The Department for Transport recently published an assessment of the costs of aviation emissions, intended to provide a view of the extent to which this sector is covering its climate change costs. The approach involves taking the aviation carbon emissions from UK domestic flights and departing international flights, multiplying by 1.9 to allow for non-CO2 climate change effects, multiplying by a price which reflects the Government's Shadow Price of Carbon, and then comparing the total monetary cost with the revenues from Air Passenger Duty and other aviation duties.

For the 2006 central case scenario, the conclusion is that £0.6bn of the aviation industry's climate change costs were not covered by revenues, but with a doubling of the Duty, as applies from February 2007, these costs would be more than covered.

The Shadow Price of Carbon assumed for the central case is £24.7/tCO2. which is rather higher than the current price of carbon traded under the EU Emissions Trading Scheme. An interesting article in the 17 July issue of the Financial Times by Kevin Parker, global head of Deutsche Asset Management, argues that supply and demand in the carbon market are severely out of balance, which 'may lead to a radical repricing of carbon that will fundamentally change the political, business and financial landscape forever'. This dramatic claim arises from an assessment that nearly everyone is short carbon, with few businesses having surplusses to sell.  A price of 100 euro (£80) per tonne is seen as inevitable.

If this forecast is anything near correct, the aviation sector has some way to go to cover its climate change costs.