The Behavioural, Welfare and Environmental Impacts of Air Travel Reductions During and Beyond COVID-19

Abstract

By 2050, aviation threatens to become the single largest source of carbon dioxide emissions due to rapidly increasing demand. Given the disruption in air travel due to Covid-19, we are faced with a unique opportunity to examine whether reductions in air travel can be sustained beyond the crisis so as to mitigate carbon dioxide emissions. Analysis of the short-run impact of Covid-19 indicates that large reductions in emissions (41.5% for the whole of 2020) can be achieved with relatively low losses in welfare. However, relative impacts on the poorest income quintile are three times greater than impacts on the richest income quintile; more generally, such a drastic approach to reducing demand is not politically acceptable. Examination of potential longer-term policies aimed at curbing carbon dioxide emissions beyond the lifetime of the pandemic indicates that substantial mitigation can be achieved with minimal impacts on welfare. Results show that, compared with a carbon tax, a frequent flyer levy is almost twice as effective (i.e., half the welfare loss for the same emissions reduction), with little impact on lower income quintiles. Such a levy has the potential to be an effective and politically acceptable environmental policy to curb rising emissions from air travel.

Keywords: air travel, carbon dioxide emissions, COVID-19, welfare impacts, inequality, carbon tax, frequent flyer levy

JEL Classification: D11, D12, D63, D64, Q41, Q51