Pricing Carbon in the Aviation Sector: Supply Effects of the European Emissions Trading System
45 Pages Posted: 8 Jun 2020
Date Written: May 13, 2020
We examine the causal impact of carbon pricing on aviation supply exploiting a policy change in the European Emissions Trading system (EU ETS). Our econometric approach is based on a matched differences-in-differences strategy. We find that low-cost airlines end up supplying 7% fewer seats than the counterfactual. When we restrict the estimation to routes on which intermodal competition may exist, the reduction in seats is 23% greater than the counterfactual and the change is persistent in time. Finally, network airlines are found to increase the average size of their aircrafts as a result of the EU ETS.
Keywords: carbon pricing, EU ETS, aviation, climate policy, ifferences in differences, matching
JEL Classification: Q54, D22, L93
Suggested Citation: Suggested Citation