Principal investigator: Angelo Cruz do Nascimento Varella
Article title: Impacts of an Environmental Tax on Demand in Brazilian Air Transport
Article authors: Carolina Barbosa Resende and Alessandro Vinícius Marques de Oliveira
Location of the intervention: Brazil
Sample size: Data on the aviation sector between 2002 and 2013
Sector: Environment, Energy & Climate Change
Type of Intervention: Effects of creating an environmental tax for the aviation sector.
Main Variable of Interest: Demand for airline tickets
Evaluation method: Others
Policy Problem
Greenhouse gas emissions are a global problem because they generate the greenhouse effect, which increases the planet's temperature and triggers a series of environmental imbalances. Consequently, in recent decades, global warming has become an important public policy issue in virtually all sectors of developed and developing economies.
Consequently, the aviation sector, which also contributes to global warming, is subject to measures to reduce greenhouse gas emissions. However, it is important to emphasize and consider the importance of air transport for economic development, especially in the case of developing countries.
Context Evaluation
Since the 1990s, various countries around the world have been negotiating measures to control global warming and its harmful consequences. This is the case, for example, with the Kyoto Protocol and the implementation of measures to reduce greenhouse gas emissions, led by the United Nations.
Since one of the main causes of these gas emissions is the burning of fossil fuels, aviation also contributes to global warming, with 70% of aviation emissions generally being carbon dioxide, one of the main pollutants causing the planet's temperature to rise.
Therefore, one way to reduce greenhouse gas emissions in aviation is to curb consumption through a public policy of environmental taxation. This measure, studied in Europe, not only reduces air travel but also generates revenue to combat the negative consequences of pollution from the aviation sector. However, it is important to emphasize that this measure also negatively impacts the economic development of the region affected by environmental taxes.
Policy Details
Environmental taxation is an easy concept to understand. By allocating a tax to airline ticket prices, the economic incentive to travel is reduced and, consequently, emissions of polluting gases are also reduced. Furthermore, the revenue from the tax generates income that the government can use to reduce damage and encourage the development of new technologies that will be more environmentally efficient.
However, there are negative economic and social consequences to consider. Not only will there be an increase in the costs associated with airfare following the implementation of the new environmental tax, but there will also be a decrease in demand, meaning fewer people will be able to travel by plane, impacting businesses, citizens, and other economic sectors such as tourism and other modes of transportation.
This relationship between environmental benefits and economic costs resulting from the application of a taxation system in the Brazilian air transport sector is the central theme of this work, carried out by researchers from the Technological Institute of Aeronautics – ITA.
Methodology Details
Based on information collected from the National Civil Aviation Agency (ANAC), the Brazilian Institute of Geography and Statistics (IBGE), and the IPEA Data database from the Institute for Applied Economic Research (IPEA), the researchers compiled a database covering 12 years of activity in the Brazilian air transport sector, from January 2002 to December 2013.
For the purposes of this research, two mathematical models were developed. The first uses the data obtained to measure characteristics of the air transport market, based on an econometric model called multiple linear regression. The second model incorporates the results of the first calculation to simulate the implementation of an environmental tax in the air sector, estimating the behavior of economic agents in this hypothetical scenario.
In this way, it is possible to consider the historical behavior of consumers and companies in the aviation sector when simulating the application of an environmental tax system, estimating the economic, social, and environmental impacts of implementing this new public policy in Brazil.
Results
The results found are interesting and, in general, agree with other similar studies carried out in other countries. Essentially, as expected, an environmental tax applied to the air transport sector has a negative impact on the demand for air travel, such that demand decreases as prices increase.
The authors estimated different rates in different sectors and regions. All rates applied, at values of 10, 15, and 30 euros, had negative impacts on demand. The main region affected is the Northeast, due to its air sector being heavily influenced by tourism, whose demand suffers more from price increases. In other words, the economic and social cost was greater for this region.
Two other important findings relate to corporate demand and periods of crisis. In short, periods of crisis, as is the case in Brazil from 2008 onwards, show worse results in terms of demand for airline tickets. Furthermore, corporate demand, that is, the purchase of tickets by companies, tends to be less impacted by price increases, indicating that the environmental tax affects company profits and people's decisions.
The following graph presents the simulation results. The width of the columns is proportional to the sample size. The first two columns show the analyses with and without the crisis, while the following five columns refer to regional analyses. The percentages labeled "Corporate" in the last three columns represent the impact on demand according to the proportion of business trips.
Lessons in Public Policy
Studying and measuring the impact of implementing a new public policy is essential to ensure its desired effects. Without this research, the implementation of a new rule can result in unintended consequences that worsen the situation. In the case of the aviation sector, for example, in addition to negatively impacting the economy and society, it is possible that individuals will migrate to other sectors that are also polluting, such as road transport, generating other negative externalities. However, it is also necessary to consider the negative impact of not adopting adequate environmental protection measures. The challenge lies in this delicate balance.
Thus, in this work, researchers present a model with the intention of demonstrating the economic and social impacts of implementing an environmental tax in the Brazilian aviation sector, arguing that aviation has a direct impact on companies, society, and other sectors of the national economy.
Reference
RESENDE, Carolina Barbosa; DE OLIVEIRA, Alessandro Vinícius Marques. Impacts of an environmental tax on demand in Brazilian air transport. Transportes, v. 25, n. 2, p. 78-90, 2017.
