Friday, July 23, 2010
Blog readers interested in international aviation's impact on the environment should be interested in reading Andrew Macintosh & Lailey Wallace's International Aviation Emissions to 2025: Can Emissions Be Stabilised Without Restricting Demand? (ANU College of Law Research Paper No. 10-44, 2008) (available from SSRN here). From the abstract:
International aviation is growing rapidly, resulting in rising aviation greenhouse gas emissions. Concerns about the growth trajectory of the industry and emissions have led to calls for market measures such as emissions trading and carbon levies to be introduced to restrict demand and prompt innovation. This paper provides an overview of the science on aviation's contribution to climate change, analyses the emission intensity improvements that are necessary to offset rising international demand. The findings suggest international aviation carbon dioxide emissions will increase by more than 110 per cent between 2005 and 2025 (from 416 Mt to between 876 and 1013 Mt) and that it is unlikely emissions could be stabilised at levels consistent with risk averse climate targets without restricting demand.
Blog readers may be interested to read U.S. International Trade Analyst Peder A. Andersen's testimony before the U.S.-China Economic and Security Commission, China's Emergent Military Aerospace and Commercial Aviation Capabilities (May 2010) (available from SSRN here).
Tuesday, July 20, 2010
Less than a week after the European Commission announced that it was closing its investigation of the oneworld Alliance, see "Commission Clears oneworld," the Department of Transportation has issued its final order for the alliance's bid to win approval and antitrust immunity. From the press release:
The U.S. Department of Transportation today granted antitrust immunity to American Airlines and four international partners in “oneworld” to form an integrated global alliance, but also imposed several conditions that will protect consumers and preserve competition. Today’s action makes final the Department’s tentative decision of Feb. 13.
As a result of the Department’s action, American and its oneworld alliance partners British Airways, Iberia Airlines, Finnair and Royal Jordanian Airlines will be able to more closely coordinate international services.
The Department found that granting antitrust immunity to the oneworld alliance will provide travelers and shippers with a variety of benefits, including lower fares in some markets, new nonstop routes, improved services and better schedules. The Department also said that the alliance will enhance competition around the world by enabling the oneworld alliance to compete more vigorously with Star Alliance and SkyTeam, which operate similar immunized alliances.
While the Department found that the alliance, on balance, was pro-competitive, it noted that the alliance could harm competition on select routes between the United States and London’s Heathrow Airport, a major hub for oneworld, where the availability of landing and takeoff slots is limited. To remedy this potential problem, the Department required the applicants to make four pairs of slots at Heathrow available to competitors for new U.S.-London service, with two pairs to be used for Boston-London service and the other two for service from any other U.S. cities.
See Press Release, U.S. DOT, DOT Approves oneworld Antitrust Immunity Application, DOT 140-10 (July 20, 2010) (available here).
A full copy of the final order is available here.
Monday, July 19, 2010
Last week, the D.C. Circuit Court of Appeals upheld the Department of Transportation's 2008 Policy Regarding Airport Rates and Charges, 78 Fed. Reg. 3310. See Air Transport Association v. U.S. Department of Transportation, Case No. 08-1293 (D.C. Cir. 2010) (available here). Writing for a unanimous court, Judge Douglas Ginsburg denied the ATA's petition for review on the grounds, commenting that the DOT's "effort to relieve congestion pricing [through the new pricing policy] . . . should be welcome on its merits, not spurned for its novelty." Id. at 27.
Without commenting on Judge Ginsburg's legal analysis, it is worth taking note of his curious discussion of slots as an alternative means to pricing for reducing airport congestion. See id. 5-6. Judge Ginsburg writes:
There are two ways in which an airport might increase its landing fee to the market-clearing level — that is, to the price just high enough to eliminate the excess demand and hence the queue at peak times. The first is to sell at auction the right to land an aircraft at a particular airport at a particular time; that right is called a “landing slot.” In an auction an airport would first determine the number of landings it can accommodate during a given period of time, such as an hour, and then allow airlines to bid for each slot in an auction; the winning bid would determine the price of the landing slot. The alternative is “congestion pricing,” which entails the airport itself increasing the price (landing fee) until it elicits demand for only as many landings as it can accommodate, thereby eliminating queuing and delay. Both a slot auction and congestion pricing will converge upon the same price and the same quantity.
He then goes on to state that while neither system "is preferable to the other," commentators "have advocated slot auctions rather than congestion pricing because an airport operator knows how many landings the airport can safely accommodate per hour but can only learn by trial and error what fee will yield that many landings." Id. at 5 (citation omitted). This is correct. However, Judge Ginsburg's next step is puzzling. At the end of a string cite in support of the latter proposition, he adds: "But see Michael E. Levine, Landing Fees and the Airport Congestion Problem, 12 J.L. & Econ. 79 (1969) (proposing a system of congestion pricing)."
While there is no doubt that Professor Levine wrote such an article in 1969, it is also true that Levine published a piece in support of slot auctions which was highly critical of congestion pricing in 2009. See Airport Congestion: When Theory Meets Reality, 26 Yale J. on Reg. 37 (2009). All of the articles Judge Ginsburg cites in his discussion of slots are 30-40 years old. Why pass silently over this and other recent scholarly treatments of the airport congestion problem? See, e.g., Jan K. Brueckner, Price vs. Quantity-Based Approaches to Airport Congestion Management, 93 J. Pub. Econ. 681 (2009). Why not take account of the fact airports operate as monopolies and have strong incentives to extract as much rent from airlines (and thus consumers) as possible?
Admittedly, even if the D.C. Circuit's opinion contained a more thorough and accurate discussion of slots, it would not have changed the holding. Perhaps, however, it would have forced the court to deal with the reality that congestion pricing is a suboptimal mechanism for reducing airport congestion while taking account of the latitude for abuse (i.e., rent extraction) the pricing option offers.