Market-based measures include: emissions trading, emission related levies - charges and taxes, and emissions offsetting; all of which aim to contribute to the achievement of specific environmental goals, at a lower cost, and in a more flexible manner, than traditional command and control regulatory measures. Market-based measures are among the elements of a comprehensive mitigation strategy to address greenhouse gas (GHG) emissions from international aviation that are being considered by ICAO.

In 2001, the ICAO Assembly requested the Council to continue to develop guidance for States on the application of market-based measures aimed at reducing or limiting the environmental impact of aircraft engine emissions, particularly with respect to mitigating the impact of aviation on climate change. The Assembly encouraged States and the Council, taking into account the interests of all parties concerned, to evaluate the costs and benefits of the various measures with the goal of addressing aircraft engine emissions in the most cost-effective manner, emphasizing the need for States to take action in a consistent manner regarding both domestic and international aviation emissions (Resolution A36-22 (PDF), Appendix L).

One of the principal findings is that an emissions-trading system is a system whereby the total amount of emissions is capped and allowances, in the form of permits to emit CO2, can be bought and sold to meet emission reduction objectives. Such a system could serve as a cost-effective measure to limit or reduce CO2 emitted by civil aviation in the long term, provided that it is open to all economic sectors.

The Assembly consequently endorsed the development of an open emissions trading system for international aviation. It requested the Council to develop as a matter of priority the guidelines for open emissions trading, focussing on establishing the structural and legal basis for aviation's participation in an open trading system, and including key elements such as reporting, monitoring, and compliance, while providing flexibility to the maximum extent possible consistent with the UNFCCC process. A draft guidance on the use of emissions trading has been published by ICAO. [Guidance on the use of Emissions Trading for Aviation (Doc 9885)].

The analyses have also indicated that short-term voluntary measures – that is, a mechanism under which industry and governments agree to a target and/or to a set of actions to reduce emissions – could serve as a first step towards future actions to further reduce emissions. The Assembly consequently encouraged short term action by States and other parties involved to limit or reduce international aviation emissions, in particular through voluntary measures. It also urged the Council to facilitate actions by developing guidelines (such as for quantifying, monitoring and verifying emission reductions or actions) for such measures, including a template voluntary agreement as appropriate. The Assembly also recognized the need to ensure that those taking early action would benefit from such actions and would not subsequently be penalized for so doing.

ICAO has published guidance on emission-related levies [Guidance on Aircraft Emission Charges Related to Local Air Quality (Doc 9884)] – that is, charges or taxes. It also has long-standing policies covering charges in general (ICAO's Policies on Charges for Airports and Air Navigation Services, Doc 9082/6). ICAO has also developed separate policy guidance to States on taxation (ICAO's Policies on Taxation in the Field of International Air Transport, Doc 8632), which recommends the reciprocal exemption from all taxes levied on fuel purchased for international flights, a policy implemented in practice in the vast majority of bilateral air services agreements, and also calls on States to reduce or eliminate taxes related to the sale or use of international air transport.

In December 1996, the ICAO Council adopted a policy statement in the form of a resolution, concerning the use of emission-related levies. While the Council considered that the development of an internationally agreed environmental charge or tax that all States would be expected to impose would appear not to be practicable at that time, given the differing views of States and the significant organizational and practical implementation problems that would be likely to arise, the Council strongly recommended that environmental levies that States may introduce should be in the form of charges rather than taxes and that the funds collected should be applied in the first instance to mitigating the environmental impact of aircraft engine emissions. Such charges should be based on the costs of mitigating this impact, to the extent that such costs can be properly identified and directly attributed to air transport.

The Assembly recognized the continuing validity of the 1996 policy regarding emission-related levies, urged States to refrain from unilateral action to introduce emission-related levies inconsistent with the current guidance, and called for the Council to carry out further studies and develop further guidance on the subject.

Since 1998, CAEP has undertaken the development of policies, guidance material and technical and economic studies on various market-based measures to address GHG emissions from international aviation, including emissions trading, emission-related levies, emissions offsetting. With a view to further developing information on market-based measures for aviation, CAEP/7 in February 2007 established a Market-based Measures Task Force (MBMTF) to develop the following three reports:

    1. Report on Scoping Study of Issues related to Linking Open Emissions Trading Systems involving International Aviation;
    2. Report on Offsetting Emissions from the Aviation Sector; and
    3. Updated Report on Voluntary Emissions Trading for Aviation.

These reports were approved by CAEP/8 in February 2010 and by the Council in June 2010.