Many greenhouse gas mitigation policies that shift fossil fuel use are accompanied by some hidden environmental benefits, so called “co-benefits” or “ancillary benefits.”

Raising the price of fossil fuels is a key component of any effective policy to deal with climate change. Just how effective such policies are is decided by the price elasticities of demand. Many papers have studied this without recognising that not only is there a demand side response: quantities are decided by the price but also there is a reverse causality: the level of consumtion affects the political acceptability of the taxes which are the main component of the final price.

We explore the possibilities of using incentive-based environmental regulations of CO2 emissions from international civil aviation. In theory incentive-based instruments such as an emission charge or a tradable emission permit system are better regulations than so-called command-and-control regulations such as emission limits or technology standards.