WORKING PAPER - Demand response to aviation carbon pricing in Canada

This study models the effect of introducing a Canada-wide carbon price on interprovincial flights and assesses a scenario of using a frequent flyer levy to achieve the same change in demand as carbon pricing. [...] The frequent flyer levy schedules shown in Table 5 for 2030 are generated so that the total demand response to the FFL matches the demand response to the price on carbon, within an accuracy of 1%. [...] Using the commuter-distance segment as a baseline, the FFL is scaled at 1.5x, 3x, and 5x for the longer-distance tickets in economy class, and 2x, 3x, and 3x of the economy-class levy for premium-class tickets in each segment, based on the average emissions per ticket of each segment from ICCT’s GACA model. [...] The total ticket price increase for each segment is then translated into the change in demand for tickets using the demand elasticity for air travel gathered from literature, as shown in Equation 2: Change in demand (%) = change in ticket price (%) × demand elasticity (2) A meta-analysis of aviation demand elasticities estimates that, for the intra-North America market, a national-level ticket pri. [...] 9 ICCT WORKING PAPER | DEMAND RESPONSE TO AVIATION CARBON PRICING IN CANADA In 2040 under the Deep Decarbonization scenario, fuel costs are estimated to increase 80% due to both the carbon price and SAF (i.e., $161 per tonne applied to 79% of fuel consumption and the SAF premium of $1.62/L for the remaining 21%), resulting in a demand reduction of 3.9 million tickets.