Does the aviation Emission Trading System influence the financial evaluation of new airplanes? An assessment of present values and purchase options

In this paper we assess the impact of the CO2 costs for short- and long-haul aircraft based on present values and on purchase options. We evaluate purchase options with a framework developed for real option analysis to estimate the value of flexibility under uncertain kerosene and CO2 prices. We find an average influence of CO2 costs on present values of €1.1 million for the short haul plane and €4.1 million for the long-haul plane over the typical lifetime of an airplane. For purchase options, we find a CO2 influence of €0.43 million for the long-haul plane and a moderate impact for the short-haul plane. The results underline the importance of CO2 and kerosene costs for long-haul aircraft.

► We assess the impact of CO2 prices on the evaluation changing to fuel efficient short and long-haul plane purchases.
► CO2 prices influence present values of €1.1 and €4.1 million for short and long-haul planes.
► CO2 prices influence purchase options by €0.025 and €0.43 million for short and long-haul planes.