Demand Response to Aviation Carbon Pricing in Canada – Study Findings and Outcomes

In 2022, the Canadian Government revealed its aim to achieve net zero carbon emissions by 2050 in all sectors nationwide (Net-zero emissions by 2050 – A major part of this ambitious ecological plan will involve a shift towards sustainability in the aviation sector, in which Canada was the 12th largest emitter of CO2 in 2019. The Canadian government has outlined how it intends to achieve this – by deploying sustainable aviation fuel (SAF) and carbon pricing on interprovincial flights. Sola Zheng of the ICCT has expanded upon these aims in a study to assess the deployment of two possible scenarios based on passenger operations in 2019 to assess the potential outcomes of carbon intensity improvement.

Both models sort air travel into 8 different bands: premium and economy classes and subdivided into commuter, short-haul, medium-haul and long-haul. The first model of the study used outlines a business-as-usual approach (BAU) to carbon intensity improvement. It assumes a 34% reduction in fuel intensity and adds a $123 carbon price to emissions in 2030, leading to a $0.3 increase in the cost of each litre of jet fuel consumed. This scenario does not deploy SAF as a potential fuel but instead continues using standard jet fuel. Due to a 4% increase in ticket prices in this scenario, an estimated $1.8 million fewer tickets would sell in 2030. This reduction in ticket demand would also reduce carbon emissions by an additional 4%. By 2050, this scenario would result in a 5% ticket price increase and a 6% reduction in ticket sales.

Alternatively, the Deep Decarbonization scenario assumes a 46% reduction in fuel intensity and a 5% global market share for alternative fuel by 2030. The Deep-Decarbonization scenario also utilises SAF, which the BAU scenario does not. SAF would be exempt from carbon pricing. The combination of SAF usage and carbon pricing would result in a decrease in ticket sales of 5%, which would be equivalent to $2.2 million in tickets. It would also increase airfare by 5%. Both carbon pricing and SAF usage would lead to an 80% increase in fuel costs. This would result in a $3.9 million demand reduction of tickets in 2040. This scenario would also utilise targeted revenue recycling to compensate for the slight shortage between the carbon pricing and SAF price premium. By 2050, demand reduction would extend to 4.8 million tickets, which could be reduced to 2.9 million tickets if carbon pricing recycling was adopted.

The study also considers the possibility of a frequent flyer levy (FFL), wherein every flight taken by an individual per year after the first two would be subject to an additional rate. Under a FFL, frequent flyers would be responsible for 88% of trips instead of 64% under general carbon pricing. A FFL would allow 1.6 million trips to be avoided, the majority of which would be high-income leisure trips.

Ultimately, the introduction of a Deep Decarbonization scheme appears to be the most effective strategy for reducing Canadian aviation emissions; the scenario allows for a decrease in fossil fuel consumption while also reducing the demand impact from carbon pricing in 2040 and 2050. The assumption that the proceeds from carbon pricing could be recycled into accounting for the price premium of blending 5% SAF fuel is also an advantage over the Business-as-Usual scenario. The adoption of an FFL in either scenario would also be beneficial in placing the cost of decarbonisation onto corporations rather than individuals while simultaneously reducing the impact of increased airfare on travellers who do not frequently fly.