The Environmental Challenge in Aviation: Can Airport Charges Be Part of the Solution?

Aviation is becoming a major contributor to greenhouse gas emissions and generates local pollution with harmful health effects. This study examines the effects of airport charges by means of a theoretical setup and an empirical application. The equilibrium analysis identifies how airport charges affect fares, frequencies, and aircraft emissions. The welfare analysis concludes that frequencies are excessive when the damage caused by emissions is severe. Finally, our model explores mechanisms for revenue-neutral airports to compensate rises in emission charges by lowering nonemission charges to generate incentives for airlines to renew their fleets. The empirical analysis concludes that NOx emission charges have a modest effect on fares and frequencies as compared to per-passenger and per-flight charges. Although only emission charges spur the use of newer aircraft, they should be much higher than their actual values to play a relevant role in contributing to a more sustainable aviation.