Regulation of aviation’s contribution to the global problem of climate change is increasingly likely in the near term, but the method agreed upon by most economists—a multi-sectoral market-based approach such as a cap and trade system—is opposed by industry stakeholders. An efficient economy-wide policy would determine the optimal level of sectoral emissions reductions, but industry groups have instead proposed independent aviation-sector goals for carbon mitigation and technology adoption. This thesis asks the question: how much should airlines reduce their emissions, and which technologies will be necessary to achieve those reductions.

In order to comprehend the problem of mitigation costs and outcomes within the context of the global economy, I introduce an aviation-resolved version of the MIT Emissions Prediction and Policy Analysis model; a computable general equilibrium model of the global economy. In EPPA-A, the social accounting matrix is re-balanced to include aviation, a non-unity income elasticity of demand is introduced, and substitution elasticity parameters are estimated. Additionally, I include an additional module to analyze the potential non-market impacts of government infrastructure on aviation emissions by explicitly modeling an advanced Air Traffic Control sector.

Several policy scenarios are applied to the model including: an idealized economy- wide cap and trade system in each developed nation or region, and an aviation-sector- only cap within an economy-wide cap, both with and without trading enabled between the aviation cap and the economy-wide cap. Each policy scenario is compared to a business-as-usual case, and relative welfare loss under each policy is calculated. The business-as-usual and economy-wide cap policies are also run with the advanced Air Traffic Control module enabled, and the efficacy is determined.

I find that in the context of total economic welfare, the method of aviation regulation is of little significance; the differences in results among the different policy scenarios are very small (on the order of 0.002% in the U.S.). However, the price of aviation and sector output are more responsive. When trading between an aviation- sector-only cap and the economy-wide cap is enabled, outcomes are practically identical. When trading is not allowed, the price of aviation increases 21.8%, and output falls 32.8% compared to the economy-wide policy-only case.  I find that national welfare outcomes are sensitive to international trade, and border adjustments for aviation emissions are important. Finally, the efficacy of advanced Air Traffic Control infrastructure, and the economic welfare gained or lost, is sensitive to the parameter estimates which exhibit high uncertainty. I find that the low-efficacy parameters result in slightly lower fuel intensity, but are also net-welfare decreasing, while the high parameter estimates increase welfare, but result in an infeasible reduction in sectoral energy intensity.

Considerations regarding the roles of advanced technologies are crucial in energy-economic modeling, as these technologies, while usually not yet commercially viable, could substitute for fossil energy when relevant policies are in place. To improve the representation of the penetration of advanced technologies, we present a formulation that is parameterized based on observations, while capturing elements of rent and real cost increases if high demand suddenly appears due to large policy shock. The formulation is applied to a global economy-wide model to study the roles of low carbon alternatives in the power sector. While other modeling approaches often adopt specific constraints on expansion, our approach is based on the assumption and observation that these constraints are not absolute—the rate at which advanced technologies will expand is endogenous to economic incentives. The policy simulations are designed to illustrate the response under sudden increased demand for the advanced technologies, and are not intended to represent necessarily realistic price paths for greenhouse gas emissions.

In this paper, we present a method to quantify the effectiveness of carbon mitigation options taking into account the "permanence" of the emissions reduction. While the issue of permanence is most commonly associated with a "leaky" carbon sequestration reservoir, we argue that this is an issue that applies to just about all carbon mitigation options. The appropriate formulation of this problem is to ask 'what is the value of temporary storage?' Valuing temporary storage can be represented as a familiar economic problem, with explicitly stated assumptions about carbon prices and the discount rate. To illustrate the methodology, we calculate the sequestration effectiveness for injecting CO2 at various depths in the ocean. Analysis is performed for three limiting carbon price assumptions: constant carbon prices (assumes constant marginal damages), carbon prices rise at the discount rate (assumes efficient allocation of a cumulative emissions cap without a backstop technology), and carbon prices first rise at the discount rate but become constant after a given time (assumes introduction of a backstop technology). Our results show that the value of relatively deep ocean carbon sequestration can be nearly equivalent to permanent sequestration if marginal damages (i.e., carbon prices) remain constant or if there is a backstop technology that caps the abatement cost in the not too distant future. On the other hand, if climate damages are such as to require a fixed cumulative emissions limit and there is no backstop, then a storage option with even very slow leakage has limited value relative to a permanent storage option.