Internalisation of emissions costs from Swedish aviation

Abstract: This thesis examines the emissions costs of Swedish aviation and their degree of internalisation under current economic instruments. The results show that the degree of internalisation spans from practically zero for a long-haul flight to 6 per cent for a typical domestic flight, where the climate cost, including high-altitude impact, makes up the main part of the cost. To inform evaluation of the consequences of this underinternalisation, or attempts to correct for it using price instruments, the price and income elasticities of international leisure air travel from Sweden are estimated using household expenditure data and two different price measures. The resulting elasticities are very high – 2.03 or 2.04 for the income elasticity and -2.53 or -1.88 for the price elasticity – and should be interpreted cautiously due to data limitations, especially for the price elasticities. However, even a cautious interpretation seems to support other authors’ findings that demand for leisure air travel is price and income elastic. This means that pricing the uninternalised costs would have a clear effect on demand and hence on emissions, without undesired distributional effects. The thesis concludes with a discussion of how such price instruments could be designed.