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Introducing an Air Ticket Tax in Switzerland: Estimated Effects on Demand

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Introducing an Air Ticket Tax in Switzerland: Estimated Effects on Demand Introducing an Air Ticket Tax in Switzerland: Estimated Effects on Demand E4S White Paper 2021 - 2 Introducing an Air Ticket Tax in Switzerland: Estimated Effects on Demand E4S White Paper Philippe Thalmann, Fleance Cocker, Pallivathukkal Cherian Abraham, Marius Brülhart, Nikolai Orgland, Dominic Rohner, Michael Yaziji June 2021 © Enterprise for Society (E4S), 2021 E4S acknowledges financial support from the University of Lausanne, IMD, and EPFL. This White Paper was prepared by the Environmental Policy platform of the Enterprise for Society Center (E4S), The members of the platform are: Marius Brülhart, Pierre-Marie Glauser, Rafael Lalive, Dominic Rohner, Simon Scheidegger, Mathias Thoenig (all UNIL-HEC), Ralf Boscheck, Michael Yaziji (IMD), Philippe Thalmann, and Gaetan de Rassenfosse (EPFL). Cover photo by Amarnath Tade, downloaded from Unsplash. Introducing an Air Ticket Tax in Switzerland: Estimated Effects on Demand | E4S White Paper | 2 Table of Contents Executive Summary .............................................................................................................................. 5 1 Introduction .................................................................................................................................. 7 2 The contribution of air travel to global warming ........................................................................ 9 2.1 Full climate impact of aviation ............................................................................................ 9 2.2 Climate impact of Swiss air travel ..................................................................................... 10 2.3 Characteristics of air travel from Switzerland .................................................................. 12 2.4 Projections of demand ....................................................................................................... 15 2.5 Projections of fuel efficiency ............................................................................................. 15 2.6 Projections of emissions ..................................................................................................... 17 2.7 Decomposition of emissions from air transport ................................................................ 18 3 How the global impact of aviation can be curbed – First principles and existing policies ...... 20 3.1 First principles.................................................................................................................... 20 3.2 Existing policies of ICAO ................................................................................................... 21 3.3 Existing policies of the European Union ........................................................................... 23 3.4 Existing and planned policies in Switzerland ................................................................... 23 4 Effects of an air ticket tax – the role of demand elasticity ........................................................ 25 4.1 Demand elasticities ............................................................................................................ 25 4.2 Literature on air travel demand elasticities ....................................................................... 25 4.3 Elasticities used for our simulations .................................................................................. 28 5 Effects of an air ticket tax – simulations .................................................................................... 30 5.1 Modelling framework ........................................................................................................ 30 5.2 Data and calibration ........................................................................................................... 32 5.2.1 Passengers ...................................................................................................................... 32 5.2.2 Distances ........................................................................................................................ 33 5.2.3 Climate impact ............................................................................................................... 34 5.2.4 Prices .............................................................................................................................. 38 5.2.5 Elasticities ...................................................................................................................... 39 5.3 Tax schedule scenarios ....................................................................................................... 40 5.3.1 Tax schedule of CO2 Act and implicit CO2 levy ........................................................... 40 5.3.2 Tax schedule scenarios to be simulated......................................................................... 41 5.4 Model simulations .............................................................................................................. 42 5.4.1 Tax schedule as in CO2 Act ........................................................................................... 43 5.4.2 Tax schedule as in CO2 Act with growth ..................................................................... 44 Introducing an Air Ticket Tax in Switzerland: Estimated Effects on Demand | E4S White Paper | 3 5.4.3 Tax schedule analogous to UK Duty ............................................................................. 45 5.4.4 Tax schedule based on CO2 levy ................................................................................... 45 5.4.5 All scenarios compared .................................................................................................. 46 5.5 Distributional effects of the air ticket tax ......................................................................... 47 5.6 Limitations of the simulations ........................................................................................... 48 5.7 Discussion of these results ................................................................................................. 49 6 Further measures to reduce the climate impact of aviation ...................................................... 50 6.1 Overview ............................................................................................................................ 50 6.2 Reduce air travel demand .................................................................................................. 52 6.2.1 Voluntary approaches .................................................................................................... 52 6.2.2 Regulatory measures ...................................................................................................... 53 6.2.3 Quantity measures ......................................................................................................... 53 6.2.4 Price measures ............................................................................................................... 55 6.2.5 Other measures .............................................................................................................. 55 6.3 Reduce air travel supply .................................................................................................... 57 6.3.1 Voluntary approaches .................................................................................................... 57 6.3.2 Regulatory measures ...................................................................................................... 57 6.3.3 Quantity measures ......................................................................................................... 58 6.3.4 Price measures ............................................................................................................... 59 6.4 Improve passenger load factors.......................................................................................... 60 6.4.1 Regulatory measures ...................................................................................................... 60 6.5 Reduce the global warming impact of airplanes ............................................................... 61 6.5.1 Voluntary approaches .................................................................................................... 66 6.5.2 Quantity measures ......................................................................................................... 67 6.5.3 Price measures ............................................................................................................... 67 6.5.4 Other measures .............................................................................................................. 69 6.6 Conclusions concerning additional measures to reduce the climate impact of aviation . 70 7 Conclusion .................................................................................................................................. 70 References ........................................................................................................................................... 72 Appendix: Terminology ...................................................................................................................... 80 Contact ................................................................................................................................................ 82 About E4S ...........................................................................................................................................
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