Impact of the european emission trading scheme for the air transportation industry on the valuation of aircraft purchase rights

The European Commission issued a legislative proposal in December 2006, suggesting a cap on CO2 emissions for all planes arriving or departing from EU airports, while allowing airlines to buy and sell pollution credits on the EU carbon market (Emission Trading Scheme, or ETS). In 2008 the new scheme got the final approval. Real options appear to be ab appropriate methodology to capture the extra value brought by the new legislation on new airplane purchase rights: The airline will surely have the purchase right to the new plane if the operation of the plane generates unused pollution credits that the airline can sell at a minimum price in the carbon market. This paper tries to determine if the impact of ETS in the valuation of aircraft purchase rights is significant enough in monetary terms to include the new legislation in a complex real-option model already proposed by the authors recently. The research concludes that even the impact of ETS justifies its inclusion in the model, the quality of the available sets of historical data still raises some questions. Particularly, the assumption of market efficiency for the Carbon Pool over the recent years needs to be treated with caution. (Author) 9 refs