Designing an emissions trading scheme requires in-depth knowledge regarding several aspects. This paper attempts to clarify some important design points of the forthcoming emissions trading scheme for aviation under the EU ETS. Five general key points of system design are acknowledged and comparisons are made to previous and current emission trading schemes. While it is not meant to be exhaustive it helps to create an understanding of what design elements should be handled with caution. Discussion is provided in regard to the recent implementation of aviation in the EU ETS. Above all, it is argued that initial allocations of emission permits and the trade barrier between the aviation sector and EU ETS need to be carefully examined.

 The aim of this study is to estimate the price elasticity of demand for domestic air travel in Sweden. Using national aggregated data on passenger quantities and fares, price elasticities of demand are estimated with an unbalanced, in terms of stationarity, yet well performing model. The analysis also includes estimates of cross-price elasticities for the main transport substitutes to air travel, rail and road. The robustness of the results is enforced by a primitive division of business and leisure travellers. The results indicate that aggregated demand for domestic air travel in Sweden is fairly elastic (-.84) in the short-run and more elastic (-1.13) in the long-run. The robustness test of the model show that leisure travellers, as defined in the data, are more sensitive to price changes than are business travellers. Furthermore, the cross price elasticity between rail and air travel is found to be .44.

Starting on January 1 st, 2012, the international aviation sector will be included into the already existing EU ETS. All air crafts departing and arriving within the European Union will be obliged to hold permits corresponding to their total emissions of CO 2for those routes. Since emissions from the international aviation sector are not included under the Kyoto Protocol, the European Commission has decided to introduce a trading barrier between the sectors in order not to jeopardize the Kyoto targets. The purpose of this paper is to analyse the potential loss in cost-effectiveness of introducing such a trading barrier between two sectors taking into account that damage from emissions is not necessarily uniform. A theoretical model is developed to address the question and it is found that, at least for the case with linking the international aviation sector to the stationary sources within the EU ETS, the trading barrier might be unwarranted as it might lead to higher damage from emissions as compared to alternative ways to link the trading sectors. However, it should be stressed that this finding is not general and caution should be taken in the future when linking emission trading schemes as, depending on the heterogeneity of emission damage, a trading barrier might very well be justified.