A Real Option-Based Model to Properly Value Aircraft Purchase Rights: Impact of the coming EU Legislation on Aircraft CO2 emission levels

Resumen

. – The European Commission issued a legislative proposal in December 2006, suggesting a cap on CO2 emissions for all planes arriving or departing from EU airports, while allowing airlines to buy and sell 'pollution credits' on the EU 'carbon market' (Emissions Trading Scheme). In 2008 the new legislation is expected to be defined and to get the final approval. Real options appear to be a convenient methodology to capture the extra value brought by the new legislation on new airplane purchase rights: the airline will surely exercise the right to the new plane if the operation of the plane generates unused pollution credits that the airline can sell at a minimum price in the carbon market.