Working Paper

Demand response to aviation carbon pricing in Canada

Demand management and carbon pricing can be policy levers in efforts to decarbonize aviation by reducing the number of flights and providing an economic incentive for airlines to invest in lower-emission planes and fuels. To reach a goal of net-zero carbon emissions for its aviation industry by 2050, Environment and Climate Change Canada is exploring whether to put a carbon price on interprovincial flights.

This ICCT study models the effect of introducing a Canada-wide carbon price on interprovincial flights. It also assesses whether a frequent flyer levy (FFL) can achieve the same change in demand as carbon pricing in a more equitable way. The analysis estimates the impact on demand and emissions in 2030, 2040, and 2050 by flight distance, seating class, and different fuel efficiency assumptions. This hypothetical approach does not intend to reflect the policies and requirements of the Canadian federal carbon pricing system.

A $123 per tonne carbon price (with a nominal price of $170 in 2030) on aviation could potentially reduce domestic interprovincial passenger air travel demand by 1.8 million tickets in 2030, 2.6 million in 2040, and 3.4 million in 2050 under a business-as-usual emission scenario. If sustainable aviation fuel (SAF) is introduced to reduce emissions and carbon revenue is recycled to subsidize its cost, travelers will not forgo as many flights.

A carbon price that is applied equally to everyone would result in fewer trips from infrequent and occasional fliers. An FFL can help shift the impact of demand-reduction strategies away from these passengers, keeping the travel plans of infrequent flyers intact. A frequent flyer levy could be higher for business travel to place more decarbonization costs onto corporations rather than individuals.