Incentive-based environmental regulation of domestic civil aviation in Sweden

In this paper we analyse the possibility of an incentive-based (IB) environmental regulation of domestic civil aviation in Sweden.

From a regulation perspective, we identify important characteristics of domestic aviation. We discuss several, both practical and theoretical, critical aspects on IB regulation. In the short-run, the environmental performance of an IB regulation might be poor, since the most likely source of emission reductions is a reduction in the number of flights. However, we also find that the dynamic effects of an IB regulation are clearly better than for command-and-control regulations. Given this discussion, we investigate the prospects of implementing an optimal IB regulation and compare this with the present regulation and pricing of the infrastructure. We show that introducing an IB regulation could improve the over-all efficiency of the pricing system.