Carbon tax incentive policy towards air passenger transport carbon emissions reduction

Highlights

• A carbon tax incentive policy for air passenger transport is proposed.

• A bi-level model considering the conflicts of governments and airlines is developed.

• The genetic algorithm is combined with fuzzy logic controllers to solve the model.

• The incentive policy works in emissions reduction under proper conditions.

• Policy implications concerning the incentive policy are provided.

Abstract

With the rapid expansion of the aviation industry, air passenger transport fossil fuel consumption and carbon emissions have attracted increasing attention. To reduce fossil fuel consumption and carbon emissions, this paper investigates an air passenger transport carbon tax incentive policy setting problem, in which the carbon tax incentive policy includes a carbon tax and competitive tax rebates. Then a bi-level programming model is proposed to solve this problem. An interactive solution approach combining a genetic algorithm with fuzzy logic controllers is developed to find solutions based on the ICAO and airlines related data. The results indicate that the incentive policy could encourage airlines to improve fuel consumption and emission performance under proper conditions. Besides, the government should effectively control the carbon tax incentive level based on application effect and financial support, and airlines could select proper improvement strategies and carbon tax transfer ratios under the incentive policy.

Introduction

Since air passenger transport contributes significantly to overall aviation carbon emissions with massive jet fuel burning (Fukui and Miyoshi, 2017), it is vital to curb air passenger transport fossil fuel consumption and carbon emissions. There have been many carbon pricing initiatives made to save jet fuels and improve carbon emissions (World Bank, 2018). Carbon tax is a useful way to reduce air passenger transport fossil fuel consumption and carbon emissions (González and Hosoda, 2016, Larsson et al., 2019). Based on the carbon tax, the reallocation of tax revenue can promote the development of fuel improvement technologies to further achieve fossil fuel saving and carbon emissions reduction (Dray et al., 2014). Therefore, a carbon tax incentive policy that combines the carbon tax mechanism with revenue reallocation would be helpful for fossil fuel consumption and carbon emissions reductions in air passenger transport if properly designed.

There are often multiple stakeholders with potential conflicts in reality when implementing carbon pricing initiatives. As with other problems that involve multiple stakeholders, it is not beneficial for fossil fuel saving and carbon emission mitigation if only a government level or airlines level is considered when making a carbon tax incentive policy (Angulo et al., 2014, Qiu et al., 2020). Bi-level programming has become an effective method for solving multi-stakeholder problems. It can determine equitable equilibrium strategies that balance conflicts between stakeholders in many cases (Sohn, 2011, Zhao et al., 2016, Qiu et al., 2017). The successful application of the bi-level programming in transportation areas that have multiple stakeholders with conflicts has inspired this paper to develop a carbon tax incentive policy based on the bi-level programming, where the government and airlines are considered as a leader and followers, respectively, to encourage airlines to adopt improvement strategies for carbon emission mitigation with fossil fuel saving in air passenger transport.

This paper investigates an air passenger transport carbon tax incentive policy setting problem (APTCTIPSP). It is a complex problem for both airlines and the government making a carbon tax incentive policy towards air passenger transport carbon emission mitigation and fossil fuel saving. The carbon tax incentive policy herein levies a carbon tax on airlines and competitive tax rebates, which are designed to promote airlines to improve their carbon emissions mitigation levels. The tax rebate of each airline is based on the total carbon tax revenue and a rebate rate determined by comparing its mitigation level with others. The APTCTIPSP not only analyzes the carbon tax incentive policy towards airlines from the government’s perspective, but also considers carbon tax transfer ratios and improvement strategies from the airlines’ perspective, involving the conflicts between a government and airlines, as shown in Fig. 1. These conflicts are due to the decisions of these stakeholders having conflicting objectives. The interactions of these stakeholders are considered for balancing these conflicts, finally reaching an equilibrium (Sherali et al., 1983).

To increase system efficiency, the government would maximize the net social benefit of the carbon tax incentive policy when making decisions about the incentive policy, i.e., setting a carbon tax and determining relevant revenue rebate rules. These decisions will influence the objective (i.e., economic profits) of each airline in Fig. 1. The tax will place an additional cost on each airline based on its carbon emissions. Airlines will also receive tax rebates based on their mitigation levels. As shown in Fig. 1, based on the government’s decisions, the airlines make decisions about carbon tax transfer ratios and improvement strategies. Their decisions will influence the net social benefit of the policy, i.e., the objectives of the government in Fig. 1. Consequently, there is a leader–follower relationship involving a government and airlines, taking account of the interactions between these stakeholders. Since bi-level programming can describe the leader–follower relationship effectively, a bi-level structure is built, where the government is on the upper level with airlines being on the lower level.