# Presentation: 082981

## Aviation Environmental Portfolio Management Tool (APMT)

**Presentation to ICAO CAEP/FESG**
**February 22, 2006**
**Montreal, Canada**

- BB&C

**Vital Link**
**Policy Analysis**

## Slide 2

## Objectives for this presentation

- Review APMT background and status
- Highlight changes since the September presentation to FESG in Reykjavik
- Discuss near term (1 year) APMT goals
- Invite FESG guidance, participation, collaboration
- Document review (_[http://spacestation.mit.edu/partner](http://spacestation.mit.edu/partner)__) by March 31st_
*	**APMT: a broad modular suite of tools to better inform policy through rigorous environmental-economics analysis*

## APMT progressing rapidly

*September 2005 (Reykjavik):** *
- Requirements and Architecture defined
*February 2006 (Montreal): *
- Prototype work plan developed
- International review of Requirements Study, Architecture Study and Prototype Work Plan (first responses due Feb. 14, extended to March 31st)
- International team formed; includes key members of AERO-MS development team
- $1.6M APMT Prototype contract in place (12 month period)
- Kick-off meeting held Feb 16-17, 2006.
- All milestones, dates and task owners defined

## APMT progressing rapidly

- Near term goals are* **aggressive*:
- All components of APMT Prototype coded and provided to integration team by May 31, 2006 (**3.5 months from now!**)
- First integrated APMT Prototype August 31, 2006
- Component and system-level assessment and functionality testing by Dec. 1, 2006
- Detailed report on assessment APMT Prototype and recommendations for development of APMT version 1 by Dec. 31, 2006.

## Motivation 

- Aviation benefits and environmental effects result from a complex system of interdependent technologies, operations, policies and market conditions
- Policy and R&D options are largely considered within a limited context
- only noise, only local air quality, only climate change
- only partial economic effects
- Actions in one domain may produce unintended negative consequences in another
- Current tools and processes do not support recommended practice
- NPV of benefits-costs is recommended basis for informing policy decisions in U.S., Canada and Europe

## Better informed policy: examples

- Every aircraft model has a different combination of noise, emissions, fuel burn and performance
- What is the right balance?  Will tomorrow’s aircraft reflect this?
- What are the most economically-efficient strategies for achieving capacity growth and addressing environmental goals? (e.g. NGATS)
- CAEP/6 NOx stringency
- Greater leniency for CO to enable more aggressive NOx standard was briefly considered
- What are the relative impacts of CO and NOx?
- No PM certification standard
- What is the health impact of PM vs. regulated emissions?
- Climate vs. local air quality vs. noise
- What are the relative impacts?

## High-level goals

- More effectively assess and communicate environmental effects, interrelationships, and economic consequences based on integrated analyses
- Facilitate international agreements on standards, recommended practices, and mitigation options
- Enable more informed international and U.S. policy and budgetary decision-making
- Start with cost-effectiveness analysis, progress to benefit-cost analysis
- Desired characteristics
- Internationally-accepted
- Inclusive, not competitive
- Transparent
- Rigorous
- Explicitly represent uncertainty and different viewpoints

## Relationship to international standard setting (e.g. ICAO CAEP/FESG)

- Desire is to work collaboratively to develop models
- That will encompass existing FESG practices
- That will provide additional capability beyond existing practices
- That FESG will find to be valuable and useful
- The models _cannot replace_ the function of FESG
- Inputs, model design, baseline choice, scenario choices, assumptions, interpretation of output, must be done by experienced experts (not computers)
- We hope the models _will enhance_ the existing functions of the FESG

## APMT overview

**APMT overview**

**APMT**

- Policy scenarios
- Certification stringency
- Market-based measures
- Land-use controls
- Sound insulation
- Market scenarios
- Demand
- Fuel prices
- Fleet
- Environmental scenarios
- CO2 growth
- Technology and operational advances
- CNS/ATM, NGATS
- Long term technology forecasts

- Cost-effectiveness
- $/kg NOx reduced
- $/# people removed from 65dB DNL
- $/kg PM reduced
- $/kg CO2 reduced
- Benefit-cost
- Net change in societal welfare ($)
- Distributional analyses
- Who benefits, who pays
- Consumers
- Airports
- Airlines
- Manufacturers
- People impacted by noise and pollution
- Special groups

- Global, Regional, Airport-local

**inputs**

**outputs**

## APMT architecture overview

**APMT architecture overview**

- Economic model of primary markets
- (consumers, manufacturers, airlines, airports)

**Policy, market and scenario inputs**

**Collected costs and benefits organized in balance sheets for different stakeholders**

- Model of world-wide aircraft operations
- (AEDT = SAGE + INM + MAGENTA + EDMS)

- Monetized environmental impacts
- (Local air quality, noise, climate change)

- Direct, indirect and induced effects on broader economy

## APMT architecture detail

**APMT architecture detail**

**APMT**

**EDS**

**AEDT**

## How does it all fit together?

- APMT
*A broad modular suite of tools* to better inform policy through rigorous environmental-economics analysis
- EDS
- Aircraft system-level trades, interdependencies, technology forecasting
- Takes scenario input (policies, market conditions, technological capabilities, etc.)
- Estimates performance, “cost”, emissions, noise for future aircraft designs
*Module is within the primary market economic block of APMT*
- AEDT
- Takes fleet and schedule inputs (historical or future scenarios)
- Estimates global emissions (e.g. SAGE), local emissions (e.g. EDMS), global noise (e.g. MAGENTA), and local noise (e.g. INM)
*AEDT block sits between primary market block and benefits valuation block of APMT*

## Series of three APMT studies

- Requirements document
- Detailed functional requirements and guidance on implementation
- Supporting discussions to place requirements within context of current practice
- Recommended time frames for development and use
- Geographical and economic scope for analyses
- Architecture study
- Components of APMT architecture, interfaces among components, interfaces with tools that exist or are underdevelopment including _E_nvironmental _D_esign _S_pace (EDS) and _A_viation _E_nvironmental _D_esign _T_ool (AEDT)
- Reviews existing tools, assesses their suitability for use in APMT, and establishes what additional development necessary to achieve APMT requirements
- Prototype work plan
- Initial APMT prototyping effort that is intended to identify gaps or weaknesses in architecture and stimulate advancements in development
- Delineates entities necessary for analyses, roles, data requirements, and proposed schedule

## Nomenclature

- Adopted standard nomenclature from environmental-economics literature
- “Benefits” = changes in health, welfare and ecosystem impacts of pollution
- “Costs” = changes in monetary flows in markets
- Benefits can be positive or negative
- Costs can be positive or negative

## Requirements study

- Extensive review of literature and tools (aviation and non-aviation)
- Key literature sources:
- EPA *Guidelines for Preparing Economic Analyses* [EPA, 2000]
- OMB Circular A-4, *Best Practices for Regulatory Analysis* [OMB, 2003]
- UK HM Treasury *Green Book on Appraisal and Evaluation in Central Government* [UK HM Treasury, 2003]
- UK Cabinet Office, Better Regulation Executive *Regulatory Impact Assessment Guidance* [UK BRE, 2005]
- OECD *The economic appraisal of environmental projects and policies – A practical guide* [OECD, 1995]
- Transport Canada *Guide to Benefit Cost Analysis in Transport Canada* [TC, 1994]
- WHO *Air Quality Guidelines for Europe* [WHO, 2000a]
- Kopp, Krupnick, Toman, Resources for the Future, *Cost Benefit Analysis and Regulatory Reform: An Assessment of the Science of the Art*. [RFF, 1997]
- Krupnick, Ostro, and Bull *Peer Review of the Methodology of Cost-Benefit Analysis of the Clean Air for Europe Programme*, [Krupnick et al., 2004]
- Clean Air for Europe (CAFÉ) Programme *Methodology for the Cost-Benefit Analysis for CAFÉ Vol. 1* [CAFÉ 2005]

## Every requirement drawn directly from U.S. and European policy guidanceExample

**BCA.1.1 Monetization of Benefits**
**	****APMT must be capable of monetizing the benefits through best available techniques including revealed preference methods, stated preference methods, out-of-pocket expenditures, and hybrids of these methods.**
*To the extent feasible and warranted by their contribution to the results, as many of the effects of a policy as possible should be monetized. This enhances the value of the conclusions to policy makers weighing the many, often disparate consequences of different policy options and alternatives.* [EPA, 2000, p176]
*The general rule is that benefits should be valued unless it is clearly not practicable to do so. *[UK HM Treasury, 2003, p19]
*The quantification of potential social, health or environmental impacts normally requires an alternative approach to valuation. Techniques to establish money values for this type of non-market impact generally involve the inference of a price, through either a revealed preference or stated preference approach.. *[UK HM Treasury, 2003, p57]
- Etc....

## Cost-effectiveness vs. benefit-cost analysis

- Why not stop at cost-effectiveness analysis?
- $/unit reduction in pollution, e.g. $/tonne-NOx
- Downstream environmental effects are not linearly related to emissions
- Emissions     ambient pollution concentrations     human health     $ value
- $10/1 tonne-NOx ≠ $20/2 tonne-NOx
- Cost-effectiveness does not tell one if there is a net benefit to society
- Of several options for NOx reduction, the least expensive is $30,000/tonne-NOx; does this produce a net benefit to society?
- Cost-effectiveness does not allow trade-offs to be evaluated in common terms
- If a policy option leads to changes in more than one environmental impact (noise dB and tonne-NOx), how does one weigh the relative values?
- Benefit-cost analysis designed to estimate net changes in social welfare
- Requires estimates of health and welfare costs
- E.g. if policy costs are $30,000/tonne-NOx and 1 tonne-NOx produces $2000 of environmental damages, then implementing the policy does not produce a net increase in social welfare

## APMT Requirements Timeline

## Competing objectives

**Competing objectives**

- Transparency vs. complexity
- Practicality vs. thoroughness
- New methods vs. existing practices
- The framework is general, but our development recommendations lean towards
- Transparency
- Practicality
- New methods AND incorporation of existing practices
- Examples:
- To capture ripple effects in broader economy we recommend using a carefully chosen, referenced, range of multipliers NOT a general equilibrium model
- To estimate fares pass-through of costs we recommend choosing a range of scenarios and/or adopting simple constraints like AERO-MS
- For converting FESG forecasts to operations we recommend starting with the MAGENTA approach but modifying it to include new technology aircraft from EDS

## Development recommendations

## Prototype work plan

- Describes steps in first year to develop an APMT Prototype
- APMT Prototype will be constructed to identify gaps or weaknesses in architecture and stimulate advancements in development of APMT
- Objective is to construct all of the functional modules of APMT, although with more limited capabilities than planned for the final versions
- We will then test the functionality of APMT for addressing various policy questions
- We will also assess and propagate uncertainties from the module level to the APMT system level to guide the determination of high priority areas for future development and refinement

## APMT Prototype status

- Team formed:
- MIT+GT+MITRE+Volpe+FAA+Wyle+MVA+BB&C+Vital Link
- Funding received February 6, 2006 ($1.6M, year 1)
- Kick-off meeting February 16-17, 2006
- Schedule is aggressive
- Build functional prototypes of all modules by 3.5 months from program start
- Integrate all modules by 6.5 months from program start
- Component and system-level assessment and detailed plan development of APMT version 1 by 12 months from program start

**AERO-MS developers**

## APMT Prototype milestones and owners finalized

**APMT Prototype milestones and owners finalized**

## Preliminary definition of interfaces and data flows

## A well-qualified international team

*Sponsored by the FAA*

*Participant organizations from the Netherlands, United Kingdom and United States:*

*With members from around the world:*

- BB&C

**Vital Link**
**Policy Analysis**

## Summary

- Desire tools to further enhance understanding of interdependencies and policy options
- Cost-effectiveness analysis (Version 1)
- Benefit-cost analysis (Version 2)
- Development of prototype launched
- Complex, challenging task
- Seeking input and guidance
- Document review by March 31st
- _[http://spacestation.mit.edu/partner](http://spacestation.mit.edu/partner)_
- login=iaw, password=partnerweb
- Seeking collaboration

## Additional charts

## Functional requirements: analysis

**CEA.1 Benefits Assessment**
**CEA.2 Cost Assessment**
**BCA.1 Social Benefits Assessment**
**BCA.1.1 Monetization of Benefits**
**BCA.1.1.2 Benefit categories to be considered**
**BCA 1.1.3 Effect-by-Effect Benefits Analysis**
**BCA.1.1.4 Adoption of existing benefits studies and flexibility to incorporate new work.**
**BCA.1.2 Indirect and Induced Benefits Assessment**
**BCA.2 Social Costs Assessment**
**BCA.2.0.1 Cost categories to be considered**
**BCA 2.1 Direct Primary Market Social Costs Assessment**
**BCA 2.2 Indirect and Induced Social Costs Assessment**
**DA.1 Economic Impact Analysis and DA.2 Equity Assessments**

## Functional requirements: general

**GE.1 APMT-AEDT Interface, Input/Output and Consistency**
**GE.2 Uncertainty**
**GE.3 Sensitivity Analyses**
**GE.4 Policy Baselines**
**GE.5 Time Span for Analysis**
**GE.6 Discounting**
**GE.6.1 Discounting Non-Monetized Effects**
**GE.7 Alternate assessments of risk**
**GE.8 Exogenous Technological Change**

## Guidelines for development and use

**DU.1 Full-disclosure and transparency**
**DU.2 Thoroughness and Practicality**
**DU.3 Engagement of Stakeholders**
**DU.4 Treatment of Non-Quantified Impacts**
**DU.5 Professional Judgment**
**DU.6 Documentation of APMT Development**
**DU.7 Assessment and Improvement**

## APMT Version 1

**APMT Version 1**

## APMT Version 2

**APMT Version 2**

## APMT Version 3

**APMT Version 3**

## Partial equilibrium block

- AEDT

- APMT

- EXTERNAL
- DATA

- Policy Scenarios demographic economic technical
- Measures & Strategies

**Future Air **
**Transport Demand **

**Current Air Transport Data Base**
- Current Schedules, Fleet, & Technology

**Aviation Operations Generator**
- Future Fleet & Schedule

**Aviation Operating & Manufacturer Costs**

- Manufacturer Costs & Profit Assumptions

**Partial Equilibrium**

- Fares Assumption

- Airline Operating Costs

- New (**EDS**)
- Technology

**Partial equilibrium block**

## Benefits valuation block

- EDS

- AEDT

- APMT

- EXTERNAL
- DATA

**Benefits valuation block**