effect at all in moving the aviationsector towards the desired outcome of further reducingemissions.

7.2 Partnersip ptions

Different types of partnerships could be leveraged todrive the aviation industry decarbonization efforts. Theyfall into the following categories.

ntra-indstry partnersips. These are partnershipsbetween different aviation players (e.g. airlines,manufacturers) mostly with the objective to reducecosts and risk, for example, by sharing the R&D,manufacturing and distribution among the differentpartners and gaining advantages of scale. At the sametime, they could also further increase access to newinnovative technologies, manufacturing experience, orR&D resources and/or assist the partners in gaining abetter market position, for example, through increasedcredibility or increased speed to market.

rossmoda partnersips. These are partnershipswith players from different modes of transport (e.g.automotive, maritime shipping). These partnerships arebest to enable the sharing of knowledge and reduce riskand cost for R&D of technologies that could be usedin different areas (e.g. lightweight materials, biofuels).Crossmodal discussion or collaboration would alsobe benecial on the government side, where differenttypes of ministries (e.g. aviation, energy, road transport,development) should collaborate to dene a holisticframework for the development of the transportationsector, which would help ensure a level playing eldbetween different modes of transport and beyond.

Some hurdles for crossmodal partnerships lie in differentneeds of specic modes of transport (e.g. biofuels foraviation with different specications than biofuels forroad transport), but, still, commonalities should beleveraged.

ertica partnersips. These are partnershipsoccurring along the value chain that seem especiallypromising on the biofuel side where airlines, energy,chemicals and biofuel companies, distributors, andstakeholders from the agricultural sector should worktogether. Collaboration with multinational players is

critical, especially to secure large amounts of projectcapital or with technical innovation niche players toobtain access to the newest second-generation biofueltechnology. Partnerships with bio-reneries can mitigaterisk through different possible output products.

Pic-private partnersips (PPPs). Thesepartnerships between players from the private sectorand government seem promising, especially in the eldof infrastructure improvements and implementation.Airport operators, Air Navigation Service Providers(ANSP), technology providers and the public sectorworking together can increase speed of implementation,access to technical expertise and skills, and access topublic funding.

Partnersips wit te nancia commnity. Thesepartnerships can lead to specic nancing projects set


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up to advance the implementation of specic climatechange prevention measures. Development banks,for example, could be engaged to set up a specicgreen fund that could also be leveraged by aviationor to fund biofuel projects, which was rarely the casewith past funds. Engaging development banks hasthe advantage that these institutions have longer timehorizons and require lower returns than capital marketinvestors and might be willing to take somewhat higherrisks than commercial banks, if projects are related tothe development agenda (e.g. airport infrastructureimprovements or biofuel development in developing

countries).

7.3 financing ptions

Supply-side as well as demand-side nancing optionshave to be considered. Supply-side nancing includesthe nancing of the initial cost of development ofdifferent new technologies, nancing of large-scalemanufacturing, and distribution. Demand-side nancingincludes nancing of the initial acquisition of the newtechnology products (e.g. a new type of more efcientaircraft and new more expensive biofuels).

Different nancing options are more effective at differentstages of technology development (see Figure 9)because of different risk levels, time horizons andinterests of the respective stakeholders.

Sources of nancing in the early technology researchstage are government and industry funding. In thephase of technology development, optimally venturecapital, private equity and industry funding can be

leveraged. During the manufacturing scale-up phase,public equity markets and additional industry funding(e.g. also through mergers and acquisitions in caseswere smaller players are bought up by larger nanciallystronger players from within the industry or evenfrom other industries) become available. Finally, in thetechnology roll-out phase credit and debt nancing andcarbon nance options represent additional fundingoptions.

An innovative approach to nancing early-stage newtechnology developments in aviation could be the

development of a producers risk fund to which aviationindustry players contribute funds that are then investedin new technology (aircraft technology, aviation biofuel)projects. This would allow the industry stakeholders toshare risk in early development stages.

The donor community could also be involved asan additional nancing option in the earlier stagesof development (e.g. Rockefeller Foundation, Bill &Melinda Gates Foundation).

Multilateral development banks (MDBs) should beengaged more by the aviation industry in developing

countries. So far, MDBs have been engaged innancing aviation-related projects mainly focused onbuilding airports and, to some extent, air-trafc controlinfrastructure in developing countries. More recently,MDBs have engaged in nancing climate change related projects through specic funds. However, suchfunds have not yet been widely used for aviation-relatedprojects, but mainly for projects in the areas of energyefciency (see Figure 10). The project has found that

figre 9: financing ptions y tage o eveopmentxxviii


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23/4023

For the four most promising carbon abatement leversidentied in Sections 4 and 5 aviation infrastructureimprovements, additional research for radical newaircraft technology, aviation biofuels, and market-basedmeasures the project specically discussed the mostcritical implementation challenges and identied themost promising policy options as well as innovativeapproaches for partnerships, nancing, and informationand education. In a survey, 30 senior industry andacademic experts as well as senior representatives frominternational organizations and industry associationshighlighted where they see the key challenges

and the most promising measures to support theimplementation of the four key CO2

abatement levers.The results show that a number of concrete leadershipopportunities exist, and the different impacts and timescales of the abatement options must be considered.The following sections give a detailed overview of thesurvey results and the outcomes of the multistakeholderdiscussion held at different project meetings for each ofthe four key CO

2abatement levers.

8.1 viation nrastrctre

Aviation infrastructure investments are critical tomaintaining or improving todays high levels ofoperational efciency, considering the expected airtrafc growth. From an international aviation emissionperspective, the focus of aviation infrastructureimprovements is on the introduction of new ATMsystems and processes. Airport infrastructure emissionsare not addressed, as they are accounted for withinnational targets of the UNFCCC negotiations. However,from a country perspective, it is important to highlightthat both ATM modernization and improvement ofexisting airport infrastructure and the development ofnew greeneld airports must be considered.

In the survey conducted, the following caenges areconsidered most critical: Insufcient political will to speed up decision-making

and implementation Regional and national issues with ATM ground

infrastructure and existing constraining policies Insufcient information and education of policy-

makers and the public on ATM challenges andnecessary improvement measures

Other challenges identied are:

Lack of global ATM metrics and targets Existing airspace organization (airspace reserved formilitary versus commercial use)

Lack of access to new ATM technologies andnancing

8. Road Map for Sustainable Aviation Growth

Insufcient airport capacity and the need for newairports, runways and inclusion of cargo in airportplanning

Lack of a holistic transport policy across differenttransport modes

Optimization of the synchronization between allstakeholders with agreed-upon road maps at theregional level and coordination between regions

The key measres seen as most promising toovercome those challenges are related to inormation,edcation, and poicy. In particular, respondents

highlighted the need for:

Additional information and education of policy-makers, airport operators, ANSPs, pilots andthe public on existing infrastructure challenges,the potential of new ATM technologies, and bestpractices; particularly on the government side,additional information is critical to increase thepolitical will to overcome national boundaries and toorganize ATM on a supranational level to improvetrafc ow

Legal incentives that include policies that giveclarity and reduce risk for private investment in

infrastructure improvements; such policies could be,for example, a multimodal transport road map orimproved foreign direct investment (FDI) policies

The establishment of standards, such as a globalATM standard, or standards for the interoperabilityof aircraft ATM equipment, and global or regionalstandards for airport infrastructure

Other measures still considered to have a large potentialto drive infrastructure improvement implementationare scal incentives and tax breaks for private sectorinvestment and for carriers to invest in ATM equipment

for new and in-service aircraft. Governments shouldconsider incentives to give priority access to aircraftwith more modern ATM equipment and minimizingATM delay impact on airports with more sophisticatedinfrastructure.

fnding will need to come from governments, at leastinitially. However, as governments will unlikely be able toprovide all the required funds, priority has to be put oninvolving capital markets and private equity (PE) playersas soon as possible. MDBs can play a major role indeveloping countries, e.g. through the establishmentof specic green funds. MDBs already nance airportinfrastructure to some extent today, but specic greenfunds like those established by the World Bank inthe past have not yet been used to nance aviationprojects.


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On the partnersip side, more PPPs should beestablished for new airport development, infrastructureimprovements, the implementation of new ATMtechnologies and partnerships with the nancialcommunity (e.g. special programmes set up for aviationby development banks).

Infrastructure improvements are especially importantin developing countries to ensure that these countriesare able to experience positive economic returnsprovided through the growth in trade, tourism andservice that efcient ground air-transport infrastructure

and air-navigation services can bring. An example ofa successful initiative is the Egyptian governmentsNAVISAT initiative that has the objective to providesatellite-based ATM services for Africa and the MiddleEast and that was initially nanced with the help of theAfrican Development Bank (AfDB).

8.2 dditiona & or ew ircrat

ecnoogies

Additional focus by both manufacturers and policy-makers is needed on R&D of radical technologies, such

as a blended wing body aircraft or open-rotor engine.Once they are more mature, these new technologiescould help to improve fuel efciency and, thereby, CO

2

efciency of future generations of new aircraft, which inturn could signicantly inuence the industrys long-termCO

2footprint.

The largest caenges identied in regard toincremental aircraft and engine R&D are:

A lack of existing policies to support and incentivizeresearch and technology for new radical aircrafttechnologies

The long lead times for new aircraft technologydevelopment (up to 10 to 20 years from early R&D tocommercialization in new aircraft types)

That the further development of conventional aircrafttechnology will only allow for gradual improvement ofaircraft fuel efciency in the future (likely not beyond1.5% improvement per year due to the high degreeof maturity of existing technology); therefore, radicalnew aircraft technology is required to achieve higherefciency improvements in the future

The current lack of investment for scaling andcommercialization of new radical technologies due

to their high technological risk and uncertainty

Other challenges identied include differing stakeholderinterests, such as the immediate interests ofmanufacturers not always being aligned with those

of the airlines due to the high sunk costs for thedevelopment of a certain aircraft generation and thepotential misalignment of development road maps.Also additional infrastructure modications at airportsmight have to be implemented for the operation of moreradically new aircraft.

To address these challenges, poicy measres,inormation and edcation are seen as mosteffective. In particular, the following areas have beenidentied:

Financial incentives such as tax breaks for researchand technology would be necessary to incentivizemanufacturers and academia to invest more in R&D,especially for radical new technologies.

Legal incentives could give more policy clarityand reduce risk of investment; examples oflegal incentives that could be implemented aregovernment loan guarantees or efciency standards.

Education of policy-makers is critical to increasethe sense of urgency for new policies in the aviationR&D sphere.

Also discussed as important was the introduction

of standards such as the CO2 standard currentlyunder development by ICAOs Committee on AviationEnvironmental Protection (CAEP), or a labelling standardto increase transparency for customers as an incentiveto invest in R&D and new technology. However, inregard to standards, it must be considered that,due to changing ight conditions (e.g. environmentalconditions, load factors), emissions and CO

2efciency

of any given ight can differ.

As to partnersips, the industry is already extensivelypartnering on R&D initiatives. However, opportunitiesexist for manufacturers to increase their collaboration

with players in other industries, to share risk, and toleverage benets from exchange of technology (e.g.lightweight materials developed for aviation could beleveraged to help decarbonize road transport).

Government nding is seen as the most importantsource of new incremental investment, followed byincreased investment from the industry and nancialsystem. One proposal considered was the developmentof special recognized research funds supported bythe airline operators, for example in exchange for freecarbon credits under an ETS (see Section 7.4). Capitalmarket funding and funding from commercial banksshould be increased but are not yet likely to be available

at the current early technological development phase.

Additional research conducted, besides the expertsurvey, shows challenges and proposed policy optionsfor aircraft technology by stage of development (seeFigure 11)


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8.3 viation bioes

As discussed in Section 4, biofuels have a large CO2

abatement potential within the aviation industry andcan, therefore, be considered a technological gamechanger for the aviation industry. Research and testights conducted in recent years (e.g. Air New Zealandtest ight in 2008, Continental and Japan Airlines testights in 2009, TAM Airlines in 2010) have proven that

even the current in-service eet, without any engineor aircraft modication, could y on biofuels of adened technical specication. Test ights have beenconducted with 50% blends of biofuels with regular jetfuel. In the long term, it is expected that aircraft couldy on up to 100% biofuel. Different technology routesfor the production of aviation biofuels exist. FT (Fischer-Tropsch) alternative fuels have already been qualiedfor 50% use in aviation in 2009, HRJ (HydrotreatedRenewable Jet) specication is expected in early 2011,and FRJ (Fermentation Renewable Jet) specicationoptions are being evaluated.

However, the cost of the biomass feedstocks andprocessing to produce second-generation (drop-in)biofuels (e.g. from forestry waste, agro waste, energycrops such as jatropha, salicornia and algae) is stillsignicantly higher than for conventional jet fuel. The

required investment in R&D for sustainable second-generation biofuels and the follow-on commercializationof these new manufacturing technologies is substantialand has been estimated by different sources in thehundreds of billions of US dollars (see the ExecutiveSummary). At the same time, there will likely be intensecompetition for both the sustainable biomass resourcesand scarce R&D funding between the different modesof transportation (e.g. renewable diesel for ground

transport) and with the chemicals industries (e.g.renewable polymers) where the risks, costs and marginsfor the renewable products will very likely be moreattractive. The energy and chemicals industries havefew incentives to invest in the aviation biofuels nichemarket if other less risky and volatile or higher marginoptions exist for the use of biomass.

As such, the caenges considered as most likely toreduce incentives for the scaling of aviation biofuels are:

Current lack of large-scale investments for R&Dand maturing of biofuel technology, scale-up ofmanufacturing and wider supranational supplychain management; current lack of government,industry and capital market funding [support forR&D and scaling provided by the US governmentthrough Air Force biofuel programmes and through

figre 11: ircrat ecnoogy Poicies y tage o eveopment


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US Commercial Aviation Alternative Fuels Initiative(CAAFI) cosponsored by the Aerospace IndustriesAssociation (AIA), Airports Council International North America (ACI-NA), the Air TransportAssociation of America (ATA), and the FederalAviation Administration (FAA); European SustainableWay for Alternative Fuels and Energy for Aviation(SWAFEA) efforts still much smaller]

Market failures due to the uncertainty around policy,the legal system and incentives

Lack of sustainable feedstock availability, especiallyof appropriate sustainable second-generation

type (e.g. algae, energy crops, forestry waste)and scalability of sustainable second-generationdrop-in biofuels (the aviation industrys 2050 goalalone would require seven times todays totalglobal amount of rst-generation biofuels but of asustainable second-generation type)

Other major challenges are:

The lack of global standards for biofuels, suchas a sustainability standard based on life-cycleemissions or a decarbonization standard thatregulates how biofuels are considered under

an ETS (e.g. zero-emissions versus life-cycleemissions)

Competition with other modes of transportationto secure aviations fair share of biofuels in thefuture is seen as a challenge (e.g. competition withrenewable drop-in diesel for ground transport);however, co-production with diesel may providea route to earlier adoption by reneries, if higheroverall yields and cost advantages can be achieved

On the government side, the perceived insufcientcollaboration between ministries (e.g. aviation, landtransport, energy, agriculture, development) to

ensure biofuel policies are developed based on aholistic view

Long timelines for the scale-up of manufacturingfacilities and distribution infrastructure; for the latter,the challenge could be partly overcome throughpercentage drop-in rates and use of the existinginfrastructure

To ensure access and availability of aviation biofuels, thefollowing policy, partnership, nancing, and informationand education measures have been identied as mostimportant to introduce:

Poicies Fiscal incentives for supply chain members

(farmers, reneries, distributors) to engage in R&D;demonstration scale and commercial production;scal incentives for airlines to buy and use biofuels;and incentives to foster capital market investment

(e.g. governments could introduce a supportivepricing policy that makes investment by commercialproducers and technology pioneers attractive)

The development of global standards, includingsustainability standards for biofuels based onlife-cycle emissions, standards that govern theconsideration of biofuels in emissions trading,standards for emissions monitoring and reporting,drop-in fuel standards and specications (ascurrently under development by ICAO), or labellingstandards that would allow airlines to positionthemselves as environmentally conscious if they use

biofuels Legal incentives, such as the introduction of policiesthat establish a level playing eld for all modesof transport in their competition for biofuels (e.g.governments and ministries of aviation setting upblending mandates for aviation fuels); blendingmandate targets should be implemented in aphase-wise manner

PartnersipsVertical partnerships along the entire value chain ofbiofuel production, renement and usage shouldbe developed further. Stakeholders to be involved

are airlines, energy, chemicals, biofuel producers,agriculture players, and distributors. Successfulpartnership models discussed in the project were inparticular innovative vertical models in developingcountries that involve stakeholders along the entirevalue chain from government land owners to technologyproviders, farmers engaged through a village franchisesystem, and major oil and gas companies anddistributors, and taking local peculiarities into account(e.g. unique concepts of Nandan Biomatrix in India, seeIndia Deep Dive in Appendix).

fndingSignicant government funding (directly or through loan

guarantees) is required, especially in the current earlyhigh-risk stage of R&D and scale up (especially also ifan ETS is introduced, the funds raised from potentialauctioning of carbon credits or funds raised throughgreen levies should be reinvested here).The nancial community, such as MDBs, shouldfollow in earlier stages; capital markets [carbonnance community, PE and venture capital (VC)] andcommercial bank credit and debt nancing wouldhave to follow in later stages. MDBs are likely to bethe next investors after governments, as aviationbiofuels can be promoted also from a developmentalagenda perspective if larger-scale projects are set up in

developing countries.

Other funding measures still considered to be valuableto implement include industry-side nancing, such asthrough innovative new nancing ideas like a producersrisk fund. Depending on how such a fund is set up, the


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industry can contribute to the fund, which can invest inbiofuel projects, thereby reducing the risk for any singleproducer in the early development and scaling stage.Early commercialization of aviation biofuels is crucialto be able to rapidly drive down the cost curve andachieve prices that will be acceptable to the aviationindustry. Intra-industry and crossmodal partnershipsalso should be leveraged further. Existing industrypartnerships on aviation biofuels are the SustainableAviation Fuel Users Group (SAFUG), including memberssuch as Air France, British Airways and Lufthansa, andafliate members such as Airbus, Boeing, Embraerand UOP (Honeywell), or the Brazilian Aviation BiofuelsAlliance ABRABA.

For inormation and edcation opportnities, moreemphasis should be put on informing governmentsat the secretary level as well as the mid-level policy-maker level on the potential of sustainable biofuels foraviation and the new policies required. Simultaneously,the aviation industry must engage more with thepotential biofuel producers from energy, chemicalsand agriculture to inform and educate on themarket potential of aviation biofuels and partnershipopportunities. The public should be made aware of theadvantages of sustainable second-generation biofuelsto overcome reservations that might exist due to land

use problems and competition with food productionwith traditional rst-generation biofuels. Leadinginstitutions should conduct sustainability studies inpartnership with proponents to leverage their expertisefor analysis. Media and not-for-prot organizationsshould be sensitized for the topic to increase thespread of information and awareness inside and outsideof the aviation industry. Successful test results anddemonstrations of biofuel-powered ights should beshared and publicized intensively to improve awarenessand inspire.

Levies and/or taxes on current jet fuel or CO2

emissionsare seen as least promising for the scale-up of aviationbiofuels, as they withdraw money from the industrywithout any direct impact on investment into biofuelsor CO

2emission reduction in general and do not give

direct positive incentives to potential biofuel producers.As long as the biofuels are not available on a largescale, carriers do not have an alternative to buy moreCO

2-efcient fuels and thus have only the choice to pay

the tax.

Research in addition to the expert survey showschallenges and proposed policy options for aviationbiofuels by stage of development (see Figure 12).

figre 12: bioe Poicies y tage o eveopment


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figre 13: bioe financing y tage o eveopment

figre 14: xampes o P nvestors ngaging in bioes

Financing options (see Figure 13) also depend highly onstage of technology development due to the differentinvestment horizons, expected returns and risks thedifferent types of investors are expecting.

At the current stage, private equity investors are tappinginto biofuels, but investments are mainly coming fromniche players (see Figure 14).


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Biofuel development opportunities should also beevaluated from a developmental agenda perspective,and opportunities should be explored, especially indeveloping countries such as India and China and inAfrican countries where a large availability of unutilizeddegraded and marginal land and labour resourcesexist, supplemented by a suitable agroclimate. Privatesector developers need to take leadership initiatives anddevelop exemplary business models for guidance andevolution of a sustainable advanced biofuel industry.Leveraging private sector capabilities, by way of public-private partnership, joint research and development

programmes, can bring mutual benets to the playersand beyond.

In recent months, the topic of aviation biofuels hasobtained signicant attention for example, in February2011, a conference was held to outline the results ofthe two-year feasibility and impact assessment of theSWAFEA study initiated by the European Commissionon alternative aviation fuels. A large scale-up of biofuelswas conrmed as a required contribution to the 2020-2050 industry and ICAO emission targets. To overcomethe aviation biofuel deployment challenges, a numberof policy instruments were evaluated to incentivize

advanced biofuel development and levelling the playingeld for aviation and ground transportation fuels, as wellas, for example, the setting up of a European networkof excellence to bring together technical expertise andprovide an integrated approach to alternative aviationfuels.xxix

It has to be noted that rapid progress is being madein the biofuel R&D programmes and the industryexpects to see more initiatives and potentially severalcommercial-scale plants to be built in 2011 for second-generation biofuels based on micro algae.

On the carrier side, Lufthansa announced in November2010 that, pending biofuel certication, the companywill begin in 2011 a six-month trial of a weeklyscheduled ight of an Airbus A321 from Hamburg toFrankfurt with one of the engines using a 50:50 mix ofbiofuel and traditional jet fuel.xxx

8.4 Market-ased Measres (missions

rading, setting)

Emission reductions in other sectors, through measures

such as ETSs or project offsetting, may be aneconomically efcient option for the aviation industry tomeet CO

2targets, as long as CO

2abatement is possible

at a lower cost in other sectors and such schemesare set up correctly. The key role of MBMs should

be to facilitate the implementation of cost-effectivereduction measures within the aviation industry and, viaoffsetting in other sectors, provide a way to cover anyshortfall in emission reductions not achieved via otherindustry measures. MBMs become counterproductivewhen paying for emissions credits from other sectorsreaches a level that threatens aviations ability to investin measures for abatement within the sector. It also canprovide an option for emission reduction in the interimuntil other emission abatement levers are available ona larger scale within the industry (e.g. aviation biofuels).MBMs can help not only to reduce future growth of

emissions but also to deliver CO2 reductions comparedto todays aviation emission levels in other sectors.

An MBM policy that includes ETS and offsettingopportunities is, on the one hand, seen as a majoroption to reduce risk and uncertainty and thus attractmore capital market investment into the discussedabatement areas (e.g. aircraft R&D and biofuels). On theother hand, an MBM scheme that extracts money fromthe industry could lead to lower investments in newaircraft technology and other CO

2abatement initiatives

by industry players due to nancial constraints. AnMBM scheme might also be taken as an excuse not to

invest in CO2 emission reduction within aviation, therebyneglecting the negative long-term effect on the carbonfootprint of the aviation industry. To overcome thisdilemma, if an ETS is put in place, it has to be ensuredthat governments still invest in aviation infrastructure(especially ATM) improvements and that industry playersare incentivized to invest in emission reduction withinthe industry. In addition, in the development of the ETS,it is critical that the scheme is targeted at incentivizingthe best investment, including the fuel/engine/airframemanufacturer. An ETS solely targeted at simply drawingairlines funds would miss the intention.

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sustainable aviation report 2011

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